4 Stocks To Safeguard You From A Market Crash

Fear is running high in the stock market and for good reason. Storms are brewing in the global economy, and the six year U.S. bull market is in jeopardy. Take refuge in these four stocks to protect your wealth if the market turns south.

It wasn’t a crash or cyber attack that shut down the New York Stock Exchange for close to four hours last week, but a technical glitch. I’m not sure whether that’s reassuring or not, however.

Regardless, there’s plenty to worry about in the investing scene and the fact that the largest stock market in the world goes offline amidst a week of rising global uncertainty should raise some red flags. This comes as the stock market is well into its sixth year of a bull run, so everyone is on edge already.

Adding fuel to the fire is the fact that China’s stock market is in shambles, with over half the companies having suspended their stocks from trading. The securities regulators can’t seem to stop the hemorrhaging, having banned major shareholders from selling shares for at least six months. Still the Shanghai index is down close to 20% over the last three weeks.

Even the beaten down oil trade isn’t working, and this is amidst a summer driving season when demand should be highest. West Texas Intermediate crude has fallen close to 20% over the last three weeks. But avoiding oil isn’t enough, the entire commodity space is on pins and needles.

This pressure can once again be traced back to China and Greece. An economic slowdown in China is bad news for oil demand and the threat of a Greece exit from the eurozone has the entire European continent on its heels. In fact, commodities in general are in a very uncertain territory. China is the number two buyer of oil in the world, but the number one buyer of industrial metals. And even with Greece potentially staying in the eurozone, there’s still a lot of uncertainties over the long-term fix.

With all this, there’s already been a flight to safety, as investors flock to U.S. government debt, forcing down Treasury yields. But there’s still safety to be found. Notably, among high and stable dividend payers.

It pays to focus on those with a history of dividend payments. Specifically, if things do start to go downhill in a hurry, you’ll need a company that can maintain its payout.

The last time we heavily recommended dividends was April, when big pharma and regional banks were the standout flight to safety choices. The highlights from back then were the likes of Merck (MRK) and Bristol Myers (BMY) on the pharma side, and BB&T (BBT) and PNC (PNC) in terms of regionals. All four have held up well over the last three months while the market has drifted lower.

With all that in mind, let’s stick to a similar trend, with a focus on U.S. stocks and away from China and Europe (for the most part). And it wouldn’t hurt to keep the exposure to oil at a minimum too. So, here are the top 4 flight to safety stocks:

Flight to Safety Stock No. 1: AT&T (T)

AT&T pays a hefty 5.4% dividend yield and has 30 years of paying dividends under its belt. The reach of AT&T across individual and business customers is impressive. But the real value of AT&T is its network, which would take a lot of capital to replicate.

Then there is the pending DirecTV acquisition, which will make AT&T a wireless and TV giant. There will be a lot of cross-selling opportunities with this deal. And AT&T is already making a move to tap into the faster growing markets, with an entry into Latin America and the purchase of two wireless companies in Mexico.

Flight to Safety Stock No. 2: American Electric Power (AEP)

American Electric Power is already benefiting from the flight to safety play, with shares up 3% over the last three weeks. The S&P 500 is off 3% over the same period. The business isn’t sexy, operating as a utility, but the dividend is robust and stable, currently yielding 3.8%. It’s paid a dividend for 45 years now.

It does have more upside than your typical utility, however. The company is doing a strategic review and could divest unregulated businesses to keep any volatility related to commodity pricing nonexistent.

Flight to Safety Stock No. 3: JPMorgan Chase (JPM)

JPMorgan pays a 2.7% dividend yield, which is one of the best in the entire banking industry — and paying a dividend for 31 years now. It also doesn’t hurt when you have valuation support. With JPMorgan, the stock is trading at just 1.1x book value and around 10x next year’s earnings estimates.

JPMorgan is an international operator, but loan wise, it only has about $17 billion at risk in China, versus its $2.6 trillion asset base. It’s historically done a notable job of managing credit losses and it could take market share from troubled European banks as the Greece shenanigans create an opportunity.

Flight to Safety Stock No. 4: Pfizer (PFE)

This is a key pharma play, with a 3.3% dividend yield and 42 years of paying a dividend. It also happens to be the largest pharma company in the world, with a market cap of over $200 billion. With such a large company comes inherent diversification across products.

But it’s still not too big to grow, with an acquisition of Hospira pending, which will boost its presence in generic injectables. The other, rather interesting, angle to the Hospira purchase is that it further beefs up Pfizer’s established pharma unit, which could mean the drug giant is prepping for a split in the near future.

In the end, when I talk stable dividends, I’m talking the biggest and best players in a given industry. The big four dividends above are just that. And while completely insulating yourself from the international drama playing out is nearly impossible, you can do a great deal to help mitigate the uncertainties.

Stocks like these should be a majority of an average investors’ portfolio at the present time. Although not nearly as exciting as finding the next rocket in the small biotech sector; they will not suffer massive declines should the market finally provide an overdue pull back during the summer.