Congressional leaders yesterday (Tuesday) finally settled on a debt deal, but the ineffective compromise is not enough to prevent a blow to the U.S. markets and the dollar – meaning it's time to preserve your wealth with large-cap dividend stocks.
While the coming period of market uncertainty could be a great opportunity for rational investors to explore newly created investing options, there must also be a focus on wealth preservation.
To that end, Money Morning Contributing Editor Shah Gilani joined FoxBusiness' "Varney & Co." programTuesday to explain why the debt-ceiling deal's weakness makes defensive investing with large-cap dividend stocks imperative.
"The sideshow may be over, but there's no agreement on paring down our debt," said Gilani. "The problem isn't going to be fixed by just cutting spending."
Indeed, investors remain exposed to the fragile U.S. economy and volatile financial markets.
"To be safe in these uncertain times I like a simple well-rounded and ‘tight' portfolio," said Gilani. "I like the new stuff, but in times like these I also like to be defensive – better safe than sorry."
The Best Offense is a Good Defense
The poor U.S. fiscal outlook is just one of the dangers looming in the markets.
High unemployment also is expected to linger for years. The U.S. Labor Department's jobs report to be released Friday likely will increase market gloom and doom – especially if it June's abysmal showing was the start of a new trend.
"Even if we get 100,000 [jobs added] I don't think that really is meaningful," said Gilani. "I think we might see a slight improvement, but I think we're going to have to see consistent improvement over the months ahead and the quarters ahead for it to be meaningful… and you're not going to see that any time in the near future."
Gilani sees the potential for a huge market sell-off coming down the road as more dismal economic data is released.
"Markets have not seen any panic," he told "Varney & Co." host Stuart Varney. "The numbers that have come out from the government statistics side, they're very discouraging – and I think that's an optimistic put on it."
Recent "discouraging" numbers include U.S. gross domestic product (GDP), which increased by a paltry 1.3% in the second quarter. Additionally, U.S. manufacturing in July grew at its slowest pace in two years, according to a report released Monday by the Institute of Supply Management.
The markets have dipped a bit recently and Gilani thinks there's still some time before the start of a correction. But this is a reminder to be aware of what's in your portfolio and the protective stops you have in place to save your gains should a bigger sell-off gain momentum.
"I'm even increasingly more defensive given what the market has done lately," said Gilani. "I don't think this recent approximate 5% pullback is anything more than that; I don't think we are even close to correction territory, which we could get into, so I like to be defensive."
The Best Large-Cap Dividend Stocks
The looming correction means sticking to big-name large-cap stocks that pay dividends, have global growth prospects, and "cover the major bases in the game of life," said Gilani.
"What they all have in common is big dividends and the cash to support them," he said. "They have fortress or sovereign-like balance sheets, international exposure and opportunity, and they are giants in their fields."
Some big names to consider include:
- Raytheon Co. (NYSE: RTN), for its 3.8% dividend yield and defensive/homeland security exposure.
- ConocoPhillips (NYSE: COP), for its 3.7% dividend yield and oil/gas refining exposure.
- PepsiCo Inc. (NYSE: PEP), for its 3.2% dividend yield and for its inexpensive food and beverage exposure.
"I would dollar-cost average into all of them, especially if they decline should the market as a whole correct," said Gilani.
These are just a few of the companies Gilani recommends as the best defensive plays. Gilani shares more large-cap dividend stocks you should be looking at in his newsletter, the Capital Wave Forecast, which you can learn more about by clicking here.
News and Related Story Links:
- Varney & Co.:
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Stock-Market Survival Strategies: Why Raytheon is a "Must-Own" Profit Play - Money Morning:
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Is there any mutual fund that invests in large-cap dividend stocks?
I'm 100% invested in dividend producing stock in my equities account, such as RAI and J&J, but I do have investments in Vanguards total bond as a back up to the stocks. Both accounts are of approximate equal value. I also have a small amount in low interest CD's and cash. I'm retired and approaching the date of my mandatory withdrawals…..any advice or suggestions anyone?