With the meat of earnings season behind us and the summer lull straight ahead, many investors are wondering what’s next in 2016.
But given all the uncertainty out there, including the risk of a “Brexit” from the European Union and weak jobs numbers for April, it seems unlikely that the way forward will be very rosy. Heck, Fed chairwoman Janet Yellen went on record earlier this year to say she won’t rule out negative interest rates as a way to stimulate the economy!
In an environment such as this, investors need to think about defensive plays with the ability to hang tough in any market. And for most portfolios, that means a focus on low-risk dividend stocks that will drive returns of 4%, 5% or more simply through the power of their monthly distributions.
Those who want to swing trade the volatility better have a cast-iron stomach right now.
But for those who just want to preserve their capital and squeeze out a modest return in a down market, here are nine low-risk, high-yield dividend stocks to consider.
Low-Risk, High-Yield Dividend Stocks to Buy: Verizon (VZ)
Market Cap: $207 billion
YTD Performance: +11% vs. +1% for the S&P 500
Dividend Yield: 4.4%
Verizon Communications Inc. (NYSE:VZ) is the largest provider of wireless communications service in the U.S. You can’t get much more entrenched than that, and the scale of this telecom giant provided nearly $40 billion in operating cash flow last year that helped support a 4.4% dividend yield.
While VZ stock is sleepy, shares actually have outperformed nicely year-to-date with a double-digit return as investors have favored “risk-off” investments.
What’s more, even after this run, Verizon still is a bargain at less than 13 times forward earnings.
Low-Risk, High-Yield Dividend Stocks to Buy: Sanofi (SNY)
Market Cap: $105 billion
YTD Performance: -7%
Dividend Yield: 4.1%
While Sanofi SA (ADR) (NYSE:SNY) pays its dividend only once a year, investors still may want to put this European pharmaceuticals giant on their list of dividend stocks to watch right now.
For starters, Sanofi is a stable company with more than $6 billion in annual operating income. Also, while the SNY portfolio is indeed reliant on legacy drugs, the French pharma giant owns a big 22% stake in cutting-edge biotech company Regeneron Pharmaceuticals (NASDAQ:REGN) that provides not only revenue, but also a proving ground for new treatments in partnership with Sanofi. This is in addition to the subsidiary Genzyme, a biotech company purchased by SNY for more than $20 billion a few years back.
And best of all for income investors, the dividend payout ratio is roughly half of earnings – meaning the distributions are highly sustainable and ripe for future increases.
With a forward P/E of about 12 right now, SNY is fairly valued and a great low-risk dividend play for investors looking for stability right now.
Low-Risk, High-Yield Dividend Stocks to Buy: HSBC (HSBC)
Market Cap: $124 billion
YTD Performance: -21%
Dividend Yield: 8.1%
Battered bank HSBC Holdings plc (ADR) (HSBC) has been dead money since the first rumblings of a European Union breakup way back during the debt crisis era of 2011. And the British bank is once again facing headwinds as talk of a Brexit is stoking fears of an EU breakup once more, which seems pretty fitting.
European banks have been taking it on the chin lately with sagging share prices and a slump in Q1 earnings, including a 18.2% decline in net profit for HSBC in its most recent quarter. However, Citigroup analysts actually see the current lows in the continent’s banks as a buying opportunity now that the negativity is priced in.
HSBC, for instance, is now trading at a roughly 30% discount to its book value.
There’s undoubtedly risk here. But if you’re going to play the long game counting on a EU banking turnaround, there’s plenty of income potential at HSBC to sweeten the pot and hedge your bet. Based on the last four payouts, the stock yields about 8.1% annually at current prices.
Low-Risk, High-Yield Dividend Stocks to Buy: British American Tobacco (BTI)
Market Cap: $115 billion
YTD Performance: +11%
Dividend Yield: 3.8%
Tobacco isn’t a growth industry, and British American Tobacco PLC (ADR) (NYSE:BTI) is hardly a growth stock. However, there is a great deal of stability and income potential from this company and its suite of brands that include Kool, Benson & Hedges and Lucky Strike cigarettes.
While revenue has been challenged for several years now, BTI has a strong track record of finding bigger profits even when the top line isn’t looking hot. That’s because of roughly $2 billion in stock buybacks authorized in 2012 and 2013 to reduce share count, but also thanks to strong management and efficient operations.
It’s also because of continued consolidation via acquisition and investment in the few remaining tobacco companies out there — including a huge $4.7 billion investment in the Reynolds American, Inc. (NYSE:RAI) acquisition of Lorillard LLC to keep a 42% stake in the combined business.
This entrenched position and strong profitability supports a dividend machine that is hard not to like. And with payouts at about 65% of earnings, this income stream is not going away anytime soon.
Low-Risk, High-Yield Dividend Stocks to Buy: Chevron (CVX)
Industry: Oil and gas exploration and production
Market Cap: $190 billion
YTD Performance: +14%
Dividend Yield: 4.2%
I know, I know. Oil stocks are the devil. But Chevron Corporation (NYSE:CVX) has actually been defying gravity with a double-digit gain since January and a huge snap-back from its summer lows last year.
Why? Well, maybe it’s the fact that Chevron remains one of the largest energy companies on the planet and isn’t going anywhere, even if crude oil has had a rough run since early 2015. Or maybe it’s because oil prices have actually firmed up once more and shored up the bottom line, with crude jumping from lows around $30 at the start of the year to the high $40s currently.
