Investors looking to maintain capital in volatile markets may want to consider large-cap stocks, those companies with market capitalizations greater than $10 billion. Conducting business globally, they tend to pay dividends, have strong balance sheets and extremely large amounts of cash. While perceived to be slow growing, many possess the financial might to take advantage of business opportunities that smaller companies cannot. Whether you invest in individual stocks, mutual funds or ETFs, large caps ought to represent a portion of one’s equity investments.
The usual understanding suggests that dividends account for approximately half a stock’s total return. Some believe this number is really as high as 90%. Obviously, whatever the percentage, dividends are an important weapon in any company’s arsenal for rewarding shareholders. Because large-cap companies often possess greater free cash flow, their ability to increase the dividend payment annually is, also, greater. A rising dividend, coupled with a multinational business possessing pricing power, which is the ability to raise prices regularly, provides investors with a certain amount of inflation protection that many mid- and small-cap stocks do not have. With operations in a variety of areas of the world, large caps are able to go where the growth is, and that’s why you will find many operating in the emerging markets of Brazil, Russia, India and China. Along with geographic diversification, large caps provide investors with currency diversification. As the U.S. dollar weakens, companies have the ability to sell their products more competitively overseas. Small enterprises are less likely to benefit just because a most of their revenue, often, is derived domestically. Lastly, and more importantly, many large caps possess solid balance sheets with little debt and huge levels of cash. For most professional advisors, they are the core holdings in any portfolio.