There’s a strong tendency among income investors to seek out safety in dividend stocks. The theory, of course, is that if a company can afford to pay out dividends, or even raise the payout every year, it must be generating enough free cash flow to do so.
It follows logically, then, that dividend stocks that have paid shareholders for literally decades are a good place for income investors to park their cash. The same can be said, even more so, for retirement investors. After all, it’s all about safety and a regular income stream.
There’s only one caveat to all this, which is that it is possible for these stocks to become significantly overvalued in a big bull market. Then, there’s a danger of capital loss.
However, if you are a retirement investor and hold a diversified portfolio, a short-term dip shouldn’t hamper you too much.
Dividend Stocks to Buy – Cincinnati Financial (CINF)
Dividend Yield: 3.8%
Dividends Paid Since: 1954
One of the most surprising names as a multidecade dividend payer is Cincinnati Financial (CINF).
It’s not one of the legendary names you are probably familiar with, yet it was founded in 1950 (as The Cincinnati Insurance Company) and has become one of the most successful insurance companies in the country.
CINF operates in all the usual segments of insurance, like property and casualty, but also in life insurance and commercial insurance.
The beauty of CINF stock is its reliable cash flow. It pays out about $260 million per year in dividends, but generates in the high-nine-figures of cash flow. So the dividend is really a drop in the bucket, representing about 30% of cash flow.
At 60 years and counting, Cincinnati Financial’s dividend is as dependable as you can get.
Dividend Stocks to Buy – Piedmont Natural Gas Co. (PNY)
Dividend Yield: 3.8%
Dividends Paid Since: 1956
You might expect at least one energy play in here, and you’d be right.
Piedmont Natural Gas Co. (PNY) is another quiet name, this time a regional energy stock, operating as a regulated utility in some parts of its business, but also handling unregulated activities in others. PNY is involved in natural gas marketing, transportation and distribution, but only in North Carolina, South Carolina and Tennessee.
PNY stock is another winner that has simply tended to its knitting since being founded in 1949. Its free cash flow bounces around, and has actually been negative the past two years, but looks to be positive again this year. Besides, PNY isn’t going anywhere — the stock has slowly appreciated 17% over the past three years, a positive trend that looks just stodgy enough for a utility.
Piedmont currently yields 3.8%, and is sitting at 48 consecutive years of dividend payouts.
Dividend Stocks to Buy – Sysco (SYY)
Dividend Yield: 3.1%
Dividends Paid Since: 1970
I’ve seen Sysco Corporation (SYY) trucks driving all over the place for many years, and that’s because this $22 billion behemoth has captured enormous market share in many of its segments.
Think of Sysco as a “food service Jack-of-all-trades.” Not only does it distribute food — it also distributes the things you eat the food with (utensils), plus anything else you’d find on the dining room table or in a cafeteria.
Sysco has a whopping 200 distribution facilities all over this country, and the Bahamas, Canada and Ireland of all places. It’s a fantastic operation and, even though it costs a half billion dollars every year in capex to keep things going, still generates a billion dollars in FCF on top of that. SYY stock distributes about 66% of that billion in free cash flow as a dividend.
You can rest easy with SYY stock’s dividend, which has been paid for more than four decades.
The one thing to watch for — a merger with US Foods is currently being eyeballed by the Federal Trade Commission, and if that goes south, that could take some of the wind out of SYY.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at email@example.com and follow his tweets at @ichabodscranium.