We’re gonna do something fun on this post.

We’re gonna take this opportunity to tell you about a stock that combines both dividend-paying stocks and foreign investing: It’s riding the wave of rapid foreign growth. Plus, it pays nice dividends.

We don’t often name specific investments here at investingindividends.com, but we figured we’d do something a little bit different today. Think of it as an early holiday gift.

The timing couldn’t be better:

The U.S. dollar is falling and could fall even more in the wake of more Fed rate cuts.
And the U.S. economy is slumping … with the likelihood of slumping even further next year.

So diversifying away from the U.S. dollar and the U.S. economy makes a lot of sense — both to me and to Tony.

I’m not going to keep you waiting for the name. It’s Unilever N.V., the giant European consumer staples company, which offers a nice trifecta of protection against a U.S. recession:

• It’s based overseas.
• It pays steady dividends, and …
• Its business is recession-resistant, selling products that people buy no matter what the economy’s doing.

I’ll tell you more about the advantages of Unilever (and other dividend paying stocks like it) in a moment. First, I want to make it absolutely clear that …

The U.S. Economic Warning Lights Are Going Off Left and Right!

The Federal Reserve is meeting in just a few hours, and another interest rate cut is practically a lock.

Why? Because the Fed knows that the engine block of the U.S. economy is cracking apart!

Just some of the signs:

• The housing market is going through its worst slump in recorded history. Prices are flat out declining … inventories are at multi-decade highs … and foreclosures have DOUBLED from a year ago.
• According to the U.S. Conference of Mayors, 361 of the largest U.S. cities will experience a combined loss of $166 BILLION in economic growth next year.
• Crude oil is still hovering around $90 a barrel, while prices at the pump are still in the $3-a-gallon range.
• Consumer confidence is near a two-year low, according to the RBC Cash Index.

So you can see why economists are ratcheting up their predictions of a recession, traditionally defined as two consecutive quarters of economic contraction:

• On November 26, David Rosenberg, North America economist for Merrill Lynch, told clients, “We are going to see an economic recession in ’08.”
• A day later, Goldman Sachs upped its odds of a 2008 recession from 30% to a range of 40% to 45%.
• Martin Feldstein, professor of Economics at Harvard University, just told Congress the probability of a recession in 2008 has now reached 50%.
• And yesterday, Richard Berner, Morgan Stanley’s chief U.S. economist, said the U.S. will slip into a “mild” recession next year.

Just based on historical measures, the U.S. economy is overdue for a period of contraction. Since 1945, there have been 11 recessions, and on average, they’ve come every five and a half years. Right now, we’re already past the six-year mark of continuous expansion. So based on the averages alone, we’re overdue for some pain.

Suppose I’m wrong? Then even in the very best case scenario, you’d still be looking at mediocre growth.

So that begs the question:

What Investments Outperform During Times of Economic Weakness?

My Answer: Select Dividend-Paying Stocks

As I first told you back in June, dividend-paying stocks are a reliable way to weather all types of market hurdles. I don’t care if you’re talking about a falling dollar, a falling stock market, or a U.S. recession … dividend payers can conquer them all.

Reason: In times of trouble, investors flock to safe havens — the kind of investments that will provide them with steady returns through thick and thin.

What’s more, many of the very same companies that pay dividends also provide products that people buy even when times are tough. Examples? Pharmaceuticals, electricity, and food.

According to data from Standard & Poor’s, these are precisely the groups that have outperformed in past recessions:

Overall, the S&P 500 has lost an average of 21% during past recessions. In contrast,

• The average utility lost 15% and beat the market in 9 out of ten past recessions …
• The average health care stock posted a 7.3% decline and outperformed the market in 80% of the recessions, and …
• The average consumer staples stock lost just 2.4%, beating the market 90% of the time.

Sure, each of these still posted losses. But these were just the averages of very big and broad industry categories. If you dig a bit deeper within these groups, you’ll find three industry subsectors that have not only beaten the market during downturns, but actually posted gains during the decline!
Specifically …

Alcoholic beverage makers not only beat the market in 80% of the recessions, they actually rose an average of 6% …
Household products manufacturers posted a gain of 1.8% and outperformed in every single instance, and …

Tobacco companies trumped them all. They rose 9.6% and beat the market in an astonishing 100% of the recessions!

