The U.S. dollar has been surging of late. And as money continues to flow into the U.S., the dollar will further strengthen.
Recall how the U.S. dollar index has surged to multi-year highs over the last six months. And there’s no reason to believe it won’t keep climbing. But this isn’t necessarily good news for investors.
Big companies with international exposure could see serious pressure this year because when they convert their earnings into U.S. dollars, they get less money.
Coca-Cola (NYSE: KO) has already warned that 2015 results will be weakened due to exchange rate fluctuations.
But companies that generate the majority of their revenues from the U.S. are not sensitive to exchange rate changes.
The U.S. remains the go-to place for investors who want to get any type of growth. Europe still shows serious weakness, turmoil reigns in the Middle East and Russia, and then there are Japan’s bouts with recession.
The other benefit to U.S. companies are they aren’t exposed to lower growth international markets — the U.S. remains one of the fastest-growing developed economies in the world.
Here are three stocks that generate the majority of their revenues in the U.S. These picks also happen to be paying solid dividends:
Strong Dollar Play No. 1: CVS Health Corp. (NYSE: CVS)
Not only does CVS operate a string of well-known drugstores across the U.S., it is also a pharmacy benefits manager (PBM). Behind Express Scripts (NASDAQ: ESRX), it’s the second largest PBM in the United States. PBMs work with health-care companies in prescription plan design, administration and claims processing.
All in all, CVS will be a key benefactor of the aging population (which increases the demand for prescription drugs) and the increase in people with health-care coverage thanks to health care reform.
CVS offers a 1.4% dividend yield, which is just a 30% payout of earnings. The pharmacy-focused company has been paying a dividend for 30 years now, with a seven-year streak of consecutive increases under its belt.
Strong Dollar Play No. 2: Ross Stores (NASDAQ: ROST)
Ross Stores’ 1,200 off-price retail stores in the U.S. operate in 35 states. Ross also has plenty of room for growth; its long-term goal is to have 2,500 stores open.
Despite the fact that consumers have more money in their pockets thanks to lower gas prices and higher employment, they continue to shop at the discount stores like Ross Dress For Less (Ross Stores’ staple brand) and dd’s DISCOUNTS (a sister store chain focused on lower-income families).
The stock also pays a 0.8% dividend yield. It’s paid a dividend for 20 years now and has upped its dividend for eight consecutive years.
Strong Dollar Play No. 3: Capital One Financial Corp. (NYSE: COF)
This credit card and consumer loan company has been a lackluster performer over the last year, where its stock price is essentially flat over that time. But as people spend more, thanks to higher employment and strengthening economy, Capital One will be a winner.
One big positive is that Capital One has managed to strengthen its balance sheet. Its debt-to-equity ratio has been lowered from 2.75 to less than 0.9 over the last five years — which is now below its major peers. And the valuation is enticing; Capital One trades at less than book value and has a price-to-earnings ratio of just 10.
It also offers a 1.6% dividend yield and is paying out just 16% payout of its earnings via dividends. The credit card company has paid a dividend for 19 years. After having to lower its dividend during the financial crisis, it’s now boosted its dividend for two straight years.
All three of our U.S.-focused stocks have outperformed the S&P 500 over the last half decade. Each has also managed to grow its revenues at an average annual rate of over 9% for the last 10 years. This outshines companies like Walgreens Boots Alliance (NASDAQ: WBA), Macy’s (NYSE: M) and American Express (NYSE: AXP). What’s more, as these picks benefit from a stronger dollar, they are on track to continue outperforming peers and offer growing dividends.
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