Investors have plenty to be concerned about these days. Global stocks around the world have surged in 2017, sending frothy valuations even higher. The Federal Reserve is raising interest rates, and several central banks around the world have signaled expectations for tightening monetary policy going forward.
With yields remaining near record lows, income investors searching for the best high-dividend stocks have hard a particularly hard time in this market environment. That’s especially true if a recession could be right around the corner, which could jeopardize the safety of many dividend payments.
But fear not! Companies with the safest dividends typically possess reasonable payout ratios, time-tested operations, a proven commitment to paying dividends, great cash flow and strong moats.
Our Dividend Safety Scores look at many of these factors to help investors locate the safest blue-chip dividends on Wall Street and avoid dividend cuts. You can learn more about how our Dividend Safety Scores work and view their real-time track record here.
We used our Dividend Safety Scores to identify 10 of the safest dividend payments in the market. Let’s take a closer look at these blue-chip stocks.
Blue-Chip Dividend Stocks: Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a global healthcare company engaged in the manufacture and development of a wide range of healthcare products. J&J is a globally recognized household name today with over one billion people using its products every day, and it is also one of the most popular holdings for investors living on dividends in retirement.
Johnson & Johnson operates through three segments: Pharmaceutical Products (47% of 2016 revenues — immunology, cardiovascular, metabolic and other infectious diseases), Medical Devices (35% — surgical, orthopaedics, cardiovascular) and Consumer Products (18% — baby, beauty and health).
The company also has a diversified global footprint in North America (45% of 2016 revenue), EMEA (28%), Asia Pacific (17%) and Latin America (10%). It is a global leader in several consumer categories and owns a strong portfolio of iconic brands, including Neutrogena and Listerine.
With over 130 years of operating experience, the company has developed an impressive portfolio of pharmaceutical products focused on five core therapeutic areas — Immunology, Infectious Diseases & Vaccines, Neuroscience, Cardiovascular & Metabolism, and Oncology.
It also plans to launch a pipeline of 10 new transformational medicines by 2021. Since J&J’s pharma business generates the majority of the company’s profits, it’s very important for the firm’s future. Fortunately, J&J’s drug portfolio is very well diversified, reducing risk.
The company’s consumer segment and medical devices provide more predictable cash flow that helps fund the pharma segment’s capital-intensive operations. It’s very difficult for new entrants to match J&J’s spending on R&D, global distribution network, broad product portfolio, and leading position in many health and wellness areas.
The demand for JNJ’s products is expected to keep growing as the global population further ages and developing countries spend more on healthcare. The company’s business is very resilient as well thanks to the non-discretionary nature of many of its products, making J&J one of the safest blue-chip stocks in the market.
Johnson & Johnson is also a member of the dividend aristocrats list here, having increased its dividend for 55 consecutive years. The company has an outstanding record of increasing dividend at 11.3% annual rate over the last two decades.
It last raised its dividend by 5% in 2017 and also guided its 2017 EPS to grow by 5%. With a reasonable payout ratio near 50%, very steady cash flow, and a pristine balance sheet, investors can expect dividends to increase at a mid-single-digit pace going forward.
Blue-Chip Dividend Stocks: TJX Companies (TJX)
In business for more than 40 years, TJX Companies Inc (NYSE:TJX) is a leading off-price retailer of apparel and home fashions goods in the U.S. and internationally.
The company’s key business segments are Marmaxx (64% of net sales — T.J. Maxx and Marshalls chains) and HomeGoods (13%). TJX operates both in the U.S. (73% of sales), Canada (10%), and internationally (13% — Europe and Australia).
Clothing, including footwear, is the company’s biggest product category constituting 54% of total revenues, followed by home fashion (31%) and jewelry (15%). The company’s core customer is a fashion and value conscious female shopper making a middle to upper-middle income.
TJX provides its customers with a compelling value proposition of designer merchandise at excellent values, thanks in large part to its global supply network of more than 18,000 vendors. In addition, its low-cost operating structure and flexible business model allow TJX to keep its prices significantly below department and specialty store prices.
