By Al Root

Tariffs and trade wars -- and rumors of tariffs and trade wars -- are here to stay. Dividend investors, in particular, need to tariff-proof their portfolios right now.

That's easier said than done. Dividend investors are usually looking for stability, and President Donald Trump's trade policy is anything but. There's also the problem of figuring out exactly where things are assembled and where parts come from. Tesla, for instance, assembles all the vehicles sold in the U.S. in the U.S., but a substantial portion of the parts in any Model 3 or Model Y come from Mexico and Canada. Tesla, thankfully, doesn't pay a dividend, so we don't have to worry about it here.

But many dividend favorites do have exposure. Highest on the scale are tech hardware and cars, according to Morgan Stanley strategists. A lot of electronics -- such as an Apple iPhone -- are assembled outside of the U.S., creating potential pricing, profit, and supply-chain issues. As for cars, Ford Motor CEO Jim Farley says that tariffs have the potential to wipe out billions of dollars in profits.

Safer options include financials, energy, some materials, consumer staples, and consumer services, note Citigroup strategists, at least when it comes to tariffs. Insurers, real estate management companies, and utilities also rank low on the risk list and are promising sectors for new ideas.

With all that as an industry framework, it's possible to search for some tariff-proof dividend stocks. We screened for companies in the Russell 3000 that have an above-average dividend yield, high ratings from Wall Street analysts, and solid financial metrics, and are in the right sectors.

They include Annaly Capital Management, a mortgage real estate investment trust, or REIT, that invests in residential and commercial mortgages and earns a spread between the yield on mortgages and the costs of borrowing, and Starwood Property Trust, a traditional REIT managing a portfolio of properties.

Royalty trust Viper Energy also passes muster. Royalty trusts help finance commodity development and earn money on production assets without taking the risk of operating mines or oil wells.

CVS Health, which is one of the top three performers in the S&P 500 index this year, and regional bank Provident Financial Services also made the list.

The five are all-American businesses and yield an average of 7.4%, more than double the 3.3% average for dividend payers in the Russell 3000. More than 75% of the analysts covering the stocks rate shares Buy, well above the 57% average for companies in the index.

Philip Morris International, the cigarette maker, also made the cut. It yields about 3.6% with an annual dividend of $5.40 a share, and 75% of the analysts covering the company rate it a Buy. Its low tariff risk comes, counterintuitively, from the fact that it has limited U.S. business and manufacturing. Philip Morris split from Altria in 2008 and has raised dividends every year since then. Shares jumped 11% on Feb. 6 after the company reported better-than-expected earnings and guidance.

Utilities that fit the bill include AES, Northwestern Energy, Evergy, Essential Utilities, and DTE Energy. Those five yield an average of 4.6%, have solid financial metrics, and are rated a Buy by more than 70% of the analysts covering the stocks. The average yield for a utility in the Russell 3000 is about 3.4%.

It should be noted that screens can yield a false sense of security by narrowing an inevitable universe down to only a few stocks. No screen, no matter how precise, can substitute for understanding individual businesses. It's just a starting point.

But as risks change, investment processes need to change, too. Figuring out how tariffs fit in makes a ton of sense, especially when income is the goal.

Corrections & Amplifications: About 2,500 of Philip Morris' 80,000 global employees are in the U.S., and the company sells oral nicotine pouches and machine-rolled cigars made by its subsidiary Swedish Match in the U.S. An earlier version of this column incorrectly said Philip Morris had no U.S. business or manufacturing.

Write to Al Root at allen.root@dowjones.com

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February 14, 2025 21:30 ET (02:30 GMT)

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