This is precisely why I’ve told my Dividend Superstars subscribers to buy shares in these kinds of businesses. They’re currently holding a tobacco company, two pharmaceutical firms, a utility, and two household products companies. If that’s not a super team of recession-fighting stocks, I don’t know what is.

Let me tell you more about one of them right now …
Unilever Riding Higher in the Face of Economic Slump, a Falling Dollar, and More

Unilever N.V. is a highly diversified consumer staples company.

Its massive food division (53% of sales in 2006) boasts brands like Ben & Jerry’s ice cream, Hellman’s, Breyers, and Lipton.

It’s equally massive household products division (47% of sales) makes and sells familiar names like Vaseline, Dove, Suave, and Snuggle.

The very fact that Unilever focuses on necessities with strong brand names helps explain the stock’s strong outperformance lately. As you can see in the chart, it has risen steadily throughout the market’s recent turmoil.

And there are plenty more reasons why I like it as an anti-U.S.-recession play:

1. It is geographically diversified, with almost equal amounts of sales coming from Europe, the Americas, and Asia;
2. It has a proven history of thriving even when commodity costs are rising or economies are weakening; and
3. It has been paying out a large part of its profits to shareholders through steadily increasing dividend checks.

Unilever is based overseas, but you can buy its shares on the New York Stock Exchange as American Depositary Receipts (ADRs). Each ADR share represents one share of the foreign stock, and you will receive the company’s generous dividends in dollars.

Plus, with ADRs, you also stand to benefit from any further weakness in the greenback.

One word of warning: Unilever has had a very strong run. So rather than rushing out and loading up today, you may want to wait for dips.

To your dividend investing success,

InvestingInDividends.com

P.S. If you’d like to get my other recession-fighting picks, subscribe to my monthly Dividend Superstars. Subscribe to Dividend Superstars profiling the best dividend-paying stocks in the world.

Do you want to know the 5 reasons why people love dividends?

1.) Getting paid at regular intervals can give you a great cushion for down markets; and as you’ve seen just in the last few days, that’s not exactly an unusual situation.

2.) A check from the company generally represents concrete, hard-nosed proof that the company’s making good money. No fancy promises. No fluff! Just a nice dividend check in the mail.

3.) These paying stocks can go up year after year after year. And with every increase, the yield on your original investment rises as well. Even if you start with, say, a dividend yield of 3% or 4%, you could wind up with a yield of 9%, 10%, or 12% on the cost of your shares.

4.) Dividend stocks can even give you double-digit yields right away. They’re harder to find, to be sure. But if you dedicate the time to hunting them down — like I do — you can dig them up.

And perhaps most intriguing of all …

5.) Dividends know no borders. I like domestic and international dividend-paying stocks. Provided the yield is good and the company is secure, I don’t discriminate either way.

Indeed, even when the dollar is falling, I still recommend SOME U.S. dividend-paying stocks. Here’s why …

First, no matter how promising international stocks may be, it’s not prudent to put ALL your money overseas. In fact, I think practically every investor should have at least some money invested in the U.S. at nearly all times.

Never forget: The U.S. is still the world’s largest economy. America’s public companies are still worth almost as much as all the shares traded on Europe’s 24 major markets. And American companies still set the trends and standards that many foreign firms scurry to copy.

What about the falling dollar? Actually ….

The Dollar Decline Is Great News For SELECT American Companies!

We all absolutely hate watching our home currency lose value. Our overseas trips get more expensive. All the imported goods I buy cost me more.

However, there’s a silver lining that you don’t hear too much about — a weak U.S. dollar actually helps SOME American companies that derive a large portion of revenues from their overseas operations.

Take Johnson & Johnson, for example. It sells a vast line-up of products, including Listerine, Band-Aids and baby products to overseas consumers. In fact, I dug into the company’s 2006 annual report and discovered that a whopping 44% of J&J’s total revenues came from international consumers!

Naturally, when Johnson & Johnson sells those products in foreign markets it prices them in euros, Japanese yen, Australian dollars or Brazilian reals. But when it comes time to tally those sales and bring the money home, they get translated back into U.S. dollars.