Or maybe it’s just the fact that the company still threw off $20 billion in operating cash flow last year, is sitting on more than $35 billion in cash and investments and pays a 4.2% dividend that the company is actively fighting to maintain while it waits for oil to keep turning around.
Look, there is undoubtedly risk in energy and more volatility to come for the sector after another round of weak earnings from oil companies. But Chevron remains a very stable bet for long-term investors.
Low-Risk, High-Yield Dividend Stocks to Buy: Ventas (VTR)
Industry: Healthcare real estate
Market Cap: $23 billion
YTD Performance: +19%
Dividend Yield: 4.3%
Healthcare-focused real estate investment trust Ventas Inc. (NYSE:VTR) is the poster child for playing the demographic shift in America of aging baby boomers. As seniors require more care as they age, Ventas will be there with its senior housing facilities, medical office buildings and hospitals.
What’s more, many of the properties operated by Ventas are so-called “triple net” leases where the tenants are responsible for operating expenses — including taxes, insurance and maintenance. That means more flexibility for Ventas since it doesn’t have to worry as much about outlays, and can simply cash the rent checks each month.
Those sizable rent checks from tenants also fuel sizable dividends. As a real estate investment trust, VTR must deliver 90% of taxable income back to shareholders. That results in a payout of about 4.3% at current pricing. And as Ventas has consistently grown its business over time, so has that dividend grown; payouts are now 73 cents quarterly, up 85% from 39.5 cents quarterly 10 years ago.
Admittedly, it might be hard for VTR to sustain its growth going forward given its scale and previous dividend hikes. But simply maintaining its scale and dividend payouts will be quite nice for investors.
Low-Risk, High-Yield Dividend Stocks to Buy: International Paper (IP)
Industry: Paper packaging
Market Cap: $17 billion
YTD Performance: +11%
Dividend Yield: 4.2%
While International Paper Co (NYSE:IP) has been pretty stagnant since 2012, a recent downturn in the stock over the last 12 months or so has provided a great buying opportunity for long-term dividend investors. While there admittedly isn’t much growth in IP, if you want stability and income, there are few better picks for your portfolio.
For starters, IP is a bargain stock with a forward price-to-earnings ratio of under 12 right now. And while there isn’t much growth in paper products, there certainly is stability now that International Paper is consolidating its market share even more with the recent acquisition of rival Weyerhaeuser Co’s (NYSE:WY) paper pulp business.
IP stock pays a juicy 4.2% dividend at current pricing, with a recent 10% bump in payouts driving distributions to 44 cents quarterly. That income stream is sustainable, too, at less than half of next year’s projected earnings.
Shares admittedly have been under pressure for a year or so, but International Paper has turned around nicely since the February lows.
For long-term dividend investors, IP is a stable and income-rich play.
Low-Risk, High-Yield Dividend Stocks to Buy: GlaxoSmithKline (GSK)
Market Cap: $105 billion
YTD Performance: +5%
Dividend Yield: 6.8%
Big Pharma stocks get a bad rap based on the notion that expiring patents on legacy drugs continue to create headwinds, and that a lack of growth will pretty much doom these investments to underperformance for the foreseeable future.
But GlaxoSmithKline plc (ADR) (NYSE:GSK) has a lot to offer long-term investors in the form of a stable suite of current products, a decent product pipeline and a robust dividend.
Yes, GSK stock has been in big trouble for two years or so in the wake of a bribery scandal in China and a roughly $500 million fine. But with shares still down about 25% from early 2014 highs, Wall Street has a bit too much negativity for this drug giant these days.
Revenue is growing by low single digits, and profits are set to jump 9% in FY2016 thanks to efficiencies as part of a reorganization announced in December 2014.
What’s more, GSK offers a 6.8% dividend based on the last four payouts. And even if you take the smallest quarterly distribution over the past year — 55 cents a share paid in Q4 2015 — the yield is still an impressive 5.1%.
Low-Risk, High-Yield Dividend Stocks to Buy: AT&T (T)
Market Cap: $240 billion
YTD Performance: +14%
Dividend Yield: 4.9%
It’s hard to imagine telecom AT&T Inc. (T) ever putting up significant growth metrics given its highly regulated and capital-intensive operations. But this year, AT&T is expected to post double-digit top-line growth and is bouncing back significantly from losses in Q4 2014 thanks to big one-time charges.
Furthermore, AT&T continues to see a robust mobile and data business — including mostly stable numbers in its “Consumer Mobility” segment and double-digit growth in both business wireless subscribers and business broadband connections for 2015 vs. 2014. Furthermore, in its most recent Q1 report, margins were up nicely thanks in large part to a big jump in consumer wireless, from 25.5% in operating income margin last year to 29.9% in Q1 2016.
After some outperformance lately, there is good reason to think AT&T’s momentum could slow. But with a forward price-to-earnings ratio of just 13, this stock isn’t exactly expensive – and with a beta of less than 0.35, AT&T isn’t going to go bonkers on you and melt down.
Throw in a juicy 4.9% dividend that is about two-thirds of earnings, and investors can rely on this telecom giant no matter what the market throws their way in the coming months.
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 hold a position in any of the aforementioned securities.