The stock market's major indices are at or near all-time highs, and as stocks go up, dividend yields go down. As a result, many of the best dividend stocks to buy right now sport relatively modest yields.
That's OK. Because your focus also should be on dividend safety and payout growth that will enhance your yield over time.
Not every stock has been caught up in 2019's surge to new peaks. GameStop (GME), CenturyLink (CTL), Vodafone (VOD), Pitney Bowes (PBI), L Brands (LB), Deutsche Bank (DB) - all of these well-known companies have either cut or outright suspended their dividends this year. Those moves were a blow to all existing shareholders, but especially those who were relying on the income from these sometimes generous dividend payers to tackle regular expenses in retirement.
How do you ensure the dividend stocks you're invested in won't do the same? One way is to monitor the DIVCON system from exchange-traded fund provider Reality Shares. DIVCON's methodology uses a five-tier rating to provide a snapshot of companies' dividend health, where DIVCON 5 indicates the highest probability for a dividend increase, and DIVCON 1 the highest probability for a dividend cut. And within each of these ratings is a composite score determined by cash flow, earnings, stock buybacks and other factors.
These are 13 of the safest dividend stocks to buy right now. Each stock has not only achieved a DIVCON 5 score, but a composite score within the top 15 of all stocks that DIVCON has evaluated. This makes them the crème de la crème of dividend safety - and more likely to keep the dividend increases coming going forward.
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Market value: $16.8 billion
Dividend yield: 2.9%
DIVCON Score: 68.0
Commodity-related companies aren't typically where the mind wanders when it comes to dividend stocks, and especially not as it pertains to consistent dividend payers and hikers. But Nucor (NUE, $55.17) breaks the mold.
Nucor is the leading North American producer of structural steel, No. 2 in plate steel and No. 3 in sheet steel. Its products can be found in everything from automobile frames to bridges and dams to hydroelectric power plants to oil rigs. And while the business can certainly ebb and flow - the company went from $21.1 billion in revenues in 2014 to $16.2 billion in 206 but $25.1 billion in 2018 - the company excels at wringing profits from those operations and returning it to shareholders.
In 2018, Nucor announced its 46th consecutive dividend increase, continuing its membership in the Dividend Aristocrats - companies within the Standard & Poor's 500-stock index that have raised their payouts for at least 25 consecutive years. It's not breakneck dividend growth - NUE's distribution has grown just 8% over the past five years - but it's enough to show the company's dedication to rewarding shareholders.
Nucor's dividend is also very safe, representing just 20% of profits. If you care more about cash, levered free cash flow (how much cash companies have left over after they meet all their obligations) is nearly five times what Nucor needs to support its payout. It also boasts a strong Bloomberg dividend health score of 62 (anything over 50 indicates higher potential for dividend growth).
Market value: $394.1 billion
Dividend yield: 0.6%
DIVCON Score: 68.25
Visa (V, $180.33) - the world's largest payment processor at 323 million cardholders - is a prime example of a low yielder that nonetheless finds itself on numerous "top dividend stocks to buy" lists.
That's because Visa is very much a growth-and-income play. On the business side, the payment processor has expanded its revenues by 62% over the past five years, and profits have exploded by 83% during the same time frame. That has driven shares to more than triple since 2014, prompting Warren Buffett to lament not having bought it and rival Mastercard (MA) earlier.
"I could have bought them as well, and looking back, I should have," he said earlier this year.
That rapid stock growth is most of the reason why Visa yields so little. It's certainly not for lack of dividend growth - its payout has jumped by 150% over the past half-decade, from 10 cents per share to its current 25 cents. And DIVCON's 5 score on the stock bodes well for future hikes going forward.
Visa pays out just 19% of its profits as dividends - an extremely low level that gives it room to aggressively hike its payout over time. Indeed, Visa is expected to expand its payout by 18.3% over the next 12 months, compared to median dividend growth of 5.6% for the 1,200 largest dividend payers by market capitalization in the U.S.
Fundamentals are strong, too - levered free cash flow is a whopping 5.6 times dividends, and earnings continue to boom. Also, the stock-repurchases-to-dividends ratio is high at 3.6 - that means in difficult times, Visa's management could reallocate cash that it typically spends on buybacks to fund or even continue raising the dividend.
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Market value: $28.2 billion
Dividend yield: 2.4%
DIVCON Score: 68.25
TD Ameritrade (AMTD, $50.97) is a popular broker that allows people to invest via its online trading platform. However, it hasn't been terribly popular with investors this year - shares are up only about 4% in 2019 to underperform the markets, helped in part by earnings reported in April that merely matched analysts' expectations.
