Most investors can accept that the market often tanks right around Halloween, but December is supposed to be a cheerful time of year! It doesn’t appear we’re getting a Santa Claus rally after all. Value, growth, dividend stocks — everything is on edge.
While the American economy remains robust, other headwinds are causing investors to panic. Causing perhaps the most concern, the new Federal Reserve Board Chair — Jerome Powell — seems inclined to keep hiking interest rates regardless of what markets do. That is in stark contrast to Ben Bernanke and Janet Yellen, who would always back off whenever markets showed weakness.
On top of that, trade war problems are continuing to mount. We’re seeing increasing cost pressures in this earnings season.
Add it all up, and things are starting to get tense. That leaves investors wondering where they can go for safety.
After years of tech outperforming everything, earnings misses from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and numerous semiconductor companies have people bailing on growth as well. That leaves safe-haven dividend stocks as a more favorable alternative. Here are seven worth taking a look at today.
Dividend Yield: 3.92%
Rain or shine, good economy or bad, people like to drink alcohol. And for safe dividend seekers, that makes Diageo (NYSE:DEO) an ideal play. While its name may not be familiar, its brands almost certainly are. Diageo owns and manufactures Guinness beer, Captain Morgan rum, Smirnoff vodka and Johnnie Walker whiskey, among many others.
DEO stock is a well-known safe haven for investors. The company is headquartered in the U.K., and was one of the very few stocks to go up the day after Brexit in that country as British investors sold risky stocks and moved to safety. Diageo will again serve as a safe haven whenever the next bear market/recession hits.
Diageo isn’t just a great business, it’s also a great dividend play. The company has continuously raised its dividend (as measured in its home currency of British Pounds) each of the past 20 years. Diageo pays a just over 3% dividend at present, and has increased that annually at a more than 7% clip over the past 10 years. Not bad for an ultra-recession-proof stock now selling at just 18x forward earnings.
Kraft Heinz (KHC)
Dividend Yield: 5.6%
Just as people keep drinking during hard times, they also keep eating affordable food. Enter the multinational food giant Kraft Heinz (NYSE:KHC). While the 3G and Warren Buffett-led megamerger has yet to deliver big returns to shareholders, that creates an opportunity for us today. With KHC stock now at $53 — sharply down from $80 at the beginning of the year — the worst has already come and gone for Kraft Heinz.
At this price, the market is assuming that almost nothing good could happen for the company. That despite it owning Lunchables, Maxwell House, Philadelphia and a trove of other brands in addition to the namesakes Kraft, and Heinz. Given the recent decline in the share price, KHC stock is now selling at under 15x forward earnings and offers a 4.7% dividend yield.
Detractors will say that Kraft Heinz is not managing to grow revenues at the moment, and that is true. However, it’s dangerous to discount the management of business tycoons 3G, and don’t forget that Warren Buffett is involved as well. While the company is facing short-term struggles, it should be able to turn the corner. And there’s nothing like a market sell-off to make investors go looking for deep value in these safe dividend food plays.
Campbell Soup (CPB)
Dividend Yield: 3.7%
Speaking of safe food holdings, let’s turn to Campbell Soup (NYSE:CPB). This is another of the unloved packaged foods makers. It’s not hard to see why, if you only think about the company’s name. Canned soup certainly isn’t trendy with younger consumers at this point. And there’s a general nutritional wariness about heavily salted foods.
That said, there’s much more to Campbell Soup than just the iconic red cans. The company is more and more a snack food play. As we know, while Americans profess an interest in healthier eating, they still love their junk food from time to time. Campbell’s — owner of Hanover, Pop Secret, Goldfish and Pepperidge Farm — is in a great position to profit off of this.
