If you’re like me, the last week or so has made you a bit seasick. Thanks to the escalating trade war, dwindling economic data and perhaps missteps by the Federal Reserve, volatility is rising. Heck, the so-called “fear index” — the CBOE Volatility Index (VIX) — has spiked to levels not seen in years. That’s making for some nasty swings in the overall market. For many investors, those swings are resulting in plenty of sleepless nights. There’s nothing worse than being on the cusp of retirement and having to deal with this volatility.
With a hefty dose of dividend stocks, you don’t have to.
By nature, dividend stocks are generally less volatile than non-dividend stocks. That’s because getting 2%-4% in cash helps smooth out returns, no matter what the market is doing. At the same time, in order to continue paying those quarterly checks, dividend stocks tend to be of higher quality, featuring steady revenues, low debt and wide moats. As a result, investors tend to abandon dividend stocks less than non-payers during times of duress and their overall volatility is lower.
This is exactly where investors should be focusing their attention in the weeks and months ahead. As things get dicier, dividends will help get you through.
But which dividend stocks make the cut? Here are five that feature long-term dependability.
Dividend Yield: 2.95%
There’s nothing particularly exciting about toilet paper, diapers or tissues. But that doesn’t mean that boring can’t be profitable. In fact, Kimberly-Clark (NYSE:KMB) has turned purveying paper towels into a cash flow rich niche, and one that has rewarded investors for decades.
KMB owns such powerhouse brands as Huggies and Pull-Ups diapers, Kleenex tissues, Scott and Cottonelle toilet paper and Depends undergarment protectors. The firm sells these major brands across more than 175 different countries. And according to the firm’s own metrics, 1 in 4 people worldwide use at least one of its products each day. This huge moat and brand penetration have continued to power the firm’s revenues over its history. Last quarter, Kimberly-Clark stock managed to see a 5% jump in organic sales year-over-year.
That revenue growth may not seem tech-worthy, but with continued improving margins, it’s allowed KMB stock to see steadily improving profits. Here again, year-over-year earnings per share for the paper producer grew by 5%. For a steady dividend payer, this is exactly what you want to see — rising sales and profits that are consistent. And they’ve been consistent enough to reward shareholders in a big way.
Last quarter, KMB managed to hand out $520 million in dividends and buybacks. Management estimates that it’ll fork over around $2.3 billion for such activities over the rest of the year.
Dividend Yield: 2.13%
Forty-two years is a long time. But that’s just how long Medtronic (NYSE:MDT) stock has been paying increasing dividends. This puts MDT in an elite group of dividend stocks dubbed the Dividend Aristocrats that have been rewarding investors through thick and thin.
Driving that dividend growth is MDT’s business model. The firm basically invented the medical devices sector when it created the first artificial heart/pacemaker back in the 1950s. Today, it’s one of the largest device markers spanning a variety of cardiovascular, spine, surgery and other products needed by doctors and hospitals. This vast portfolio churns out plenty of steady cash flows and sales. Last quarter alone, Medtronic managed to sell more than $8 billion worth of devices.
The best part is that MDT stock has continued to see some big growth as well.
The device maker continues to move into higher-margin and more high-tech devices such as advanced diabetes monitors that use artificial intelligence to determine insulin levels. Sales of these devices have been swift. This has improved MDT’s profitability profile and helped boost its cash flows further. And MDT has been sharing those cash flows with investors. The firm recently upped its dividend by 8%, following a 9% boost last year.
With new devices pulling in high margins and old devices making plenty of steady sales, MDT could be one of the best dividend stocks to buy in this market. Medtronic yields 2.13%.
Dividend Yield: 1.8%
Truth be told, many investors have forgotten about Oracle (NYSE:ORCL) in favor of smaller, faster-growing tech stocks. That’s a real shame as Larry Ellison’s baby is still a great firm and increasingly, a wonderful dividend stock.
The enterprise software giant has successfully transitioned to the cloud and now offers a variety of database management and other products to meet the needs of businesses. And if it couldn’t build it on its own, Ellison has been very successful in buying what it needs. It added cloud-based enterprise resource planning software maker NetSuite in 2016 and construction project management software firm Aconex back in 2017.
The transition to the cloud has been successful for Oracle. Over the course of fiscal 2019, ORCL managed to pull in nearly $40 billion in total revenue. However, cloud services and licenses managed to make up 82% of those. Better still, ORCL stock has continued to see improving margins from these operations.
This has flooded the firm with cash. At the end of last quarter, ORCL had more than $37 billion in cash and short-term investments on its balance sheet. This gives it plenty of room to buy out additional cloud players and reward shareholders. Since initiating a dividend in 2009, Oracle has managed to grow its payout by 380%. This includes its last 26% boost at the start of the year.
For income seekers, ORCL stock shouldn’t be ignored. While its 1.8% yield isn’t super high, it has the goods to keep its growth over the long haul.
Dividend Yield: 3%
Some of the biggest beneficiaries of the last downturn were the self-storage real estate investment trusts. Americans have a lot of stuff, and as the housing crisis hit, many families were forced to downsize into smaller homes and apartments. That meant finding a place for all their Christmas decorations, family heirlooms and vintage Beanie Babies. This has made Extra Space Storage (NYSE:EXR) a wonderful dividend stock to own over the last few years.
That’s because for the storage unit owners, it’s a game of scale. Most of the sector is owned by mom and pop operators, so giants like Extra Space are able to use their massive size to often price out these operators from the market. Better still, firms like EXR can often offer them attractive buyouts — which only then improves its own cash flows. Right now, EXR owns nearly 1700 self-storage facilities across the country and continues to smartly add to that pool of assets.
That huge pool of facilities continues to work wonders for the firm’s cash flows. Since 2006, funds from operations at Extra Space have managed to surge by more than 600%. That beats the pants off its rivals like Public Storage (NYSE:PSA) and CubeSmart (NYSE:CUBE). Rising funds from operations directly translates into bigger dividends. Over the last five years, EXR stock has seen its dividend jump by 91%.
Given its history of dividend growth during times of stress, EXR could be one of the best dividend stocks as we approach another dicey economic situation.
Dividend Yield: 5.3%
Perhaps the best way to avoid the stress and volatility of the recent market is to blend the world of dividend stocks and bonds together. We’re talking about preferred stocks. Offering steady coupon-like dividend payouts and callable par value, preferred stocks are a naturally lower-volatility choice for portfolios. However, given the low volumes and hard to research nature of the sector, a broad approach is best. And for that, the iShares Preferred and Income Securities ETF (NASDAQ:PFF) is the best choice.
With almost $16 billion in assets and nearly 2 million in daily trading volume, PFF is the largest exchange-traded fund tracking the sector. With it’s underlying index — the ICE Exchange-Listed Preferred & Hybrid Securities Index — tracks more than 470 different preferred stocks. Financials and utilities make up the bulk of holdings, with preferred stocks issued by Bank of America (NYSE:BAC) and NextEra Energy (NYSE:NEE) leading the pack.
That huge portfolio of preferred stocks provides plenty of diversification and manages to push out a big 5.3% dividend yield. Even better is that PFF pays that dividend monthly — an added benefit for those in retirement. Returns for the ETF have mostly been via that dividend, highlighting the stability of owning preferred stocks.
With expenses of just 0.46%, or $46 per $10,000 invested, PFF makes a great choice to boost yield, while still owning dividend stocks in the wavy market environment.
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