A wide demographic reach, large geographical footprint and strong balance sheet are TJX’s other major competitive advantages. The company is also making strategic investments to capture additional market share in the U.S. and global markets.
2017 marked TJX’s 21st consecutive year of dividend increases, and the company recently raised its dividend by 20%. With a payout ratio near 30% and a healthy balance sheet, TJX should have no problem continuing to pay safe, fast-growing dividends for many years to come.
Blue-Chip Dividend Stocks: Home Depot (HD)
Home Depot Inc (NYSE:HD) is a leading home improvement retailer in the U.S. with more than 2,200 retail stores. Selling a wide variety of building materials, home improvement products and garden products, the company offers one-stop shopping for the do-it-yourself customers.
With 39 years of home retail experience, Home Depot has a number of competitive advantages, including its leading economies of scale, convenient store locations, well-known brand, supply chain expertise and breadth of products.
Home Depot is the industry’s low-cost provider thanks to its size, which helps it afford a large range of merchandise, helpful in-store displays, and a big service staff to help customers get exactly what they need.
Smaller competitors cannot match the company’s inventory selection, customer experience, brand recognition, and price points. Home Depot’s extensive supply chain and IT systems also serve as competitive advantages and make its shopping experience more convenient for customers.
Home Depot has been paying increasing dividends for the last 29 years. The company’s payout ratio is safe near 50% thanks to Home Depot’s consistent free cash flow generation, time-tested operations, and healthy balance sheet.
The company’s dividend has enjoyed excellent growth as well, compounding by 21.6% per year over the last five years. The company last raised its dividend by almost 29% and should continue rewarding shareholders with double-digit increases for many years to come.
Blue-Chip Dividend Stocks: Disney (DIS)
The Walt Disney Co (NYSE:DIS) is a global entertainment company operating in media networks, parks and resorts, studio entertainment and consumer products & interactive media.
Starting out as a cartoon studio in the 1920s, Disney has become a global leader in the entertainment industry today, with operations in more than 40 countries and some of the most iconic brands in the world.
For example, the Media Networks segment operates ESPN and over 100 Disney-branded television channels, which are broadcast in over 160 countries and have more than 1,300 million subscribers.
However, a diversified set of large, global and synergistic businesses is arguably Walt Disney’s biggest competitive strength. For example, the company is opening new theme park attractions based on its hit franchises — like Pandora: The World of Avatar, Star Wars Lands, and more.
By leveraging its brands, technological capabilities, creativity and international presence, Disney’s future remains bright.
Walt Disney last raised its dividend by 10% in late 2016. Its dividend payout ratio sits below 30%, which provides a good deal of safety and plenty of room for growth.
In fact, the company has increased its dividend at a very impressive 17% annual rate over the last decade. Going forward, Disney’s safe dividend will likely continue growing at a high single-digit to low double-digit pace.
Blue-Chip Dividend Stocks: 3M (MMM)
Minnesota Mining and Manufacturing, or 3M Co (NYSE:MMM) as it is popularly called, is a large, diversified technology conglomerate with operations in over 70 countries.
3M’s business can be broadly classified into five segments — Industrial (34% of 2016 sales), Safety & Graphics (19%), Healthcare (18%), Electronics & Energy (16%), and Consumer (15%).
The U.S. is 3M’s largest market accounting for 40% of the 3M’s revenues followed by Asia Pacific (29%), Europe, Middle-East and Africa (21%) and Latin America (10%).
The 3M brand is recognized and trusted around the globe. The company owns market-leading household brands like Post-it and Scotch. It has added to its brand portfolio with acquisitions throughout the years, recently buying a leading provider of protective solutions, Scott Safety, for $2 billion.
A global customer base, extensive research and development facilities, and a diversified product mix make 3M an undisputed leader in most of the markets it serves. 3M is one of the most innovative companies in the world as well and expects new products launched in the last five years to contribute 40% of total 2017 revenues.
