Investing in dividend stocks does seem like a relatively safe approach. This is especially the case when targeting large, stable companies.
Hey, what could go wrong?
Of course, when it comes to investing, nothing is fail-safe. As we’ve seen this year, some of the world’s most iconic companies have significantly reduced their dividends, such as GE (NYSE:GE) and Anheuser Busch (NYSE:BUD). Not only did this reduce the income but there were also major drops in the stock prices. For the year so far, GE stock is off by 50% and BUD is down 33%.
So then, what are some ways to help avoid these situations? Well, one way is to look at companies that have a long track record of increasing their dividends. For the most part, this is an indication of financial strength — but also means that management has a focus on shareholder value.
Then what are some of the dividend stocks to consider? Here’s a look at seven:
Exxon Mobil (XOM)
Dividend Yield: 4%
When oil prices plunged in 2014, it was dire times for oil operators. But Exxon Mobil (NYSE:XOM) saw it as an opportunity to streamline and restructure operations.
So now that prices are much higher, the company is generating substantial profits. In the latest quarter, earnings spiked by 57% to $6.24 billion. The company also reported improvements in production, coming to 3.8 million barrels a day of oil and gas. Keep in mind that XOM has been getting traction with various large projects, such as in Africa and South America.
In terms of the dividend, XOM stock has been a solid performer. Note that it has had a payout since 1882 and the growth rate for the past five years has been nearly 7%. Currently, the yield is at 4%.
Dividend Yield: 6.3%
Ford (NYSE:F) is not without some major issues. After all, the U.S. auto market has been sluggish as interest rates have increased. The company has also felt the pressure from tariffs.
But it does look like much of the bad news is already baked into F stock. Consider that the price-to-earnings ratio is a mere 5.6X.
What’s more, the company has been making bold moves, which should help improve growth over time. A big part of this is cost cutting (up to $11 billion), which has been significant. Yet Ford is also focusing much more on the U.S. market for trucks and SUVs. This does look spot-on since it plays to the company’s strengths.
Among dividend stocks, F stock is definitely standout, at a juicy 6.3%. The yield has also grown at a rate of 21.8% during the past five years.
International Business Machines (IBM)
Dividend Yield: 5.1%
It has been a terrible year for International Business Machines (NYSE:IBM), with the shares off 16%. But then again, this has meant that the dividend yield is quite attractive. It’s currently at 5.1%, which makes IBM one of the highest-yield stocks in the tech world.
The struggle for IBM has been to retool its aging software. This has meant heavy investments in critical areas like analytics, cloud computing and AI (Artificial Intelligence).
Unfortunately, these efforts have been lagging. So this is why IBM’s $33 billion acquisition of Red Hat (NYSE:RHT) is so important. With the deal, the transformation should be accelerated. More importantly, Red Hat has a technology platform — which is based on open source software — that allows for integrating with hybrid IT environments. With IBM’s global distribution footprint, there could be a nice pick-up in growth. And that makes it a great options among dividend stocks.
Procter & Gamble (PG)
Dividend Yield: 3.1%
Over the past few years, there has been lots of pressure on Procter & Gamble (NYSE:PG). The company has had to deal with activist shareholders as well as wrenching changes in consumer markets and the impact from various startups.
But it appears that PG has been able to adapt and find ways to grow. During the latest quarter, the increase in organic sales — up about 4% — was actually the highest in five years. The growth was broad-based, including nine of 10 of its global categories. There was even strength in areas that have been a threat of disruption, such as the Gillette business.
The growth was not just about price increases either. For the most part, PG has been investing aggressively in innovating its product line. And this has resulted in higher volumes.
Regarding the dividend, PG is a stalwart. It has increased the payment for 62 consecutive years. As of now, the yield is 3.1%.
LTC Properties (LTC)
Dividend Yield: 5%
A great source for finding attractive dividend stocks with growing yields is in the REIT (Real Estate Investment Trust) market. These companies generally produce consistent cash flows from rents. There is also a nice tax advantage: So long as a REIT pays at least 90% of its earnings as dividends, there are no taxes paid!
So which one to consider? Well, there is LTC Properties (NYSE:LTC). The firm invests in senior housing and healthcare properties, such as through joint ventures, mortgage financings, preferred-equity financings and sale-leasebacks. The portfolio currently has over 200 properties across 28 states.
LTC has definitely been the beneficiary of the secular growth trend of the aging of the U.S. population. On average, about 10,000 people turn 65 each day!
LTC stock also sports an attractive dividend yield, at 5%. In fact, the company has increased the dividend for the past eight consecutive years.
Johnson & Johnson (JNJ)
Dividend Yield: 2.5%
Johnson & Johnson (NYSE:JNJ) is the ideal dividend play. The company has been around since 1886 — so it has shown an ability to deal with any kind of economic environment. JNJ also has a diverse set of businesses that generate fairly stable cash flows.
But the main driver for JNJ stock is the pharma business. And the good news is that the company is showing progress lately, as seen with Zytiga (for prostate and blood cancers), Imbruvica (for mantle cell lymphoma and chronic lymphocytic leukemia) and Darzalex (for multiple myeloma).
On the other hand, the medical devices unit has been a laggard. But the company has been taking actions to improve the performance, such as with acquisitions.
As for the dividend yield, it is at 2.5%, and the company has raised the dividend for 56 consecutive years.
Dividend Yield: 3.2%
PepsiCo (NYSE:PEP) CEO Indra Nooyi recently departed, after serving 12 years. During her time at the company, revenues rose by 81% to $63.5 billion.
A key part of her strategy was to focus on diversifying away from the core beverage segment. She has also introduced new innovative offerings, such as Bubly (a flavored seltzer drink) … although the results have been somewhat mixed.
But going forward, there may be a restructuring of PEP stock — and this could be a catalyst for the stock price. There are probably opportunities to cut back on costs as well as unload non-core businesses.
As for the dividend, it is currently yielding 3.2%. The company has also increased that metric for 46 consecutive years.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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