3 Defensive Stocks Offering Safety, Yield In A Turbulent Market
The world can be a scary place to invest these days. Greece can’t pay its debts, Russia is a mess, China’s stock market is quickly falling back to earth after a meteoric run-up and Brazil is still dealing with the fallout of a massive corruption scandal involving dozens of politicians and its state-controlled oil company Petrobas S.A. (NYSE: PBR).
The global challenges are leading many investors to seek out the relative safety and stability that large North American companies offer, especially those that have a primarily domestic focus. Here are three companies that operate almost entirely in the United States that provide stability, yield and growth.
The Hershey Co. (NYSE: HSY) is almost certainly familiar to nearly every U.S. consumer as a leading purveyor of chocolate and other snacks. The company has been in business since 1894 and does 82% of its business in the United States. Hershey is at the top of the U.S. confectionary market with 31% market share.
Despite operating in a slow-growth market, Hershey is able to leverage its tremendous brand loyalty and pricing power into a compounded annual earnings growth rate of more than 7% per year over the past 10 years. In that time, Hershey has successfully generated higher revenue every single year.
This legendary earnings stability usually causes Hershey to trade at a significant premium to the market. Luckily, shares have come down in price over the past six months and now trade at their lowest price-to-earnings level in years.
Hershey is the type of blue-chip company you can buy and forget about, knowing your investment is safe and will grow steadily for years to come.
Investors don’t equate the name “Enron” with safety and reliability, but out of Enron has come one of the most dominant energy companies in the United States. Kinder Morgan, Inc. (NYSE: KMI) is a mid-stream energy company specializing in the transport and storage of natural gas and crude oil. The company owns more than 84,000 miles of pipelines crisscrossing the United States.
Source: Kinder Morgan Investor Relations
Kinder Morgan’s earnings are not affected by the daily gyrations of the price of oil; its business model is one of a toll booth operator, collecting a small fee on the amount it transports. However, it is indirectly exposed to oil prices because when oil prices fall, exploration and production companies produce and transport less.
Worries about its debt load have pushed the share price down 15% from its highs. The debt load is high, but manageable. Its business is safe as long as people need oil to power their cars and natural gas to heat and cool their homes.
Kinder Morgan pays a 4.9% dividend yield and has guided for 10% dividend growth per year through 2020. CEO Richard Kinder thinks shares are a bargain. He just purchased $40 million worth of shares on the open market at shares prices above current levels.
Union Pacific Corp. (NYSE: UNP) operates more than 50,000 miles of railroad track in the western United States, Mexico and Canada. This 150 year-old company has survived and thrived through myriad crises and emerged as strong as ever.
Union Pacific has numerous competitive advantages that will make it nearly impossible to displace. It operates in a near duopoly with BNSF Railway for rail traffic in the western United States and is the dominant player for rail shipments between the United States and Mexico.
Over the past 10 years, Union Pacific has grown earnings more than 22% a year and pays a 2.3% dividend yield. Rail is the most efficient means for transporting goods, and Union Pacific will continue to grow as the economies of North America grow.
Risks To Consider: In the short run, each of these companies have headwinds to face. Hershey is dealing with an increasingly health-conscious consumer. Kinder Morgan has a high debt-load to pay down and Union Pacific is dealing with declining volumes in its oil and coal transporting business.
Action To Take –> Businesses are always working through challenges. These are three great companies that dominate their respective industries and have an excellent record of protecting and growing shareholder wealth. Of the three, Hershey is the company I’m buying now. It is rarely this cheap, has a simple business with a fantastic brand and has delivered 13% annual returns over the past 30 years. It’s a perfect stock to buy and own forever.
If you’re looking for solid investments that you can buy, hold and virtually forget about — no matter the season — then look no further than StreetAuthority’s list of “The Top 10 Stocks For 2015.” Since we first began publishing this annual research report in 2003, our picks have beaten the overall market eight out of 12 years, including years with average gains of 37%… 38%… and 39%. For comparison, the S&P 500 gained more than 30% in just one year since 2003. To learn more about this list of elite companies, click here.