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3 Quality Dividend Stocks With No Russia Exposure

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·6 min read
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Periods of geopolitical turmoil can take their toll on stocks. Investors, in general, shy away from uncertainty, and geopolitical risk is one of the major ways that investors can face uncertainty. Russia’s invasion of Ukraine is the latest round of geopolitical uncertainty, and in this article, we’ll take a look at three quality dividend stocks that operate exclusively in North America.

By isolating companies that operate away from places where there’s geopolitical risk, investors can insulate themselves from the impact of the conflict.

In addition, we can further narrow the list down to high-quality dividend stocks, such as the blue-chip stocks, examples of which we’ll look at below.

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The three stocks are:

  • Target (NYSE:TGT)

  • Altria Group (NYSE:MO)

  • Verizon (NYSE:VZ)

Quality Dividend Stocks: Target (TGT)

Image of the Target (TGT) logo on a storefront.
Image of the Target (TGT) logo on a storefront.

Source: jejim / Shutterstock.com

First on our list of dividend stocks is Target, the ubiquitous general merchandise retailer that operates in the U.S. Target’s stores offer a huge variety of tens of thousands of items that encompass groceries, dry goods, frozen food, accessories, home goods, apparel and more. Target operates about 2,000 stores in the U.S., making it one of the country’s largest retailers.

Target was founded in 1902, generates about $109 billion in annual revenue, and its market cap is about $100 billion.

Target has produced outstanding growth in the past decade, having seen eight years of rising earnings against two where earnings fell. Even including these two years of declines, Target has produced average annual earnings growth of almost 13%. We don’t see that level of earnings as sustainable, but we do think Target can see 4% average annual growth. This includes revenue growth and share repurchases, with margins remaining about where they are today.

Target has another very positive characteristic, and that’s it’s exemplary dividend increase streak of 54 years. That makes Target one of the best stocks available on that measure, and it’s a streak we expect to continue for many years to come. The payout ratio is just 25% for this year, meaning that not only is the dividend very safe, but there’s a huge runway for future growth in the payout. Target has boosted its payout by almost 11% per year on average during the past decade, so Target is doing a nice job of rewarding shareholders with incremental earnings.

Finally, not only is Target a terrific dividend stock, but its valuation is quite low today. Shares go for under 15 times earnings, which is well under our estimate of fair value at 18 times earnings, implying a sizable tailwind to total returns in the coming years, over and above the dividend yield of 1.7% and earnings growth.

Altria Group (MO)

Altria Group, Inc. (MO) logo of US producer and marketer of tobacco and cigarettes is seen on a mobile phone screen.
Altria Group, Inc. (MO) logo of US producer and marketer of tobacco and cigarettes is seen on a mobile phone screen.

Source: viewimage / Shutterstock.com

Our next stock is Altria Group, a centuries-old company that manufactures and sells smokable and oral tobacco products in the U.S. Altria owns the very lucrative Marlboro, Black & Mile, Skoal and Copenhagen brands, among others.

The company was founded 200 years ago, generates about $21 billion in annual revenue, and has a market capitalization of $94 billion.

Tobacco companies are generally considered consumer staples stocks, meaning growth is usually fairly limited. Altria is certainly a mature business, but despite this, the company has managed ~9% earnings-per-share growth on average in the past decade. We don’t see that level of growth sustaining, and instead expect just over 1% annually given the very high base of earnings.

Like Target, Altria has a dividend streak of better than 50 years, with Altria’s coming in at 52 years. The payout ratio is 74%, which is actually OK given the reliability of Altria’s earnings. The company’s payout ratio is generally around 80%, so we don’t see any undue stress on the company’s ability to continue to pay, and indeed raise the dividend.

Altria has also boosted its payout by an average of nearly 8% in the past decade, which is very impressive for a consumer staples stock. That has helped pushed the dividend to the point where it yields 7%, putting it in rarified company among all dividend stocks, let alone the Dividend Kings that have at least 50 years of consecutive increases.

Finally, Altria is trading for 10.5 times earnings, which is just under our estimate of fair value at 11 times earnings, so the stock is reasonably valued as well.

Quality Dividend Stocks: Verizon (VZ)

Source: Northfoto / Shutterstock.com

Our final company on the list of quality dividend stocks is Verizon Communications, a company that offers a variety of services and entertainment products including prepaid and postpaid wireless services, hardware such as phones and tablets, internet connectivity, and it operates a chain of retail stores. Verizon owns a huge proportion of the wireless services market in the US with more than 140 million total wireless connections. Verizon has tremendous scale with $136 billion in annual revenue, and a $221 million market cap.

Despite the fact that Verizon amounts to a utility, the company has produced an average of 9% earnings-per-share growth in the past decade. This is all the more impressive given the share count has risen over time due to acquisitions, in part. We see 4% growth in the years ahead, which should be more than enough to keep the stock’s dividend moving higher.

Verizon’s dividend increase streak is currently 17 years, and while that’s a nice increase streak, growth has been limited. Verizon’s average increase in the payout in the past decade is just over 2%, so from a dividend growth perspective, Verizon is somewhat less attractive than other blue chips.

The payout ratio for Verizon is set to be just 47% for this year, and given its status as what amounts to a utility, that makes the payout extremely safe. We think Verizon has many years of potential dividend increases in front of it for that reason. In addition, the stock is yielding nearly 5% today, nearly four times that of the S&P 500.

Verizon is another stock we see as very cheaply valued today, going for under 10 times earnings, against fair value of 13 times.

Final Thoughts

Periods of unrest and turmoil across the world can generate tough times for investors. However, by focusing on companies that operate away from the places in the world the unrest is occurring in, investors can better manage their risk.

We like Target, Altria, and Verizon for their combination of growth, yield, dividend history, and value. Investors looking to manage risk from the current conflict would do well to consider these strong dividend stocks.

On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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