The Best American Companies to Invest in will share these key qualities

If you want to find the best American companies to invest in, then you need to start looking for blue chip stocks that have a history of paying dividends

Our view is that virtually all Canadian investors should have 20% to 30% of their portfolios in U.S. stocks—and the best American companies to invest in will all share similar characteristics. Here are the key ones:


True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.




The best American companies to invest in will pay dividends

We believe investors will profit most, and do so with the least risk, by buying shares of well-established, dividend-paying stocks with strong business prospects—and this applies to American stocks as well.

The best companies to invest in for dividends have strong positions in healthy industries. They also incorporate strong management that makes the right moves to remain competitive in changing marketplaces.

These types of stocks give investors an additional measure of safety in today’s volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividends along with good dividend yields (annual dividend divided by the share price), and promising growth prospects.

We believe that a record of increasing dividend payments is a good indication of a strong company, especially in a slow economy. High-quality, blue-chip stocks will usually be in a good position to remain profitable during almost any type of economic hardship or recession. Plus, you get paid dividends and earn income while you hold these stocks even if share prices are falling.

The best American companies to invest in will include consumer stocks

As part of our Successful Investor approach, we like high-quality, blue-chip consumer product companies because they can lend more stability during economic slowdowns or even recessions. Typically, consumer products companies sell staples, like soap, soup and beverages that consumers must buy no matter what the economy is doing.

Strong consumer product companies share a number of characteristics. These include geographic diversity to protect them from regional economic difficulties, a record of rising cash flow and strong balance sheets.

The best American companies to invest in have these three financial factors in common

  • 5 to 10 years of profits. Companies that make money regularly are safer than chronic or even occasional money losers.
  • 5 to 10 years of dividends. Companies can fake earnings, but not dividends, which are cash outlays. If you only buy dividend-paying value stock picks, you’ll avoid most frauds.
  • Manageable debt. When bad times hit, debt-heavy companies often go broke first.

Note too, that if you hold on to your more-conservative stocks as the market falls, and sell your lower-quality stocks, you’ll wind up owning your safest portfolio just when the market is ready to rise. In fact, though, some investors have a tendency to sell portions of all of their stocks as the market falls. Taken to extremes, this may lead you to sell all your stocks on the day the market hits bottom.

Bonus tip: The best American companies to invest in may become more attractive near a presidential election

We’ve written about this at length many times over the years, because it is one of the most helpful rules we’ve ever come across. Here’s the short version: an attractive buying opportunity appears in North American stocks about every four years, usually within a few months of the U.S. mid-term elections (which last took place in November 2018). Investors who buy around this time tend to make substantial profits over the next couple of years.

To put it another way, most North American market gains occur in the second half of the four-year U.S. presidential term. Big gains can occur at other times, of course, but this is the most reliable recurring pattern in the North American stock market.

That’s probably because U.S. presidential elections bring out many “swing voters” who might not vote in less important elections. When things are going well for them, these voters tend to favour the current officeholder. This has an impact on U.S. political officeholders, regardless of party. They all want to get re-elected, or pave the way to the election of a successor from their own party. So, consciously or not, they work together to make swing voters happy during U.S. presidential elections. They start work towards that goal around midway through the four-year U.S. Presidential term.

The stock market never goes up steadily during the two years between a Congressional election and the next Presidential election, of course. But it does tend to rise at an above-average pace during those two years, mainly because U.S. officeholders are doing whatever they can to improve their chances for re-election.

How receptive are you to investments in the U.S. stock market?  How much does the current political climate shape your interest?

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