But there's nothing wrong with the dividend.
AMTD announced a generous 43% bump in its payout last October to its current 30 cents per share - 150% better than where the dividend sat in 2014. Even after that improvement, TD Ameritrade still only pays out less than 30% of its earnings as dividends, and its LFCF is 10.4 times what it needs to support the distribution.
Other positives that DIVCON has identified include expected 27.5% dividend growth over the next 12 months (well above the median), rapid earnings growth and a solid buybacks-to-dividends ratio of 1.4, providing a cushion for sustainable expansion in AMTD's dividend.
Market value: $240.1 billion
Dividend yield: 2.5%
DIVCON Score: 68.25
While outstanding total returns have made Home Depot (HD, $218.23) one of the best dividend stocks to buy for some time, no one envies the company's PR department right now.
Some shoppers - furious at a recent report that retired co-founder Bernie Marcus is expected to donate to President Donald Trump's 2020 re-election campaign - have threatened to boycott Home Depot, in theory driving foot traffic to rival Lowe's (LOW). The boycott itself sparked its own backlash, including tweets by the president himself.
Shareholders might not notice. The do-it-yourself home-improvement retailer has climbed 27% a little bit past 2019's halfway point and is one of the hedge fund community's favorite blue-chip stocks. Home Depot also is significantly improving its dividend - the year's first payout of $1.36 per share was 32% better than it was in 2018, and nearly 190% richer than the 2014 dividend.
The company's roughly 45% earnings payout ratio isn't tiny, but still gives the dividend plenty of room to grow; so does levered free cash flow that's 2.7 times its regular payments. And grow it should: Analysts on average expect a 23.1% bump higher on Home Depot's next go-around. DIVCON also likes a high buybacks-to-dividends ratio of 2.0 for additional support in leaner times.
Market value: $17.7 billion
Dividend yield: 2.8%
DIVCON Score: 68.25
Fastenal (FAST, $30.95) is a large industrial company that excels in a very specific niche: fasteners. You can buy plenty of products on its site, from electronics and batteries to hydraulics to adhesives. But fasteners are its bread 'n' butter. Indeed, it's largest fastener supplier in North America, at $1.5 billion in annual fastener sales across 60,000 monthly manufacturing customers.
It's not the most scintillating business, but Fastenal has ridden it to years of uninterrupted growth, including a standout 2018 that saw revenues increase by 13% year-over-year and profits jump by almost 30%.
The business also has powered a growing dividend, and in fact, Fastenal has actually put its foot on that pedal of late. That is, after years of annual hikes, FAST has delivered two payout increases per year in 2019 and 2018. Its most recent improvement, to 22 cents per share, has Fastenal paying out 76% more than it did at the start of 2014.
The analyst consensus for Fastenal's dividend is roughly 32% growth over the next year. That seems a bit aggressive given a good-but-not-great payout ratio of 60%, and LFCF that's 1.3 times its current distribution. Still, they're solid metrics that at least speak to a safe dividend with a little growth potential. Also, Fastenal's Altman Z-score - which uses five factors to measure a company's credit strength - is a massive 12.65, compared to a median score of 3.85 for the largest 1,200 dividend payers by market cap. (Any score above 3 indicates a low likelihood of bankruptcy).
Booz Allen Hamilton
Market value: $9.6 billion
Dividend yield: 1.3%
DIVCON Score: 68.75
Booz Allen Hamilton (BAH, $68.82) is an international IT consulting, analysis and engineering firm with a heavy focus on governmental and defense customers.
And business has been good. BAH shares have more than doubled the market's performance with a roughly 53% run so far in 2019. That came thanks in part to a top- and bottom-line beat when it announced its quarterly earnings in late May; profits were 23% better than the year-ago quarter. Better still, the analyst community sees good things ahead: 7% to 8% revenue growth this year and next, leading to double-digit profit expansion in both years.
Strong fundamentals have driven a 130% swelling in the dividend since 2014, and those fundamentals remain - Morgan Stanley's Matthew Sharpe, who rates the stock Overweight (equivalent of Buy), says it has "one of the best balance sheets in the space." LFCF is 2.9 times what Booz Allen needs to make its payout, and it uses just 27% of its profits to fund its dividend. That, and a high 2.2 buybacks-to-dividends ratio, support continued dividend growth going forward.
Market value: $6.7 billion
Dividend yield: 3.2%
DIVCON Score: 69.5
This list of safe dividend stocks to buy surprisingly includes not one but two steel companies - the previously mentioned Nucor, and also Steel Dynamics (STLD, $30.11). Steel Dynamics is America's third largest producer of carbon steel products; flat-rolled steel makes up 61% of its product mix, but it also produces structural, rail, merchant bar and other types of steel products.
