Dividend stocks are always a popular bet in this low-yield environment. But blue-chip stocks with big dividends could be even more in demand should the stock market suffer a correction in the months ahead.
Despite blue-chip stocks pushing up against new all-time highs, a 30% up year in 2013 has many investors waiting for the other shoe to drop.
Furthermore, the end of earnings season and the month of May possibly bringing on a softer season for the stock market fuels a general sense that we could see a bit of trouble over the next few months.
I, for one, subscribe to that notion and am loading up on dividend stocks myself as a result. However, I don’t expect a sustained crash that will erase value from the stock market permanently. A pullback would then simply be an opportunity to enter long-term positions in blue-chip stocks that pay good income over the years ahead — and keep your money safe even in a choppy stock market.
So, what companies should income investors be looking at? Here are five such crash-proof dividend stocks to consider.
Crash-Proof Dividend Stocks: Teva Pharmaceuticals (TEVA)
Generic giant Teva Pharmaceuticals (TEVA) isn’t a household name like, say, the blue-chip stocks of the Dow Jones Industrial Average. But with more than $20 billion in sales annually in all corners of the globe, Teva is the world’s largest manufacturer of generic medications and one of the safest plays out there in any market.
Unlike some other pharma stocks out there, patent expiration is not an issue for Teva. If anything, patent expirations are good for Teva because it provides a bigger universe of generic drugs it can sell.
The margins, obviously, are less attractive in generics. But if you’re a low-risk investor, it’s more important to find long-term stability for your portfolio than a drugmaker with high-margin medications about to go off-patent.
Teva’s plan, then, is simply to make up for margins in scale and acquisitions. In its recent earnings call, the new CEO said he is “aware of the opportunities around us, including potential larger transactions.” Soon after that, rumors started swirling that Teva will buy out Indian drugmaker Cipla Ltd. for $6 billion.
Not only will the Cipla deal (if it happens) tighten Teva’s grip on generics, but it also will provide big growth in an emerging market where healthcare consumption is rising rapidly — even more so than in an aging U.S.
With a 2.3% dividend yield, TEVA stock isn’t the highest dividend payer out there. But with a dominant share of the global generics market and a will to stay bigger than everyone else for a long time to come … well, the only question you need to ask yourself is whether people will be taking their pills in the future.
If the answer is “yes,” then you should see Teva as a rock-solid buy in any market.
Crash-Proof Dividend Stocks: Colgate-Palmolive (CL)
Colgate-Palmolive (CL) is one of InvestorPlace.com’s Dependable Dividend Stocks for any market. That’s because the consumer staples company has paid uninterrupted dividends since 1895 — so, that’s across the Great Depression, two world wars and most recently the financial crisis.
It’s not just the stability of Colgate’s dividend that makes the stock attractive, however. Back in 2004, CL stock paid 12 cents per quarter in dividends and now pays 36 cents a share — a threefold increase in the past decade.
The current yield on Colgate’s dividend is 2.2%, which like Teva isn’t super attractive right now. But as a long-term holding, the stability and dividend growth of CL stock can’t be beat.
Just look at the total return of roughly 1,250% over the last 20 years, vs. about 510% for the S&P 500 in the same period.
In both good times and bad, CL has reliable revenue thanks to its popular product lines that include Colgate oral care, Speed Stick deodorant, Science Diet pet food and Palmolive dish soap just to name a few.
Sure, Colgate-Palmolive isn’t the sexiest stock out there. But if you want stability and long-term dividend growth, you can’t do better.
Crash-Proof Dividend Stocks: 3M (MMM)
3M (MMM) is bit more “growthy” stock than Teva or Colgate in that its broad chemicals can grow based on industrial demand.
However, don’t think that MMM stock is a volatile or cyclical business. It has paid uninterrupted dividends since 1916 thanks to its scale and diversification, and allows you to have exposure to the recovery as well as stability if times remain rocky.
3M dividends haven’t merely been stable, though. In 2004, MMM stock paid 36 cents a share in quarterly dividends and now pays 85.5 cents — a 138% increase in distributions.
Furthermore, even after these brisk increases there’s enough cushion in 3M’s earnings to increase its dividends even more. Based on next year’s profit forecast, 3M is paying just 40% or so of earnings toward its dividend. No wonder MMM stock has been able to increase its dividend once a year for 57 years running.
The chemicals space is dominated by a small group of players, including DuPont (DD) at $61 billion in market cap and Dow Chemical (DOW) at $60 billion. But 3M is by far the largest of the trio at a valuation of about $92.2 billion, and is at no risk of going anywhere.
With a 2.4% dividend and hopes of future increases, MMM stock is a great buy for what could be a rocky summer.
Crash-Proof Dividend Stocks: Intel (INTC)
Intel (INTC) has largely been overlooked for the past few years. But those who haven’t been paying attention for some time might have missed out on the recent strength in this chip-maker.
Sure, the mobile revolution is severely limiting the growth potential for Intel, and revenue has been stagnant since 2011. However, despite a continuation of top-line issues in the first quarter, there are signs that Intel is much better off than some naysayers believe.
Intel beat expectations in the first three months of the year, thanks in part to its data-center business and (surprise!) corporate PC sales.
The strong outlook for corporate sales resulted in a number of analyst moves on Intel, including an upgrade to “buy” at Deutsche Bank with a $30 target. Separately, Pacific Crest and Jefferies each reiterated bullish calls with $32 and $35 targets, respectively.
I remain convinced that the poor performance of enterprise tech over the past few years will start to change as businesses begin to invest again. And if that trend proves true, we could see Intel continue to see growth in its data-center and PC businesses in the short term.
Long term, Intel continues to make progress on mobile chip sets and adapting its business to a new environment. Beyond the strategy, there’s the juicy dividend and a strong history of increases. Intel’s dividends have advanced 450% in the past 10 years, from 4 cents quarterly to 22.5 cents, but still are comfortably below half of projected earnings.
And with $30 billion in cash and investments on the books, and more than $20 billion in annual operating cash flow, there’s a reasonable expectation of continued dividend growth going forward.
Crash-Proof Dividend Stocks: Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) is an old favorite among defensive dividend stocks. It’s a healthcare play — but also a consumer staples play, thanks to popular brands including Band-Aid, Tylenol and Splenda.
The healthcare angle makes JNJ stock pretty recession-proof, since medical expenses don’t go away even in tough times, and the company’s consumer-brand power gives it stability for the long run.
Many investors have been overlooking Johnson & Johnson after the company struggled from 2010 to 2012 amid quality-control issues and big product recalls. However, since CEO Alex Gorsky took over two years ago, the company has been marching steadily higher. The stock is up almost 60% since Gorsky took over vs. 35% or so for the S&P 500. That includes an impressive gain of 9% this year despite a pretty flat market.
And long term, J&J has a total return of about 140% including dividends over the past 10 years, thanks to distributions that have increased 145% from 28.5 cents per share each quarter in 2004 to 70 cents as of its upcoming May 27 payout.
While naysayers may point out that Johnson & Johnson could be overvalued after this run, it’s still trading for about 15.5 times future earnings — which is exactly the forward P/E of the broader market right now.
I have confidence that J&J will hang tough even if things get increasingly volatile in 2014. But more importantly, I’d have confidence in buying shares for a long-term, dividend-oriented portfolio right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at [email protected] or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.