3 DIVIDEND STOCKS THAT MIGHT BE SAFER THAN TREASURY BONDS, PART I

Question: What is more nauseating than a roller coaster ride, but not nearly as much fun? 

Answer: Financial Markets since Donald Trump’s “Liberation Day” in early April. 

In just a few short weeks, stocks have tumbled, and then rebounded, only to do it all over again, with alarming regularity. In fact, early April’s tumultuous stock valuations have set historical records for rapid fire volatility. 

Even more disturbing, to many, is the irregular movement of US Treasury Bond yields. Looking decades into the past, whenever economic uncertainty has reared its ugly head, US Treasury Bonds have risen in value, while yields have fallen. This phenomenon was called “flight to quality,” meaning investors worldwide would automatically run for shelter in what was seen as the safest asset out there: US Government Debt. But this time, the exact opposite reaction occurred, with terrifying speed….US bond prices fell, while yields skyrocketed. Many pundits and analysts believe this means that, at least for now, US Treasury yields, denominated exclusively in US dollars, have lost credibility and the perception of safety “no matter what” has been shattered.

So, if good old US Treasuries are not even safe…..then what is? 

Let’s consider how we find dividend stocks that might be even more safe that US Treasury Bonds. 

In our next post, we will identify three specific stocks that meet these criteria. 

By the Sick Economist 

If we are looking for a treatment for a disease, first it really helps to understand what is causing the disease. So let’s look at the factors that are causing international markets to suddenly doubt once stalwart assets like US Treasury Bonds.

Massive Government Debt & Deficit, and the DOGE effect.

It’s easy to blame our current problems on Donald Trump, but that wouldn’t be quite fair. Trump could best be seen as the match that lights an already dry and unkempt forest ablaze. Trump’s erratic behavior might be the spark that lights the fire, but the dangerous pre-conditions have been created by every American government going back decades. 

Our nation is currently somewhere near $36 trillion dollars in debt. I say “somewhere” because the debt grows by some $3.6 billion dollars per day. Not only is our nation deeply, deeply in debt, but we just keep sinking deeper in the hole, day by day, year by year, no matter who is president. American Society itself is currently set up in a way that is unsustainable on a fundamental level. 

Into this environment enter human wrecking ball and public relations nightmare Elon Musk and his unruly cast of DOGE characters. While many see Elon as a hero for at least attempting to address our government’s out of control borrowing and spending, many more see his methodologies as erratic, unpredictable, and not particularly effective. 

So, Trump, or no Trump, we have a nation living way, way past its means, and the only one who seems to be doing anything about it is an eccentric, erratic billionaire who may be on drugs. 

It is any wonder that savvy investors around the world are becoming wary of lending us even more money? 

Breakdown in International Commerce & International Friendship

Whether Trump’s tariffs are fair is beyond the scope of this piece. But what is crystal clear is that many long dormant international hostilities are now suddenly bursting to the surface. Whether tariffs are at 10%, 100% or 1000%, many nations may simply stop buying American goods and services because they have suddenly fallen out of love with the United States. The same may be true the other way around. JD Vance made some notoriously offensive remarks about Europe and China, but he may well be giving voice to millions of Americans who were previously unheard.  

The bottom line is that many American multinational corporations that derive large quantities of revenue from international operations may suddenly be facing new barriers and, at the very least, a crisis of confidence. Likewise, many foreign investors may now be reluctant to loan money to an American government that they now view as hostile. 

Potential Pullback in Discretionary Spending 

For the astute investor, it already feels like it’s been months since Trump unveiled his new world order of international trade. In fact, it’s only been a few weeks. Many simply feel exhausted by the blizzard of contradictory news constantly pouring out of the Whitehouse. Will tariffs be 10%, or 110%?  What will be affected, when, and by how much? 

Simply put, nobody knows. Many even feel that Trump and his own team don’t know. This is bound to amplify feelings of uncertainty, and business people hate a game with rules that are constantly changing. This kind of chaos has a strong tendency to freeze investments, both large and small. 

Large companies may choose to pause planned investments in factories, inventory expansion, or research and development. On a smaller scale, but perhaps even more important, millions of American families will cancel planned vacations, scale back home renovation projects, and start eating at home instead of going out to expensive restaurants. 

It’s too early to tell exactly how all of the volatility and mercurial press releases will affect corporate profits, but a confused and scared American consumer rarely helps large, publicly traded corporations reach their sales goals.

Qualities of Safe Stocks in a Fearful World 

No doubt at all, investors face a rough landscape, filled with many formerly high flying stocks that suddenly look like they’re headed for a painful crash. So, given the rapidly deteriorating environment, what does a “safe stock” even look like? 

The company must be very resilient, even if America enters a deep recession. 

When the economy really sours, people are losing their jobs, and watching their investments tank, they typically cut back on spending. Everything other than the essential becomes vulnerable to spending cuts. So, we need to be looking for well established companies that sell basic items that Americans need to live. Nothing fancy, nothing futuristic, just very basic items that are hard to live without. 

The company must be highly resistant to inflation. 

Nobody has a crystal ball, but many analysts feel that painful inflation is almost inevitable if Trump’s tariffs stay in place. Even in the cases where Trump has backed down, he has still left a minimum 10% tariff in place. Very likely that this will get passed on to consumers, sooner or later. You may remember that, during the worst of the post Covid inflation ordeal, millions of Americans were screaming in pain when inflation hit 8%. So even 10% across the board tariffs could demolish many corporate revenue goals as consumers simply stop buying. We need to look for companies with pricing power, companies that dominate a niche to such an extent that they can just raise their prices at, or even above, the rate of inflation, whatever that rate may become. 

Do Most Business in the USA 

Whatever the outcome of the current ball of confusion, one thing seems clear: the era of easy profits abroad is over. The era where a large American company could easily move goods, people and finance from country to country with a few strokes of a pen is just over. So, the smart investor today is looking for American companies that primarily do business in America. 

Low Debt

When an individual, or an entity runs into hard times, one huge determinant of their ability to weather the storm is: what kind of condition were they in before the ordeal started? As a general rule of thumb, companies that carry heavy debt loads are much more vulnerable to revenue downturns and economic shocks. Given the dark storm clouds currently swirling around the American economy, now would be a good time to seek out firms with little debt on their books. 

Low Dividend Payout Ratio 

A dividend is not a debt. Most corporations, most of the time, are not obligated to continue paying a dividend if they run into financial difficulties. However, it certainly doesn’t help the stock price if a dividend must be cut. And it may well support the stock price, even through tough times, if the company can continue growing its dividend while rivals are cutting their own payout. 

One way to determine the safety and stability of a company’s dividend is by examining the dividend payout ratio. Companies with a low dividend payout ratio can easily afford their current quarterly dividend, and are likely to maintain that dividend, even if revenue and profit temporarily decrease due to a recession. Additionally, if the stock price languishes for an extended period due to a general economic malaise across America, a growing dividend, despite hardship, can really be a diamond in a portfolio that has largely turned to coal. So today’s wise investor seeks out companies that are in a strong position to keep growing their dividend. 

Given our currently tempestuous situation, and the criteria for safety laid out above, what three dividend stocks seem steady in a world that is rapidly falling apart? 

We will reveal three specific names in our next post.