A possible Grexit was the reason the Dow Jones Industrial Average fell by a whopping 350 points Monday.
Now the markets are in full-blown panic mode that Greece will leave the eurozone, which could conceivably throw the entire financial system in Europe into peril.
The threat of “contagion” is now back, and geopolitical risk has once again reared its ugly head. This is why U.S. stocks crashed on the Greece news.
First, it’s critical to put the Grexit situation into proper context. Greece owes the International Monetary Fund 1.5 billion euros, or approximately $1.7 billion, by June 30.
If $1.7 billion doesn’t sound like a lot of money, that’s because it isn’t. That number seems too small to wipe out such a huge amount of stock market wealth in a single day. But what investors are afraid of is contagion – that the problems hitting Greece can have a broad ripple effect across Europe.
Because of all this, international equities are getting hit hard, as are many U.S. stocks. That’s because the large U.S.-based companies are multinationals with global operations.
Shelter From the Storm
This puts the idea of shelter from the storm first and foremost. For that, it’s useful to research the U.S. companies that do not rely on international revenue. Three such companies that derive nearly 100% of their sales from the U.S. – and also pay high dividend yields – are Altria Group (NYSE: MO), Consolidated Edison (NYSE: ED) and Target (NYSE: TGT).
Altria is the tobacco giant behind the flagship Marlboro brand in the United States. In addition, Altria holds the Black & Mild cigar brand, as well as the Copenhagen and Skoal smokeless tobacco brands. Not only that, Altria also owns a voting stake in brewing giant SABMiller (OTC: SBMRY).
Consolidated Edison is a regulated utility that caters to the Northeast region of the United States, including New York City.
Lastly, Target is a large discount retailer that operates exclusively in the United States.
Not only are these three companies shielded from any possible financial crisis in Europe, but they also offer investors an additional margin of safety through their very high dividend yields. Altria, ConEd and Target currently pay dividend yields of 4.2%, 4.5% and 2.7%, respectively.
Even better, each of these high-yield stocks raises their dividend on an annual basis, thanks to their highly profitable and well-run businesses. For example, over the past five years, Altria has grown its dividend by 8% per year. Looking back further, Altria has increased its dividend 48 times in the past 45 years.
ConEd is the epitome of a slow-and-steady utility. Its earnings per share grew 3% last year and 2% in the first quarter of 2015, thanks to higher rates and lower operating and maintenance expenses.
Going forward, ConEd expects to earn $3.97 per share at the midpoint of its 2015 guidance, which would represent 6.5% year-over-year earnings growth. This is a very strong growth rate for a utility.
Meanwhile, Target recently increased its dividend by 7.7%, which represents its 41st consecutive year of a dividend increase. Along with the dividend raise, it also added $5 billion to its share buyback program, effectively doubling its share repurchase plan.
Target’s comparable-store sales grew 1.3% in 2014, and then rose 2.3% in the first quarter of 2015. Its adjusted earnings per share grew 14% in the fourth quarter and 19% in the first quarter, year-over-year, which allowed the company to announce a major increase to its capital return program.
What makes these three stocks unique is that they each derive 100% of their revenue from North America. They do not have operations in Europe (or anywhere else internationally for that matter). This means that even if Europe enters a deep financial crisis, these companies’ profitability will not be impacted. And they also pay very high dividend yields – and grow those dividend over time.
This article is brought to you courtesy of Bob Ciura from Wyatt Research.