However, the company’s dividend history is equally impressive. 2016 marked 3M’s 100th consecutive year of dividend payments. Dividend growth has increased sharply in the recent times, with a three-year compound annual dividend growth rate of 20.5%.
With a payout ratio below 60%, excellent cash flow generation, and a sturdy balance sheet, 3M’s dividend is in great shape and should continue growing at a mid-to-high-single-digit rate going forward.
Blue-Chip Dividend Stocks: United Technologies (UTX)
United Technologies Corporation (NYSE:UTX) is a provider of high-technology systems and services to a wide range of customers in the commercial aerospace, defense and building industries.
UTX’s diversified operations can be classified into four segments: Otis (20% of net sales), UTC Climate, Controls & Security (29%), Pratt & Whitney (26%) and UTC Aerospace Systems (25%).
By geography, the United States is its largest market with 38% of total sales, followed by Europe (28%), Asia Pacific (20%) and other countries (14%).
Many of the company’s businesses own dominant market positions. Otis is the world’s largest elevator and escalator manufacturing company. UTC Climate, Controls & Security is a leading provider of HVAC and refrigeration solutions. Pratt & Whitney is among the world’s biggest suppliers of aircraft engines, and UTC Aerospace Systems is a leading provider of aerospace products and services to aviation markets.
The company’s sizable aftermarket business and long-term contracts help it generate safe and predictable cash flows.
United Technologies’ strong technological capabilities, long-lasting relationships with key customers, and diversification across industries and geographies are also key competitive strengths.
The company last increased its dividend payout by 6.1% earlier this year and has a safe earnings payout ratio near 40%, which provides a safety buffer while offering sufficient room for future dividend growth. Management is also very committed to the dividend, having raised it for more than 20 consecutive years.
United Technologies has grown its dividend by 11.8% per year over the last two decades, but investors should expect future dividend growth to be more in the mid-single-digit range.
Blue-Chip Dividend Stocks: Union Pacific (UNP)
Union Pacific Corporation (NYSE:UNP) is the operator of North America’s premier railroad franchise, covering 23 states in the western two-thirds of the United States and more than 30,000 route miles.
With around 150 years of experience, Union Pacific serves many of the fastest-growing U.S. population centers and is the only railroad serving all six major Mexico gateways.
The railroad’s diversified business mix includes intermodal revenues, which accounted for the largest share of 2016 freight revenue at 20%, followed by agricultural products and chemicals (19% each), industrial products (18%), coal (13%) and automotive (11%).
Railway transportation is a critical, capital-intensive infrastructure segment that is highly regulated. As a result, Union Pacific’s business is rather insulated from technology disruption and disruptive new entrants. The company also has a strong brand which is known for safety and reliability.
Going forward, the company should benefit from any improvement in energy prices, agricultural markets and the broader economy.
Either way, Union Pacific’s dividend is very safe. The company last increased its dividend by 10% in 2016 and has grown its dividend by 22.3% per year over the past decade, increasing it each and every year.
The company has a reasonably safe payout ratio of 45%, a large moat, and dependable free cash flow thanks to its time-tested railroad operations. Looking ahead, Union Pacific’s safe dividend will likely continue to grow at close to a double-digit annual pace.
Blue-Chip Dividend Stocks: Lockheed Martin (LMT)
Lockheed Martin Corporation (NYSE:LMT) is one of the biggest defense and aerospace companies in the world. The company provides defense, civil and commercial applications to both U.S. and international customers.
Lockheed Martin operates through four business segments: Aeronautics (38% of net sales); Missiles and Fire Control (14%); Rotary and Mission Systems (28%) and Space Systems (20%).
The company engages in providing critical products and services related to defense, space, intelligence and homeland security. It is almost impossible to replace Lockheed Martin, given the unique nature of the products and services it provides.
