If you’re worried about stock market volatility in 2015 or what a rate hike at the Federal Reserve means for stocks, it’s natural to start getting defensive with your portfolio.
That means paring back on some of those high-growth tech stocks and looking to stable, dividend-paying companies with sustainable distributions and much of the current negativity already priced in.
I’ve pulled together nine such dividend stocks for you, some of which have underperformed lately and thus trade at bargain levels, and others that have actually managed to hold firm in 2015 on a total return basis even while the S&P 500 has moved significantly into the red.
Investors still might face some short-term troubles, but these dividend stocks are proven names with long-term potential that will serve income-oriented investors in any market.
Here they are:
Solid Dividend Stocks: Archer Daniels Midland (ADM)
Sector: Consumer Staples
Payout Ratio: 32%
When you think of rock-solid investments, you can’t get much more stable than a consumer staples giant like Archer Daniels Midland (ADM). With a 2.5% dividend and a business that is pretty much recession-proof thanks to its dominance in grains and deep relationships with major food products companies, ADM isn’t going anywhere.
Plus, with a forward price-to-earnings ratio of about 13 after this pullback and a super-low price-to-sales of under 0.4 right now, investors can be sure they are buying ADM stock at attractive levels.
There’s also a robust share repurchase plan in place at Archer Daniels Midland, which is planning to buy back $1.5 billion to $2 billion worth of stock in 2015.
This kind of sleepy stock will never burn the house down with big gains in short order. However, if you’re a long-term investor who is looking to add to their portfolio but doesn’t like some of the froth out there, consumer staples king ADM could be one of your best bargain buys right now for stability and long-term returns.
Solid Dividend Stocks: BlackRock (BLK)
Payout Ratio: 41%
BlackRock (BLK) has had a rough year, but the sharp declines have all come at once; after moving mostly sideways through mid-July, BLK stock fell off a cliff several weeks ago as it plummeted from more than $350 a share to under $300 in short order.
But now, the stock is a screaming bargain with a forward P/E of about 14 and a price/book of just 1.8 or so.
RBC reiterated its “buy” rating in July, and even though it lowered its price target, the $388 mark still was more than 10% higher than GS’ price at the time.
With a nice dividend of around 2.8% after this downturn and a very sustainable payout ratio of nearly 40% of next year’s earnings, expect BlackRock not just to deliver strong dividends but to increase them over time, too.
Solid Dividend Stocks: Cisco (CSCO)
Payout Ratio: 37%
Cisco (CSCO) has been a pain for many investors over the last few years. The tech stock has made overtures about restructuring for years now, but has finally put its money where its mouth is after the resignation of two top executives and the replacement of longtime CEO John Chambers with one of its top salesmen — Chuck Robbins, an insider known for his get-it-done mentality.
While the changing of the guard is good, it’s important to note that Cisco is not a dead company like BlackBerry (BBRY) that has become obsolete. Walk into any corporate IT department or data center and you’ll see Cisco gear everywhere. Competition has eroded some of its dominance, yes, but CSCO is hardly on the ropes.
Consider that Cisco remains the market share leader in cloud infrastructure — the servers and technology that make the cloud possible — with 14% of total revenues in this category to top both Hewlett–Packard (HPQ) and IBM (IBM) earlier this year. Considering the hype around the cloud, this is proof positive CSCO is not falling behind.
Let’s not overlook the $60 billion or so in cash this tech giant is sitting on, either.
Solid Dividend Stocks: Consolidated Edison (ED)
Payout Ratio: 65%
Consolidated Edison (ED) and similar utility stocks are not the sexiest stocks out there, since geographic limitations and high regulatory barriers make it quite difficult for the company to grow.
However, those same factors create a wide moat that means low risk and a high degree of certainty.
How much certainty? Enough to provide for more than a century of dividends at ED, dating back to 1885! Furthermore, Consolidated Edison has seen 41 consecutive years where its dividend has been raised.
The 4.2% yield is as attractive as the history, too, and the current payout is just under two-thirds of projected fiscal 2016 earnings.
A focus on serving the metropolitan New York area also means a steady stream of customers. As millennials continue to flee rural areas and even the suburbs in search of opportunities in urban centers, ConEd doesn’t have to worry about where its future customers will come from.
If you’re looking for stability and yield, utility stocks have a lot to offer … and ConEd is one of the best of the bunch.
Solid Dividend Stocks: Intel (INTC)
Payout Ratio: 41%
Semiconductors stocks started out the year with a bang thanks to a bunch of consolidation across the industry. But Intel (INTC) sat that trend out, thanks in part to fears that its dominance as the world’s #1 chipmaker could be at risk — and that it perhaps overpaid for its own acquisition of data center player Altera for about $16.7 billion in cash. Then, just as the dust started to settle, the market decided to go haywire.
But lost amid the short-term negativity is the fact that Intel has a tremendously wide moat and incredibly reliable revenue. After all, its total Q1 sales were $11.6 billion – topping #2 Samsung’s $9.3 billion by a wide margin.
