Opinion: These 5 rock-solid dividend stocks yield 3% or more
Published: Oct 3, 2016 5:08 a.m. ET
One of the most powerful ways to manage your portfolio involves a long-term focus on high-quality stocks that pay reliable and growing dividends. And you don’t need some high-priced financial planner or some fashionable “smart-beta” exchange-traded fund to achieve that.
All you need are a few rock-solid blue chip stocks that pay a steady, reliable stream of dividends to their loyal shareholders.
Purchasing these stocks and holding them for a decade or two doesn’t appeal to everyone, of course. But it’s worth noting that some of the most battered blue chips during the financial crisis have recovered strongly — and increased their dividends all along the way.
If you’re not patient enough to weather what comes, or if you enjoy the rush of day-trading 3x-leveraged ETFs, then these sleepy plays are not for you. But if you’re looking to protect your money in uncertain times, these five dividend stocks have a lot to offer, including dividend yields that are 3% or better.
1. Cisco Systems
· Sector: Technology
· YTD Performance: 16% vs. 6% for the S&P 500
· Market Cap: $158 billion
· Current Yield: 3.3%
· Payout Ratio: 40% of Estimated FY 2017 earnings
US:CSCO
$20.0$22.5$25.0$27.5$30.0$32.5
Cisco Systems Inc. CSCO, -0.03% has not paid dividends for long. But its payout has surged more than fourfold in five years, from just 6 cents a quarter in 2011 to 26 cents currently. And even now, the payouts are highly sustainable at less than half next year’s earnings. And while Cisco stock gets a bad rap for being “dead money” back in the early 2000s, shares have more than doubled since their 2012 lows, and that doesn’t even include the juicy dividends.
If you’re looking to build a diversified portfolio, this mega-cap enterprise technology company is a good alternative to the conventional income plays out there. Admittedly, Cisco is not in growth mode anymore, as evidenced by the painful decision to lay off 20% of its workforce this summer. But for income investors, stability is more important than growth — particularly in this market.
2. General Electric
· Sector: Industrials
· YTD Performance: -5% vs. 6% for the S&P 500
· Market Cap: $265 billion
· Current Yield: 3.1%
· Payout Ratio: 53% of Estimated FY 2017 earnings
US:GE
$26$28$30$32$34
General Electric Co. GE, +0.24% is a widely held stock that is a staple in many portfolios, but many income investors remain leery of the conglomerate after its deep dividend cut during the financial crisis. But after GE divested the final parts of its lending outfit to Wells Fargo & Co. WFC, +0.14% a little more than a year ago, investors can have confidence that the new GE is a stable and reliable income play.
GE’s large and diversified operations span power generation, medical imaging and aircraft engines just to name a few, and this wide revenue base will support strong cash flow no matter what is happening to the broader economy.
3. Procter & Gamble
· Sector: Consumer staples
· YTD Performance: 11% vs. 6% for the S&P 500
· Market Cap: $238 billion
· Current Yield: 3.1%
· Payout Ratio: 64% of Estimated FY 2017 earnings
US:PG
$70$75$80$85$90$95
While many staples stocks have run up in 2016, Procter & Gamble Co. PG, -0.54% stands out for a few reasons.
For starters, despite strong stock performance, it still yields a bit over 3%. Also, the payout ratio is about two-thirds of next year’s earnings, so the dividend is sustainable and there’s potential for future increases. When you add in that P&G has paid dividends for 126 years, with 60 consecutive dividend increases, it’s hard to argue that there is a better option for stable dividend growth than this consumer staples giant.
4. Duke Energy
· Sector: Utilities
· YTD Performance: 12% vs. 6% for the S&P 500
· Market Cap: $55 billion
· Current Yield: 4.3%
· Payout Ratio: 72% of Estimated FY 2017 earnings
US:DUK
$60$65$70$75$80$85$90
A lot of utilities stocks are volatile and overbought nowadays, due to heavy buying pressure in the sector early this year as investors ran for cover. But lately, shares of some of these companies have rolled back — including Duke Energy Corp.DUK, -1.29% which is once again trading at an attractive level for long-term, income-minded investors.
It’s also worth pointing out that even after declining about 8% from its 52-week high, Duke Energy stock still is up nicely year-to-date — and, of course, paying an appealing, sustainable dividend.
5. AbbVie
· Sector: Health care
· YTD Performance: 6% vs. 6% for the S&P 500
· Market Cap: $58 billion
· Current Yield: 3.6%
· Payout Ratio: 47% of Estimated FY 2017 earnings
US:ABBV
$45$50$55$60$65$70
AbbVie ABBV, +0.06% was spun-off of parent Abbott Laboratories ABT, -0.56% at the end of 2012 in an effort to separate the drug research arm of the company from the existing portfolio of legacy treatments and medical devices. AbbVie is the far more attractive option of the two, both in terms of its research potential and its performance for investors. Since the split AbbVie stock is up about 90% — almost double the performance of the S&P 500 SPX, -0.04% , while Abbott is up about 28%.
AbbVie isn’t a risky development stage biotech. Its blockbuster Humira arthritis treatment drives billions of dollars in annual revenue, while the company forges ahead with new drugs. And AbbVie stock currently trades for only about 11 times forward earnings.Throw in the recession-proof nature of the health-care sector, and you’d be hard pressed to find a better combination of growth, value and income than AbbVie shares.