Result: A weaker dollar means companies like Johnson & Johnson collect more dollars on every foreign sale. Moreover, this same phenomenon allows American companies to charge less for their products in foreign markets and STILL get the same dollar amount in sales.

That’s a huge advantage in today’s fiercely competitive markets!

The kicker: Johnson & Johnson has been able to pay out higher and higher dividends for 44 straight years!

And guess what! Most of the U.S. companies getting the most out of the weak dollar also happen to be the strongest dividend-paying companies in America.

Why do the two go virtually hand-in-hand? Because it takes a well-established business to be able to make inroads into overseas markets. And, at the same time, it also takes an established business to write dividend checks to shareholders.

You ask …

“But What about the Weak U.S. Economy? Won’t That Hurt ALL U.S. Companies?”

No. Let’s stick with Johnson & Johnson for a moment. Since 44% of its sales are coming from international markets, it’s not just benefiting from a weaker dollar, it’s also partially insulated from economic weakness in its home market … or any single market for that matter!

Look, the U.S. economy might have only increased a paltry 0.6% in the first quarter of this year. But as we’ve been telling you, there are many other robust regions of the world that are enjoying tremendous expansion. And large dividend-paying companies are embracing those growing markets with open arms. That’s why …

When a Chinese construction worker quenches his thirst, he’ll reach for a Coca-Cola …

When an Indian programmer gets ready for work, she’ll grab a tube of Colgate …

And when a Brazilian corn farmer tends to his crops, he’ll ride a John-Deere tractor.

Plus …

Most of the Best Dividend-Paying Companies Enjoy Steady Demand, In Good And Bad Economic Times

Even during a recession, nearly all U.S. consumers still take their medicine, buy groceries, and pay their heating bills.

Some examples:

• Eli Lilly has been selling its prescription medications through booms and busts. So it comes as no surprise that the company has been paying dividends for more than century!
• Supervalu is one of the largest food wholesalers in the U.S. (as well as one of the largest supermarket retailers). And the fact that people always have to eat has allowed the company to reward shareholders with dividend payments as far back as 1936.
• Like clockwork, everyone in my neighborhood writes monthly checks to Florida Power and Light. And like clockwork, the company writes out checks of its own … to its shareholders.
• Smokers? They reach for cigarettes day in and day out. Thus, Altria (formerly known as Philip Morris) enjoys steady demand for its major product. No wonder the stock currently yields almost 4%!

I could go on and on … but you get the idea.

Well-established firms, with economically insensitive businesses are the same companies that reward shareholders with regular payouts. The two concepts go together like peanut butter and jelly!

Even in Turbulent Stock Markets, Dividend Paying Companies Hold Up Better

Now, the companies I mentioned today are just examples, not necessarily my current favorites. But I think they really demonstrate how and why some of America’s top companies are able to weather a falling dollar and a weak U.S. economy.

The good news is that these kinds of companies can also help your portfolio weather the very same storms. In fact, even when Wall Street hits the skids, dividend-paying stocks hold up far better than shares that don’t have yields.

The evidence is abundant, but let’s look at a recent example:

• 2002 was one of the worst years for stocks in decades, with the S&P 500 falling 23%
• Non-dividend-paying stocks in the index plummeted even more — 30%
• In contrast, the index’s dividend-paying stocks lost only 11%!

Are we saying that you want to be holding lots of dividend-paying stocks just because they’ll lose less money than other issues? Of course not! Rather, the fact is that, historically, they have performed much better during rough patches.

Plus, when the markets are trading sideways, you’ll be getting paid to wait.

And when U.S. shares resume their climb (as they always have), your portfolio will be ready and willing to move higher, too.

So …

For A Virtually Bullet-Proof Portfolio, Here’s What I Suggest

First, always keep a nice chunk of change in liquid investments such as money markets or Treasury-only money funds.

Second, don’t ignore the growth happening overseas. Consider holding some of the foreign investments that our Money & Markets editors have been telling you about.

Third, if you want to protect your portfolio against the falling dollar and rampant inflation, use natural resource investments, which are great hedges.

Fourth, don’t completely abandon the U.S., either. In my opinion, dividend-paying companies are a way to stick with the U.S. through thick and thin.

That’s it for now. Keep coming back for more meaty diveidend content that you cna digest.

To your dividend investing success,

InvestingInDividends.com