This dominance fuels big dividends, with a 3.6% yield and a very sustainable 41% payout ratio.
Yes, there are pressures in a post-PC age. But this is very old news for Intel and the company has taken big steps both to right-size operations through layoffs and to move into growth areas — including its Altera buyout.
With about $26.3 billion in cash and $20 billion in operating cash flow, Intel isn’t going anywhere — and neither are its dividends.
Solid Dividend Stocks: Markwest Energy Partners (MWE)
Payout Ratio: 94% (based on Q2 distributable cash flow)
Markwest Energy Partners (MWE) is a bit different than the other stocks on this list because it’s an MLP — that is, a master limited partnership — and structured mainly as a pass-through entity for dividends. Dividends can fluctuate more than at some of the other players, but the trend has been decidedly upwards for MWE payouts; right now, MWE stock pays about 92 cents per quarter, but was paying just 64 cents at the end of 2010.
That’s a more than 40% bump in five years.
Also encouraging is that in the company’s August 10-Q filing, with details on operations through Q2, net cash flows from operating activities – the most important indicator of Markwest’s health — were actually up year-over-year across the first six months of the year, from $357 million in the first half of 2014 to $363 million this year.
Sure, there’s volatility in energy prices and MWE stock has been caught up in this with a decline of almost 20% year-to-date in 2015. However, strong operating cash flow shows cheap energy prices can’t ruin this company’s performance. That’s because MWE is largely a natural gas processor and transportation company – meaning it’s not as exposed to commodity risk like exploration companies or “downstream” energy companies that actually sell gas and oil.
There is certainly negativity around energy stocks right now, but a lot of that sentiment is now priced in. And with a 6.5% dividend, you have plenty of reason to buy in even if share prices go nowhere for a while.
Solid Dividend Stocks: Physicians Realty Trust (DOC)
Sector: Real Estate
Payout Ratio: 78%
Physicians Realty Trust (DOC) is a healthcare stock, but also a great income play since it’s structured as a REIT that pays a massive dividend.
This real estate investment trust owns and manages health-care properties that include hospitals and medical-office campuses located in the immediate vicinity. This is a great strategy that enables Physicians Realty to tap into the baseline health-care demand of an area, as well as the post-visit care that so often comes with a hospital stay.
Though performance has lagged a bit in 2015, the company is coming of a killer 2014 where it added over 30% to shares on top of its robust dividend yield. A bit of a pullback was in order after this red hot run, and the market downturn lately has accelerated that decline.
The good news is, that has created a tremendous buying opportunity.
The payout ratio is high for dividends, but remember that Physicians Realty is a REIT. That means it has to deliver the lion’s share of taxable income back to shareholders.
And longer term, I’m confident in the trend of healthcare-related REITs gathering momentum as Baby Boomers age and demand more care, and as Obamacare continues to unlock more “customers” with insurance coverage for doctors and hospitals.
That will result in not just share appreciation, but also dividend growth that could make DOC stock an amazing long-term income play regardless of the broader market environment.
Solid Dividend Stocks: Royal Bank of Canada (RY)
Payout Ratio: 55%
Royal Bank of Canada (RY) has been hit hard as the resource-rich nation has been under pressure thanks to weak commodity prices, especially for oil. But negativity is now very much priced into the stock, and after sharp declines recently you can obtain a stellar 4.4% yield in RY stock right now — better than twice U.S. T-Notes.
With a market cap approaching $80 billion, this major Canadian bank has the scale and stability you want to see in a dividend stock. And unlike U.S. banks like JPMorgan Chase (JPM) that regularly engage in risky investing strategies or suffer costly legal settlements, the Royal Bank of Canada has a much less aggressive approach to finance.
Consider that as early as September 2009, RY stock had eclipsed its pre-crisis pricing as proof of how much less risky this Canadian bank was vs. its U.S. peers.
That kind of judicious approach to lending is a good thing for long-term dividend investors more concerned with income over the long-term than quarter-to-quarter profits based on proprietary trading.
Solid Dividend Stocks: Sonoco Products (SON)
Payout ratio: 50%
Sonoco Products (SON) is one of the world’s largest producers of packaging products and services, with over 330 locations across 34 countries. Its products include everything from glass bottles to cardboard boxes to plastic shells – and just about anything else you can think of, too.
Sonoco is admittedly never going to be a high growth company, since it’s reliant on demand for its clients’ products as much (if not more) than demand of its own services. SON is also highly cyclical, because a consumer downturn naturally means less product demand and thus less packaging demand across the board.
But there’s something to be said for being one of the largest packaging providers, and running a business that includes various consumer products and grocery store staples that will see strong baseline demand even in rough times. This reliability has given Sonoco a strong foundation and reliable revenue to support its dividend.
Admittedly, Sonoco missed forecasts in its recent earnings report and took a hit as a result. But shares are actually pretty cheap right now on the pullback, trading at a forward P/E of about 13.5 and a price/sales of just 0.8 currently.
If you’re a long-term investor, it may be worth jumping in to this packaging stock on the dip.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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