Volatility has gone haywire over the past week, helping the historically topsy-turvy month of September live up to its reputation. The biggest driver of this is the Federal Reserve — namely, investors are wondering whether the Fed will or won’t raise interest rates at next week’s Federal Open Market Committee meeting.
For one, it’s looking increasingly likely that the Fed will stay still on rates. A recent check of the CME Fed Watch tool showed an 88% chance of rates staying in their current range.
But even if the Fed does surprise, not every dividend stock is in a world of hurt.
Quality dividend stocks that offer long-standing and long-increasing payouts, even if they shudder a bit at the initial announcement, have a tendency to go about their business afterward. Besides, the pain in quality companies with strong yields isn’t going to be that severe, considering any rate hike would likely be just a quarter of a point.
So if you are sweating next week’s FOMC meeting, consider buying yourself a little insurance. These three dividend stocks are backed by reliable businesses and reliable income — very reliable income. Specifically, all three companies have paid and increased their distributions every year for decades, earning them a place on our list of Dependable Dividend Stocks.
Dependable Dividend Stocks to Buy: Nucor Corporation (NUE)
Dividend Yield: 3.2%
Consecutive Years of Dividend Increases: 43
Nucor Corporation (NYSE:NUE) is the country’s largest producer of steel as well as the largest mini-mill steelmaker. Nucor’s lineage goes back to the REO Motor Company, founded by Ransom E. Olds after he left Oldsmobile (which he also founded) around the break of the 20th century. The steel business came from an acquisition of Vulcraft Corporation in 1962, and was the only profitable business left when Nucor was reorganized a few years later.
The U.S. steel industry certainly has fallen on rough times since then, but Nucor still is hanging around and remains soundly profitable. That’s thanks in part to a wide offering of steel products outside of norms like sheet and tin, and also thanks to the company’s mini-mills, which allows Nucor to compete in scrap metal.
Moreover, the International Trade Commission recently ruled that foreign steel producers are unfairly undercutting the U.S. steel industry — a ruling that could eventually have a positive effect on Nucor and other steelmakers like United States Steel Corporation (NYSE:X) and AK Steel Holding Corporation (NYSE:AKS).
And heck, a Fed rate hike could actually be good for Nucor, too, as basic materials tend to outperform when rates rise.
Nucor raised its dividend for the 43rd consecutive time at the end of 2015 when it inched it up from 37.25 cents to 37.5 cents quarterly. So despite steel’s relative weakness, Nucor’s income is awfully dependable.
Dependable Dividend Stocks to Buy: Universal Health Realty Income Trust (UHT)
Dividend Yield: 3.2%
Consecutive Years of Dividend Increases: 30
Industry: Health Real Estate
Universal Health Realty Income Trust (NYSE:UHT) is a real estate investment trust (REIT), which in a way makes dividends its business. That’s because REITs are required to pay out 90% of their earnings as dividends in exchange for various tax considerations.
Sure, REITs struggle in rising-interest-rate environments. But unless rates rise rapidly (and that doesn’t seem likely), that dynamic is muted somewhat. You could consider waiting for a rate increase, then buying UHT on a dip. But this company is resilient. It’s up more than 16% since the Dec. 16, 2015, rate increase — much better than the 4% put up by the S&P 500.
Universal Health Realty Income Trust itself is a healthcare real estate owner and operator, so it deals in things like rehab facilities and childcare centers. That’s a fundamentally safe business to be in, and a rate hike would actually bode well for that, too. Because if the Fed does decide to increase interest rates, it’ll likely be on confidence in the U.S. economy and its improvement. That bodes well for healthcare, which does better when people have jobs and … well, health insurance.
UHT now has 64 investments across 19 states, with the majority of its holdings in medical office buildings and clinics. The company’s overall net income is off this year, but that’s mostly because of a one-time gain on a property exchange that juiced 2015’s results. For the first six months of the year, adjusted income is actually up $2 million year-over-year. Funds from operations (FFO) — a valuable metric for gauging REIT performance and health — grew from $1.43 per share to $1.54.
UHT has been paying and growing its dividend since 1986, and now might be the time to buy — it’s on a dip that has shares off about 8% from all-time highs reached earlier this month.
Dividend Stocks to Buy: AT&T Inc. (T)
Dividend Yield: 4.8%
Consecutive Years of Dividend Increases: 32
One thing that typically worries investors is debt, and AT&T Inc. (NYSE:T) is flush with it. Specifically, it has just more than $9 billion in cash and investments versus about $127 billion in total debt.
That said, AT&T is fine.
That’s because it and a few other major telecoms are great at churning out free cash flow. Specifically, AT&T generated about $15 billion worth last year, and paid $10 billion of that out in dividends. The debt on AT&T’s shoulders isn’t a positive, but a necessary evil for the continued buildout of telecom technology, as well as the buyout of DirecTV.
AT&T has some catalysts on the horizon, too. For instance, the iPhone 7 from Apple Inc. (NASDAQ:AAPL) gives AT&T a major cross-selling opportunity for that DirecTV purchase. Wells Fargo Senior Analyst Jennifer Fritzsche believes iPhone 7 sales will drive increased foot traffic to AT&T stores, which will allow T to cross-sell customers to satellite TV service. Considering AT&T has the largest base of iPhone users, this could be a significant opportunity.
Not that AT&T has struggled getting people on board with DirecTV. In Q2, AT&T added 342,000 DirecTV net adds in the U.S., bringing it to about a million U.S. satellite net adds since the acquisition closed in 2015. No wonder the telecom is expected to accelerate its earnings growth from about 4.8% annually over the past five years to about 8.2% in the next five.
AT&T’s dividend has been on the rise for more than three decades, and while the company doesn’t have a ton of room to grow it, you’ll still get nominal increases on what already is a generous payout.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.