2 Safe-Haven Stocks to Buy in This Volatile Market
When events like the Brexit vote throw world markets into a tailspin, investors generally flock to safer investments and treat stocks warily.
However, some classes of equities such as utilities, defense, and blue chips tend to weather economic storms better than most. They preserve capital long term and reward investors with consistent dividend payments.
Procter & Gamble (PG) - Get Report and Johnson & Johnson (JNJ) - Get Reportare two such stocks that can provide an investment portfolio with insulation from economic shocks. Both companies produce high-demand goods and services. They have a history of providing solid dividends.
To be sure, both companies have faced challenges and have had to make changes. P&G has sold brands that while high-profile at one time were struggling. J&J will soon be presenting 10 products for federal approval. But they are solid investments that are unlikely to fade severely amidst economic uncertainty. Both stocks finished up slightly in Tuesday trading.
Procter & Gamble
The home and personal care products company, Proctor & Gamble has been a household name for decades with brands such as Gillette, Pampers and Tide.
With a dividend yield of over 3% and a strong history of dividend growth for close to six decades, P&G is a good choice for investors looking for income.
P&G has been struggling to grow over the past few years, and its size is not making things easier to shift its direction. The company has a market cap of over $225 billion.
However, it has take some steps to become a leaner, move innovative company that can maximize value for shareholders.
P&G has already shed struggling brands like Clairol and Covergirl to rival Coty for $12.5 billion in 2015 and hopes to cut costs by another $10 billion.
In doing so, the company is supporting its earnings per share (EPS) but forgoing revenues from brands. The beauty business that P&G sold contributed revenues of $5.9 billion.
While P&G is sticking with its strategy of selling brands to focus on those that generate handsome returns, it is also looking to become more innovative. Recent examples of the company's success in becoming more innovative include Tide Pods, and the Gillette Fusion Razor, both of which individually contribute over $1 billion in annual revenues. With other brands like Pampers Swaddlers on track to reach this mark, P&G may do better than its recent trend of 1%-2% organic growth in revenues.
Most importantly, P&G's products are daily, household staples. Regardless of the economic situation, people won't stop shaving or doing laundry.
Johnson & Johnson
Although synonymous with baby care products, 80% of Johnson & Johnson's revenues come from its pharma and medical device divisions.
Pain medication Tylenol, Type 2 diabetes medication Invokana and blood cancer drug Imbruvica are well-established names. Enhancing its portfolio, J&J plans to send 10 new drugs for approval by 2019. Management believes that each of them can garner at least $1 billion in annual revenues.
Another trend that will work in favor of J&J's medical device and pharma divisions is the aging U.S. population that will need such products. While the U.S. Census Board estimates that a number of elderly in the U.S. could nearly double from 2012 to 83.7 million by 2050, those aged 85 and above could more than triple.
The company has provided a better return on assets and equity than its competitors. With a return on equity of 21.9%, J&J beats such competitors as Pfizer (11.6%), Merck (10.1%), and Eli Lilly (15.5%).
Having reached an all-time high recently, J&J stock has rewarded investors handsomely. But the company has also rewarded investors through consistent dividend growth.
Johnson & Johnson has been growing dividends for 53 years, and with a current payout ratio of 54.%, has plenty of headroom to continue that trend. Its current yield stands at 2.64%.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.