U.S. financial markets are off to a rousing start in 2012 with the Dow up 5.5%, the S&P 500 up 7.1% and the Nasdaq notching a YTD gain 11.5% (as of Feb 3, 2012). What's behind these gains? Investors are starting to believe that a recovery is underway in the domestic economy, forward looking statements from big cyclical companies like Caterpillar (CAT) suggest that the emerging economies are back in growth mode and lately, the blowout quarter from Apple (AAPL) and prospects for the Facebook IPO have ignited the tech sector powering the Nasdaq average higher.
Perhaps you're not quite convinced that it's OK to hoist the all clear flag. Maybe you think that before the history is written for 2012 we will suffer a setback thanks to the Euro crisis. Yes, the ECB has stepped in to address liquidity concerns for the European banks but you're not ready to concede that the crisis has been averted and that it won't affect the US economy.
But you're a dividend investor and want to be invested. However, you also want a measure of downside protection. I would suggest that you could do no better than to look to the only AAA rated companies in the US: Automatic Data Processing (ADP), Exxon Mobil (XOM), Johnson & Johnson (JNJ) and Microsoft (MSFT). Yes, the AAA rating relates to the debt of these companies reflecting the sterling nature of their balance sheets, but it is a noteworthy factor when looking for rock solid businesses.
Company | Price | Yield | 2011TR |
Automatic Data Processing | $55.51 | 2.85% | 19.89% |
Exxon Mobil | $84.92 | 2.21% | 18.45% |
Johnson & Johnson | $65.90 | 3.50% | 9.67% |
Microsoft | $30.24 | 2.65% | -4.55% |
SPY | $134.54 | 1.96% | 2.11% |
ADP
ADP provides payroll processing, human resources and retirement plan services for businesses around the world. As the employment picture improves in the US, ADP will benefit. And when interest rates begin to return to growth levels, the company will see increased earnings from their substantial float. Check this Seeking Alpha article for a more detailed look at ADP.
Market Cap: $27.9B
Forward P/E: 18.7
5 year dividend growth rate: 13.4%
2012 YTD: 2.78%
Exxon Mobil
This integrated oil and gas behemoth has exploration, production and refining operations around the world. The company earns consistently high returns on equity and on invested capital. The stock price is barely above flat line so far this year but it saw a very respectable 18.45% return for 2011. Check out this analysis of Exxon's 4th quarter 2011 earnings report.
Market Cap: $413.8B
Forward P/E: 10.4
5 year dividend growth rate: 5.84%
2012 YTD: 0.2%
Johnson & Johnson
J&J is the world's most diverse health care company. You can think of it as a health care mutual fund representing pharmaceuticals, medical devices and diagnostics, and consumer products. Even though the bottom line has lagged recently due to litigation and product recall related charges, the company has a diverse revenue stream, a strong pipeline of drugs in late stage development and a 49 year history of dividend increases. This article on Seeking Alpha provides an earnings recap for the 4th quarter.
Market Cap: $179.4B
Forward P/E: 12.0
5 year dividend growth rate: 6.50%
2012 YTD: 0.1%
Microsoft
The stock of the PC software giant has turned in one of the best performances among the DOW components with a 16.49% gain thus far in 2012. With a 5 year average growth in earnings per share of 17.5%, investors are starting to believe the MSFT will continue to deliver and perhaps accelerate with Windows 8 giving them a better presence on mobile devices. And with a payout ratio under 30% we can expect to see continued growth in the dividend. For a more detailed look at valuation refer to the article on Seeking Alpha.
Market Cap: $256.2B
Forward P/E: 10.2
5 year dividend growth rate: 13.25%
2012 YTD: 16.49%
Please do your own research prior to making any investment decision. This article is not a recommendation to buy or sell any security and is the opinion of the author.
Disclosure: I am long JNJ.
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