In a historic referendum, Britain voted to leave the European Union, a decision that shocked global financial markets. Earlier last week, the sterling and stocks had rallied strongly on hopes of a Remain vote. The pound got hammered to a 31-year low and stocks plunged after the results.
For the UK, it’s going to be a long road to final separation from the EU and it may not exit intact from the union. Scotland, which strongly voted for Remain, may now hold a vote for secession from the UK. (Read: Gold ETFs Shine on Brexit Woes)
We should now brace for a prolonged period of heightened volatility as the market digests the debacle. One near-term impact would be a higher US dollar as nervous investors pull money out of European assets and pour money into “safer” US assets.
The European Union is our largest trading partner—accounting for about 20% of our exports– and if the zone experiences an economic slowdown from Brexit, it could impact the US economy. Further, business investment is likely to suffer as managements tend to postpone major investment in uncertain environment. (Read: Should you play these overvalued sector ETFs?)
However, the US economy will likely weather this storm. Several times in the recent past, global headwinds—emanating from Europe and China—have caused turmoil in the US market but each time the market rebounded strongly as investors realize that our domestic economy continues to recover slowly but steadily. And with interest rates now expected to stay lower for longer, the outlook for US companies remains positive. Also, while Britain is the fifth largest economy in the world, it accounts for less than 4% of global GDP.
If you’re a long-term investor and can tolerate short-term gyrations in the portfolio, this is your opportunity to buy from the bargain basement. Look for high quality US companies with no or very low exposure to Europe that have been unfairly punished in the aftermath of the referendum. Stable companies with consistent revenue and dividend growth are excellent investments in the current uncertain market environment. (Read: High Quality Dividend Stocks & ETFs for Uncertain Markets)
AT&T is a Zacks Rank #2 (Buy) stock with very little exposure to the UK. Telecom stocks are popular due to their juicy dividend yields and defensive nature. AT&T is a dividend aristocrat with more than 30 years of consistent dividend growth. Their current dividend yield is 4.6% and they distribute about 70% of their free cash free as dividends.
The company had reported strong results for Q1, beating on both top and bottom lines.
B&G Foods (BGS)
BGS is a food products company with a huge portfolio of well-known brands. They manufacture and market processed and packaged foods across the United States and Canada. Economic and political woes in Europe do not impact them.
The stock has a juicy dividend yield of 3.55% as of now. Earlier this year they increased their quarterly cash dividend by 20%. This was 46th consecutive quarterly dividend since their IPO in October 2004.
BGS is a Zacks Rank #1 (Strong Buy) stock.
SPDR S&P Homebuilders ETF (XHB)
Homebuilders are domestically focused. A strong US dollar and European economic headwinds do not directly impact them. Further, as the Fed is now expected to stay on hold for quite some time, mortgage rates continue to slide. Ultra-low mortgage rates and a tightening jobs market are good for the housing sector.
XHB is a Zacks Rank #2 (Buy) ETF. It holds about 37 homebuilding companies in equal weights.
Vanguard REIT ETF (VNQ)
REITs are required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends. An improving economy and low interest rates make REITs particularly appealing to investors. In addition to income and growth, REITs also add diversification benefits to a portfolio.
VNQ holds a diversified portfolio of 153 REIT companies that invest in office buildings, hotels, and other real property in the US. The product charges 12 basis points in annual expenses and the dividend yield exceeds 5% as of now. XHB is a Zacks Rank #2 (Buy) ETF.
S&P MidCap 400 Dividend Aristocrats ETF (REGL)
Dividend growth strategies have been very popular this year but mid-cap space has been slightly overlooked by investors. This ETF presents an excellent way to tap that overlooked area with great potential. REGL equal weights its portfolio, which largely reduces company specific risks.
REGL focuses on companies that have increased dividend payments each year for at least 15 years.
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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 AT&T INC (T): Free Stock Analysis Report B&G FOODS CL-A (BGS): Free Stock Analysis Report SPDR-SP HOMEBLD (XHB): ETF Research Reports VIPERS-REIT (VNQ): ETF Research Reports PRO-SH SP400 DA (REGL): ETF Research Reports To read this article on Zacks.com click here. 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