U.S. Markets close in 1 hr 7 mins

Trade War Flares Up! These Dividend Stocks Remain a Hedge

Tirthankar Chakraborty
Full-fledged trade war could hurt business growth, spending and sentiment. In the wake of this, investing in companies that pay consistent dividends can make for wonderful investments.

President Trump’s latest move has reignited fears about escalating tariff spats between the United States and its international counterparts. This has limited stock gains despite an earnings season that is shaping up quite well.

Trump is ready to impose tariffs on all imported Chinese goods and has stood by his resolve to levy duties on European automobile imports.

A full-fledged trade war could hurt business growth, spending and sentiments. In the wake of this, investing in companies that pay consistent dividends can make for wonderful investments. Such companies are financially stable and mature, and can generate steady cash flow irrespective of market conditions.

Trump Ups the Ante in the US-China Trade War

Trump recently said that he is willing to impose tariffs on all $505-billion Chinese goods imported to the United States. The President told CNBC’s Joe Kernen in a Squawk Box interview that “I’m ready to go to 500.” He added that he is not “doing this for politics. I’m doing this to do the right thing for our country. We have been ripped off by China for a long time, and I told that to President Xi.”.

Trump’s comments do reveal that he will push further to get Chinese tariff concessions, and a pledge from the Chinese officials to stop the alleged stealing of American technology.

The President had earlier accused the Asian nation for intellectual property theft and slapped 25% tariffs on about $34 billion of Chinese mechanical and technological products. This, in turn, irked the Chinese government which said it would hit back. China’s Commerce Ministry commented that “China is forced to strike back to safeguard core national interests and the interests of its people. It accused the United States of typical trade bullying”.

Trump Threatens Tariffs on European Car Imports

Trump, in the meantime, stood by his commitment to impose sweeping tariffs on imports of European cars and car parts. Tariffs worth around 50 billion euros a year may be levied on auto dealers and auto-parts manufacturers.

Trump warned “tremendous retribution” against the EU, especially regarding auto tariffs, provided his upcoming meeting with EU officials doesn’t yield any fruitful outcome. The EU, in the meanwhile, expressed concern that Trump’s initiative to extend his trade war to imported cars will have a negative impact on the global economy.

Capital Spending to Decline, Profit Margin Takes a Hit

The tit-for-tat trade tariffs being applied by the United States, Chinese government and the EU will affect capital outlays by American companies this year. Spending will reduce further next year, which may indicate the late-stage of the business cycle and eventually squeeze corporate profits.

Fitch Group Credit Officer for U.S. companies, Bill Warlick said that “the escalation of the trade dispute and the notable absence of constructive negotiations point to a continuation of trade-related uncertainty for U.S. businesses through the second half of the year.”

Fitch expects around 3% growth in aggregate capital spending this year, which will be half the growth recorded last year. The rating agency, in fact, fears that spending will be a negative 0.8% next year, mostly due to delays in capital projects.

Investors Remain Cautious on Trade War Fears

A closely watched survey of investor sentiment, by the way, showed a significant rebound in caution last week. According to the AAII Investor Sentiment Survey, nearly 34.7% of investors were optimistic about the U.S. stock market.

These investors expect stock prices to scale north in the next six months. But, the figures do represent a drop of 8.4% from the previous week. Such a decline was enough to pull the reading below its long-term average of 38.5%. 

Buy These 5 Dividend Stocks Now

With trade concerns plaguing investors’ minds, dividend paying stocks are tempting options at the moment. The best dividend stocks pay out a healthy yield and have strong prospects, and are less susceptible to market gyrations. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.

While finding companies that offer these traits isn’t easy, they certainly do exist. To help you find these businesses, we have selected five dividend payers who have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

NuStar Energy L.P. NS engages in the storage, and marketing of petroleum products in Texas. The company has a Zacks Rank #1. NuStar Energy has a dividend yield of 9.6%, while its five-year average dividend yield is 9.8%. The Zacks Consensus Estimate for its current-year earnings rose 0.6% in the last 60 days. The company’s projected earnings growth rate for the current year is 182.8% compared with the Oil and Gas - Production Pipeline - MLB industry’s estimated rally of 14.7%.

Martin Midstream Partners L.P. MMLP transports, stores, and markets petroleum products and by-products in the United States Gulf Coast region. The company has a Zacks Rank #2. Martin Midstream Partners has a dividend yield of 14.5%, while its five-year average dividend yield is pegged at 11.4%. The Zacks Consensus Estimate for its current-year earnings rose 1.6% in the last 60 days. The company’s projected earnings growth rate for the current year is 40.9% compared with the Transportation - Shipping industry’s projected rally of 8.5%.

CVR Refining, LP CVRR operates as an independent petroleum refiner and marketer of transportation fuels in the United States. The company sports a Zacks Rank #1. CVR Refining has a dividend yield of 8.8%, while its five-year average dividend yield is pegged at 11.5%. The Zacks Consensus Estimate for its current-year earnings rose 2.3% in the last 60 days. The company’s projected earnings growth rate for the current year is 263.3% compared with the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry’s estimated rally of 13%. You can see the complete list of today’s Zacks #1 Rank stocks here.

CONSOL Coal Resources LP CCR produces and sells high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States. The company has a Zacks Rank #2. CONSOL Coal Resources has a dividend yield of 13.6%, while its five-year average dividend yield is 14%. The Zacks Consensus Estimate for its current-year earnings rose 7.8% in the last 60 days. The company’s projected earnings growth rate for the current year is 41.8% compared with the Coal industry’s estimated rally of 8.5%.

AllianceBernstein Holding L.P. AB is a publicly owned investment manager. The company has a Zacks Rank #2. AllianceBernstein has a dividend yield of 9.8%, while its five-year average dividend yield is 8.1%. The Zacks Consensus Estimate for its current-year earnings moved up 2.4% in the last 60 days. The company’s projected earnings growth rate for the current year is 13.1% compared with the Financial - Investment Management industry’s projected rally of 5.2%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.     

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.  

See the pot trades we're targeting>>                                   


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Martin Midstream Partners L.P. (MMLP) : Free Stock Analysis Report
 
CVR Refining, LP (CVRR) : Free Stock Analysis Report
 
Nustar Energy L.P. (NS) : Free Stock Analysis Report
 
AllianceBernstein Holding L.P. (AB) : Free Stock Analysis Report
 
CONSOL Coal Resources LP (CCR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.