Dividend stocks that regularly boost payouts are a godsend, especially with low inflation, trade tensions and concerns about global growth weighing on the U.S. economic outlook.
On Jul 10, Federal Reserve chairman Jerome Powell paved the way for the first U.S. rate cut in a decade despite a strong June jobs report. He supports the market view that the central bank is preparing to cut borrowing costs at its Jul 30-31 meeting, assuring to "act as appropriate" to sustain economic expansion, threatened by trade disputes and a global slowdown.
Although markets embraced the idea of an impending rate cut, it ignored the precariousness of the U.S. economy at the moment. GDP growth has been decelerating since the second quarter of 2018, when the economy had expanded at an annualized rate of 4.2%. Meanwhile, consumer spending, accounting for about two-third of U.S. economic activity, rose at an annualized rate of just 0.9% in the first quarter of 2019. This marks the lowest rate in the past year, thanks to weakness in the service sector. Also, consumer spending was way below 2.5% growth witnessed in the fourth quarter of 2018. Meanwhile, key indicators like durable goods and construction spending are displaying negative growth.
The revenue and earnings growth picture is pretty glum. Per the latest Earnings Outlook, earnings growth is not expected to improve in the Q2 earnings season amid tough comparisons and moderating economic growth. Total Q2 earnings for the S&P 500 index are expected to decline 3.3% from the year-earlier period on 4% revenue growth. This will follow a 0.2% earnings decline despite 4.5% higher revenues in Q1.
Need for Large-Cap Defensive Stocks
Dividend-paying defensive stocks are non-cyclical, i.e., their performance is not linked to the larger economy. In particular, large-cap companies that offer products and services with a relatively inelastic demand provide steady returns. Moreover, the fact that these companies consistently raise dividend payouts reflects their confidence in their earnings growth potential.
Hence, companies with broad economic moats accompanied with inelastic demand for products guarantee long-term earnings growth.
The recent remarks from the Federal Reserve have also worked in favor of dividend paying large-cap stocks.
With the help of our Zacks Stock Screener, we have selected six large-cap stocks (with market capitalization of more than $10 billion) that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and offer solid dividend yields on strong fundamentals.
The combination is a compelling one for investors who are looking for long-term income based on stability amid volatility. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ford Motor Company F
Ford is an American multinational automotive and mobility company. Despite an intensively competitive and cyclical automotive industry, Ford has been successful with product introductions and has maintained robust performance in North America.
Market Cap: $40.7 billion
Dividend Yield: 5.89%
Zacks Rank #1
Enterprise Products Partners L.P. EPD
The partnership is one of the leading midstream energy players in North America. During the first quarter of 2019, quarterly distribution improved 2.3% year over year to 43.75 cents per common unit or $1.75 per unit on an annualized basis. This marks the partnership’s 59th consecutive quarterly distribution increase.
Market Cap: $66.3 billion
Dividend Yield: 5.78%
Zacks Rank #1
BHP Billiton Limited BHP
During fiscal 2018, BHP Billiton, a leader in the global natural resources industry, paid dividends worth $5.2 billion compared with $2.9 billion paid during fiscal 2017. The company’s board has announced a record final dividend of 63 cents per share. This is equivalent to a payout ratio of 69%.
Market Cap: $92.3 billion
Dividend Yield: 3.83%
Zacks Rank #1
Edison International EIX
The company is the parent holding company of Southern California Edison and engaged in competitive businesses related to the delivery or use of electricity. During the first quarter, the company paid dividends worth $200 million compared with $197 million in the year-ago quarter. Management plans to take small steps to raise its dividend above industry average growth rate toward its target payout ratio of 45% to 55% of SCE earnings.
Market Cap: $22.7 billion
Dividend Yield: 3.52%
Zacks Rank #2
Consolidated Edison, Inc. ED
The company, also known as ConEd, is a diversified utility holding company. Consolidated Edison focuses on maximizing shareholder value through increased dividend payouts. On Jan 17, 2019, its management hiked its quarterly dividend payout to 74 cents per share from the prior distribution of 71.5 cents, marking the 45th straight yearly increase by the company.
Market Cap: $29.2 billion
Dividend Yield: 3.32%
Zacks Rank #2
Lockheed Martin Corp. LMT
Lockheed Martin is the largest U.S. defense contractor in the world and enjoys strong demand for its high-end military equipment in domestic and international markets. During the first quarter, Lockheed Martin paid dividends worth $638 million, reflecting an 8.9% increase year over year. In the past five years, Lockheed Martin has lifted its dividend five times on a year-over-year basis for an average annual increase of 10.3%.
Market Cap: $104.02 billion
Dividend Yield: 2.39%
Zacks Rank #1
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Edison International (EIX) : Free Stock Analysis Report
Consolidated Edison Inc (ED) : Free Stock Analysis Report
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
Ford Motor Company (F) : Free Stock Analysis Report
BHP Billiton Limited (BHP) : Free Stock Analysis Report
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