STLD and NUE share something else in common: They make steel products by melting down scrap, allowing them to sell at lower costs, which has cut into the traditional steelmaking business for years.
That said, the steel industry as a whole has been hobbled over the past year despite tariffs and a Brazilian mining disaster that should have improved prices. Instead, weak demand has weighed on the space. Steel Dynamics shares have lost nearly a third of their value since this point in 2018.
That said, STLD now trades at less than 10 times future earnings estimates, and it now yields more than 3%, putting it among the highest payouts on this list of safe dividend stocks. And despite its issues, Steel Dynamics still is paying out just 15% of its profits as dividends and has nearly seven times the levered free cash flow it needs to maintain its current payout, contributing to its DIVCON 5 rating. A 3.1 buybacks-to-dividends ratio is especially important given the boom-and-bust cycles that steelmakers can go through.
And despite its problems, Wall Street is at least cautiously optimistic about the stock. Over the past three months, STLD has earned four Buy calls and three Holds, with no Sells.
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Market value: $6.1 billion
Dividend yield: 0.3%
DIVCON Score: 69.5
Chemed (CHE, $382.22) has one of the best dividend-safety profiles of any stock on this list, thanks to extremely conservative payout management. Right now, the company's 30-cent quarterly dividend represents just about 10% of the company's profits, and roughly the same percentage of its levered free cash flow.
Translation: Chemed, which has grown its payout by 50% in the past half-decade, has all the headroom in the world to keep doling out more cash to shareholders.
So, what is Chemed?
This is an odd company made up of two disparate subsidiaries: Vitas Healthcare, which provides hospice-care services in 14 states and the District of Columbia, and ... Roto-Rooter. Yes, that Roto-Rooter, which provides home and business plumbing and water cleanup services.
It's a low-and-slow grower, but one that has been able to squeeze increasingly more profits out of its operations. In 2014, it made $99.3 million in profits on $1.5 billion in revenues; in 2018, it took sales of $1.8 billion and turned it into $205.5 million in earnings. Analysts see mid-single-digit revenue and profit expansion over the next couple years, too.
CHE also excels on a worst-case-scenario basis, too. Its Altman Z-score of 15.09 is numerous times better than the 3-score level that indicates no risk of bankruptcy.
Market value: $2.7 billion
Dividend yield: 1.7%
DIVCON Score: 69.5
Brady (BRC, $50.56) won't show up on many "best dividend stocks" lists, or many stock lists in general. In fact, many investors probably have never heard of it. But it's possible that you've come across its products at work or while out shopping.
In short, Brady is in the identification business.
That is, Brady makes all sorts of products - from labels, tape and signs to printers and even software - that helps businesses identify ... well, anything. For instance, the company creates barcode labels, floor-marking tape and even "Slippery While Wet" signs. It also boasts a few other products, such as padlocks, lockouts and absorbents. It's not much of a growth business, but BRC has managed to eke out market-beating stock performance over most significant time periods regardless.
This isn't an eye-popping dividend-growth story, either; its payout has only improved by a little less than 10% over the past half-decade. But the company has been upping its dividend through thick and thin, announcing its 33rd consecutive hike in September 2018.
In addition to a modest 35% payout ratio, DIVCON likes Brady's 2.8 LFCF-to-dividend ratio and a high Bloomberg dividend health score of 78.
Market value: $54.2 billion
Dividend yield: 0.6%
DIVCON Score: 70.0
Zoetis (ZTS, $113.31) is among the best dividend stocks to buy right now because of its positioning in one of the most interesting growth stories on Wall Street today: pets.
Zoetis is the world's top maker of medicines targeting pets and livestock, and actually existed as a Pfizer (PFE) subsidiary until a 2013 spinoff. Its products - which include vaccines, parasiticides, medicinal feed additives, sedation pharmaceuticals and more - are sold in more than 100 countries.
It's a play on a world that's increasingly happy to spend money buying, feeding and caring for animals. The global animal health care market alone is expected to grow by 5.9% annually through 2026, when it should reach roughly $70 billion.
Zoetis' payout has exploded by 152% since the spinoff, including a generous 30% boost for 2019's first dividend. Even still, only a fifth of its profits are going toward maintaining that distribution, and levered free cash flow is more than 11 times what the company needs to keep writing those quarterly checks. No surprise, then, that analysts expect the dividend to keep growing, modeling 30.2% payout growth by this time next year.