The U.S. government is Lockheed Martin’s biggest customer and accounted for about 71% of its 2016 revenue. This is a very sensitive business with high barriers to entry thanks to steep regulations and long-term contracts, which add strong visibility to Lockheed’s cash flows.
Increasing global geopolitical risks and the new U.S. government’s focus on defense should provide strong tailwinds for the defense business as well.
Lockheed Martin has one of the safest dividends on Wall Street thanks to its conservative payout ratio near 40%, consistent free-cash-flow generation, and commitment to raising its payout, which it has done for more than 10 straight years.
LMT has grown its dividend at an impressive 18.4% annual rate over the last decade and most recently raised its dividend by 10.3% in 2016.
Looking ahead, Lockheed Martin’s safe dividend is likely to grow a high-single-digit pace.
Blue-Chip Dividend Stocks: Texas Instruments (TXN)
Texas Instruments Incorporated (NASDAQ:TXN) is a global semiconductor company that develops analog integrated circuits and embedded processors. It designs and makes semiconductors which are subsequently sold to electronics designers and manufacturers worldwide.
Texas Instruments’ reportable segments include Analog (64% of 2016 revenue), Embedded Processing (23%) and other (13%). Both Analog and Embedded Processing segments enjoy leading market share positions near 20%
Texas Instruments caters to many diversified markets like industrial (33% of total revenue), personal electronics (26%), automotive (18%), communications (13%), enterprise systems (6%) and other (4%).
Its products are essential for electronic equipment and should enjoy strong growth as the electronics industry continues expanding and getting smarter.
Long product life cycles, leading industry scale, a diverse portfolio, unique technologies, and less capital-intensive manufacturing enable Texas Instruments to generate ample cash flows and enjoy a strong moat.
Texas Instruments has paid uninterrupted dividends since 1962. It has an impressive annual dividend growth rate of 28.9% over the last decade, though the pace of growth has slowed down in recent years.
Combined with its predictable cash flow generation and impressive dividend track record, the company’s payout ratio near 50% provides further safety for the dividend.
2016 marked the 13th consecutive year of dividend increases, wherein TXN raised its dividend by 32%. The company should be able to continue rewarding shareholders with double-digit dividend growth going forward.
Blue-Chip Dividend Stocks: General Dynamics (GD)
General Dynamics Corporation (NYSE:GD) is a global aerospace and defense company, manufacturing business jets, battle tanks, submarines and communications products.
General Dynamics has an extensive global footprint extending to over 40 countries and is highly diversified across products and customers.
GD’s business can be organized into four business groups — Aerospace (27% of 2016 revenues — Gulfstream and Jet Aviation), Combat Systems (18% — European Land Systems, Land Systems, Ordnance and Tactical Systems), Information Systems and Technology (29% — Information Technology, Mission Systems) and Marine Systems (26% — Bath Iron Works, Electric Boat, NASSCO).
GD has an extensive customer base ranging from the U.S. government (representing 60% of 2016 revenue), U.S. commercial customers (15%), non-U.S. commercial customers (13%) and non-U.S. government customers (12%).
GD’s products are primarily used for national security and intelligence not only by the U.S. government but also by other international governments. The company is also one of the primary shipbuilders for the U.S. Navy. With over six decades of experience, the company has acquired innovative technology and skill set required to effectively run its business.
Some of General Dynamics’ superior products are Gulfstream aircraft and land combat machines. Industry-leading product service and support, a global network of facilities, long-term government contracts, ownership of intellectual property, and extensive knowledge base are some of the major competitive strengths of General Dynamics.
General Dynamics last raised its dividends by 10.5% in 2017, marking its 20th consecutive annual dividend increase. The company has increased dividends at an impressive 12.8% annual rate over the last decade as well.
A low payout ratio near 30% provides plenty of dividend safety and room for future growth, especially as aerospace and combat systems sales rise over the coming years.
As of this writing, Brian Bollinger is long JNJ, MMM and TJX.