The sharp decline in U.S. GDP growth in the first quarter to a .2% seasonally adjusted annual rate is a stark reminder that the world recovery from the 2008 financial crisis is still a bumpy one. As we’ve long recommended at Global Income Edge, investors should adopt a diversified global portfolio that can bridge the growth gap between slowing developed economies and faster growing emerging markets.  

Global Income Edge subscribers have been largely insulated from the U.S. slowdown as our holdings have focused on industries that have pricing power such as telecom and utilities, or play strong demographic trends such as the expansion of healthcare to support retiring Baby Boomers.  

And because our portfolios are diversified by geography and asset class such as in real estate, our holding in other parts of the world have more than offset the slowdown in U.S. growth, which we believe to be temporary.

The severity of the U.S. slowdown caught many by surprise as economists had been forecasting an annualized growth rate of 1% GDP. And given that America is the world’s largest economy, the slowdown has sparked fear of a slowdown in our largest trading partners. Markets in Asia and Europe have seen steep selloffs in the last few days as a result.  

But don’t panic.

Some lags in growth had been expected, and we continue to believe the world recovery will continue, though in fits and starts.

In terms of the U.S., over the last three months there were signs that growth was slowing. Home sales and consumer spending have been weak. Consumer spending, which accounts for more than two-thirds of economic output, decelerated to a 1.9% pace in the first quarter, down from 4.4% growth in the fourth quarter, according to the Commerce Department.

Further, even though hiring has been robust, it has been sharply down from the number of jobs that were created in 2014.  Business spending, another key economic driver, also has weakened. Spending on software, research and development, equipment and structures declined at a 3.4% rate, compared with a 4.7% rise in the fourth quarter, according to the U.S. government.

In fact, we have for months observed that the impact of the strengthening dollar would hurt the earnings of U.S. multinationals which we have avoided investing in as a strong dollar makes U.S. products overseas less competitive. And now the effects were clear in the latest economic report.

The fall in exports did stall the economy last quarter, subtracting 1.25 percentage points from growth, according to the Commerce Department’s GDP report.

Following the government’s release of the quarterly economic data, the Federal Reserve said the growth slowdown is “transitory” and that the effects of declines in energy and import prices will dissipate.

That being said, we know that income investors don’t have the luxury of waiting for a global recovery and can’t afford to have volatility in their investments. That’s why we have focused on domestic U.S. firms that have pricing power and a long history of paying a dividend; firms that we believe are best positioned to ride out this temporary setback in U.S. growth.  

Portfolio Updates

Our #2 Best Buy and Global Income Edge Conservative Holding Southern Company (NYSE: SO) reported increased profits in the first quarter of $508 million, or 56 cents a share, up from $351 million, or 39 cents, a year earlier.

The profits were partly as a result of continued strength in industrial activity, up 1.89% this quarter, in the company’s service territory. And increased profits also came from the company having to take lesser charges on cost overruns that had occurred in the development of a state-of-the-art clean coal facility and nuclear power plants that the company is building. 

The cost-overruns have largely been put under control over the last year and we view the development of these plants as a positive for future earnings growth at the company.

“We are encouraged by positive customer growth during the first quarter of 2015, along with strong industrial sales and an economic development pipeline that remains robust,” said Southern Company Chairman, President and CEO Thomas A. Fanning, on the earnings call.

On the downside, due primarily to milder winter weather than in 2014, residential and commercial energy sales decreased 4.2 percent and 1.1 percent, respectively, the company reported, in press materials. 

Southern Company is emblematic of Global Income Edge’s conservative investment philosophy. It’s one of the largest utilities in the U.S., has a good relationship with its regulator, and it’s in a service territory that’s growing. The utility also trades at a slight premium to its peers given its growth opportunities. So is a Buy up to 55.

KKR & Co. (NYSE: KKR) reported first quarter earnings for the quarter fell 5.1% to $526 million, or $0.62 per share (EPS) but managed to beat analysts’ estimated EPS  expectations of $0.52.

The company’s revenues were driven by its private-equity segment which posted a 17% increase as it benefitted from a stronger equities market. Higher stock prices due to a surging stock market allowed KKR to realize higher sales prices for its stake in various companies.

The company’s distributable earnings which it uses to pay dividends to investors jumped 15.6% to $516.5 million. Management said it would boost its dividend to $0.46 per share, up 3 cents from $0.43 last year. However, KKR warned that its second-quarter dividend may decrease if the expected sale of its orthopedic-device assets in June is delayed.

Currently yielding 8.2% GIE aggressive holding KKR & Co. is a Buy up to $28.

Novartis (NYSE: NVS) reported first quarter revenues fell 7% to $11.94 billion but stayed ahead of analysts’ estimates of about $7 billion. The company’s $1.33 EPS handily beat Wall Street estimates of $1.09 as it started to reap cost savings from its $25 billion asset swap with GlaxoSmithKline.

In its earnings call, Chief Executive Joe Jimenez said the recent changes have made the company instantly more profitable, helping Novartis boost profit margins by 1.7 percentage points compared to the same quarter last year. Overall, the company saved about $650 million during the quarter, $350 million of which came from making bulk purchases.

Net revenues of its pharmaceutical division rose 1% to $7.1 billion as sales lost to generic competition was offset by increased sales of its multiple sclerosis drug Gilenya and cancer drug Afinitor.  The company’s eye-care segment, Alcon saw sales increase 5% to $2.6 billion while its generics wing Sandoz, jumped 9% to $2.2 billion.

For the full year, Novartis expects revenues to grow in the mid-single digits. Mr. Jimenez also noted that the company is looking to pick up more assets in the range of $2 billion to $5 billion.

Conservative holding Novartis is a Buy up to $100.