ZTS has been a winner for shareholders, too, rocketing 247% higher in the past five years, versus 52% gains for the market ... and 42% gains for Pfizer. Kiplinger Executive Editor Anne Smith calls it a stock to buy for the rest of 2019, too.
Market value: $285.5 billion
Dividend yield: 0.5%
DIVCON Score: 70.5
Mastercard (MA, $279.54) is the world's second-largest payment processor behind only rival Visa, and thus enjoys many of the same drivers that have propelled Visa's shares and dividend.
That is, the world is increasingly moving away from cash and toward either the physical plastic of credit cards, or digital payments that still are routed through cards produced by V, MA and similar companies. And Deutsche Bank's Bryan Keane recently raised his price target on MA from $267 per share to $330 because he thinks investors don't appreciate other growth drivers, such as international money transfers and small business payroll.
Mastercard has benefited slightly more from these various drivers over the past five years, climbing 257% to Visa's 225%. Shareholders have simply chased the stock higher in response to roughly 60% growth in revenues and 80% expansion in profits over that same time period.
But the dividend has outstripped them all. Mastercard is one of the best dividend growth stocks of the past few years, juicing its payout by 450% since 2014 - that's 6 cents then to a current 33-cent payout. That's not backloaded, either. Its most recent payout increase, in the second half of last year, was a rich 32% improvement from its previous distribution.
Going forward, analysts expect much better dividend growth from Mastercard (18.1%) over the next 12 months versus the median average of the 1,200 largest dividend payers. Also, levered free cash flow is 6.4 times dividends, and profits are roughly seven times more than what's necessary to keep the payout afloat.
Market value: $4.4 billion
Dividend yield: 0.6%
DIVCON Score: 70.75
Landstar System (LSTR, $109.05) - a transportation services firm - is among the best dividend stocks to buy as far as pure payout support goes. It has more than 11 times the levered free cash flow it needs to finance its dividend, and the company's payout ratio of just 10% is meager and provides headroom for significant hikes in the future.
Landstar itself is a third-party transportation logistics provider that helps customers in the U.S., as well as Canada and Mexico, ship its goods from here to there. While it can assist in transport via ground, sea and air, its strength is in trucking; the company's more than 1,200 agents can help companies access more than 58,000 truck capacity providers and other equipment. It also provides freight management, warehousing and other services.
Growth hasn't been perfectly consistent in recent history, but the past few years have been explosive. The company went from revenues of $3.2 billion and profits of $3.25 per share in 2016 to sales of $4.62 billion and earnings of $6.18 per share in 2018. That justified a pair of payout increases in 2018 - a 50% bump from 10 cents per share to 15 cents, then another 10% increase to its current 16.5 cents per share. All told, the payout has rocketed by 175% since 2014.
DIVCON has singled out LSTR for its excellent dividend coverage, mentioned above, as well as a sky-high 8.4 buybacks-to-dividends ratio and an equally lofty Bloomberg dividend health score of 86.
Market value: $18.2 billion
Dividend yield: 0.1%
DIVCON Score: 71.25
The best dividend stock for payout safety, according to DIVCON's system, is one of Kiplinger's top-rated mid-cap stocks at the moment.
Heico (HEI, $136.01) designs, manufacturers and repairs parts for the aerospace, defense, industrial and electronics industries. Its niche is replacements: It's the world's top independent provider of FAA-approved aircraft replacement parts, and it also provide repair and overhaul services to the industry. It's boastful about its customers, too, which it considers "most of the world's airlines, airmotives, satellite manufacturers, defense equipment producers, medical equipment manufacturers, government agencies, telecommunications equipment suppliers and others."
It's also the best-performing stock on this list by a mile. Share gains of 75% in 2019 have extended its five-year run to about 420%. That follows impressive operational results - 58% improvement in revenues, and 114% profit growth, since 2014. Wall Street is expecting another strong year in 2019, forecasting a 13% jump in revenues and 18% more profits than last year.
Only a sliver of those profits is going toward the dividend, by the way. For perspective's sake: Given the company's skinflint 6% earnings payout ratio, Heico could increase its dividend by five-fold tomorrow, and analysts still would see a sky-high ceiling for future dividend growth. The same is true by levered free cash flow standards - Heico has 14.3 times the LFCF it needs to keep paying its dividend.
The fact that analysts expect just 18.5% dividend growth between now and next year, then, feels conservative - but that's still more than three times the pace expected across the 1,200 dividend stocks DIVCON surveys.
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Copyright 2019 The Kiplinger Washington Editors