Rating agencies — S&P, Moody’s and Fitch — analyze risk and give debt a “grade” that reflects the borrower’s ability to pay the underlying loans. The safest bets are stamped AAA. That’s where U.S. debt has stood for years. Moody’s first assigned the United States a AAA rating in 1917. The country’s new S&P rating is AA+ — still strong, but not the highest.
There are currently four U.S. companies that have a better credit rating than their own country, according to Standard & Poor’s: Automatic Data Processing, Exxon Mobil, Johnson & Johnson, and Microsoft.
For Exxon, J&J and Microsoft, S&P reaffirmed their AAA ratings recently, saying that “given the global and diverse business lines and significant financial strength” of the companies, “we expect the borrower to continue to fulfill its financial obligations, even in a sovereign default scenario.” S&P said the same of ADP, even though most of its customers are U.S.-based.
Depending on your trust in the rating agencies, the four horsemen (JNJ, ADP, MSFT, & XOM) are financially strong and have the ability to cover their debt. These four companies are non-financials so the U.S. debt downgrades will not affect their ability to cover debt.
Of course, the real kicker is that these stocks all pay a dividend and frequently raise their dividends each year. These stocks may be long-term holding to sell calls on each monthly for monthly income while also collecting the dividend. If they get called away, then pick a new entry point and sell cash-covered puts to buy the stock. This is the rinse and repeat trading philosophy.
For more on this topic: CNNMoney