The Brexit saga continues to drag on, and right now, no one knows how it will play out. However, given that it could potentially have a negative impact on the UK economy, it’s worth thinking about protecting your portfolio.
In my view, one of the easiest ways to do this is to invest in high-quality, dividend-paying companies that generate a significant proportion of their earnings internationally. These kinds of companies shouldn’t be affected too badly if the UK economy tanks, and if the pound was to fall further, it would actually boost their earnings. With that in mind, here’s a look at two FTSE 100 companies that I believe could provide Brexit protection.
Healthcare specialist Smith & Nephew (LON:SN) (LSE: SN) is a leading healthcare company that specialises in joint replacement systems for knees, hips, and shoulders. It has operations in 100 countries and with around half its revenue coming from the US, and a significant proportion coming from the emerging markets, a Brexit-related economic downturn here in the UK is unlikely to be a significant setback for the group, in my opinion.
Yet Brexit-protection isn’t the only the reason I like the look of Smith & Nephew. I also like the fact that the company is well placed to benefit from the world’s ageing population. You see, the number of people aged 60 or over around the world is forecast to increase significantly in the coming decades, and as such, I’m expecting demand for its joint replacement systems to remain robust. In the US alone, around 27m people suffer from wear-and-tear arthritis, so the long-term growth story here looks compelling, in my opinion.
Furthermore, the stock also looks attractive from a dividend-investing perspective, as the company has paid a dividend every year since 1937, which is an excellent achievement. The yield is not super high at 2.1%, however dividend coverage is excellent, which indicates the payout is secure.
Trading on a P/E ratio of 18.8, I think the stock is an excellent Brexit-protection play.
Global energy giant Another FTSE 100 dividend stock that I believe could provide an element of protection from Brexit is Royal Dutch Shell (LON:RDSa) (LSE: RDSB). As a global energy group that has operations in 70 countries, the state of the UK economy is largely irrelevant to the group’s fortunes.
One of the main attractions of Shell shares in my view is its dividend, which is both highly reliable and generous. It hasn’t cut its dividend since World War II and for this reason, the stock is a preferred dividend play for both institutional investors and private investors alike. Furthermore, the yield, at around 6.1% currently, is fantastic. No matter what happens with the UK economy, investors should still be able to pick up a nice payout.
The shares currently trade on a P/E of 10.1, which I believe is an attractive valuation for a company with its track record. I think the stock offers strong Brexit-protection appeal right now.
Edward Sheldon owns shares in Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.