Pepsico (NYSE:PEP), the leader in snacks, consistently gets a high P/E ratio from the market, as investors acknowledge the stickiness of their brands with consumers. The market, however, is not appreciating Campbell Soup at all. Shares are down from $50 last year to $38 now. That has attracted activist investors, who got the CEO canned and are demanding more change. If shares stay down here, expect that a suitor will buy out the company at a nice premium. If not, enjoy the 3.7% dividend — the highest CPB stock has offered in at least 30 years.
PacWest Bancorp (PACW)
Dividend Yield: 7.4%
Investors have been dumping bank stocks over the past month. The regional and community banking ETFs are down close to 20% in recent weeks. That has created a lot of value in this generally overlooked sector of the market, where solid dividends abound.
That brings us to PacWest Bancorp (NASDAQ:PACW), which offers a 5.7% dividend yield at the moment. Headquartered in Los Angeles, PacWest is a major player throughout the California market and currently sports a $5.2 billion market cap. That puts it in a sweet spot, size wise, where it may still be a buyout candidate, but it is large enough to manage the rising costs of regulation and banking technology costs.
Despite the horrid state of the California housing market in 2008, PacWest survived the crisis; in fact its shares never came close to zero during the panic. The bank has come out stronger, and is now generating record profits. Thanks to the corporate tax cuts in particular, PACW stock is now at a cheap P/E ratio of just 11x trailing and 10x forward earnings.
New York Community Bancorp (NYCB)
Dividend Yield: 7.6%
Despite its jawdropping yield, New York Community Bancorp (NASDAQ:NYCB) is an even safer bank stock. NYCB stock currently yields 6.9%, and they earn more than enough to cover the dividend, with earnings coming in at 80 cents and dividends at 68 cents annually.
Why is NYCB stock down? Of course, the sector is down, as discussed above. On top of that, some investors hold a resentful view toward New York Community Bancorp due to a failed merger with Astoria Financial in late 2016. Due to Trump’s unexpected win, bank stocks spiked, and the deal failed to close. Investors have had it out for NYCB’s management ever since.
Regardless, the bank is one of the safest in the country. It lends primarily against multi-family homes in New York City — one of the lowest-risk lending markets out there. The bank’s loans barely budged in performance even during 2008. With a strong dividend covered out of earnings and a safe loan book, investors can earn a large dividend income from a most conservative bank.
Southern Co (SO)
Dividend Yield: 5.3%
In the worst of times, people tend to still want to use electricity. Even a severe economic downturn tends to not impact utility stocks too dramatically. As such, it’s a sound sector to buy when investors get panicky, such as what we’re seeing with the market now.
Southern Co (NYSE:SO), as one of the highest-yielding large power utilities, checks the boxes for safe dividend stocks here. SO stock is currently yielding 5.2%. Prior to 2018, the last time SO stock consistently yielded more than 5%, it was 2010.
This is in large part, it seems, due to interest rates going up. Many investors treat utility stocks as substitutes for bonds. As such, when interest rates go up, investors demand a higher yield from their utility stock as well. If interest rates were to keep surging for years to come, SO stock would likely underperform.
However, it seems that the Fed will have to slow the pace of rate hikes, given the slowdown in some economies overseas along with the dramatic drop in equities as of late. Once interest rates start to stabilize, in a slowing economy, a stock like Southern Co should shine.
Exxon Mobil (XOM)
Expense Ratio: 4.8%
Speaking of things people use in good times and bad, gasoline ranks pretty highly on the list. Sure there is a minor dropoff in consumption during recessions, as people take fewer road trips, for example, but in general, oil and gas is a safe haven business. And Exxon Mobil (NYSE:XOM) as the largest U.S. player is a true sleep-well-at-night stock.
The combination of a fortress balance sheet, diversified operations and a storied dividend make XOM stock an excellent place to endure market storms. It may seem strange to call Exxon diversified. But what many investors don’t realize is that much of big oil has spun off the other segments of their businesses. We saw a ton of refining and pipelines subsidiaries moved out of the parent companies into MLPs and other corporate entities. That is all well and good as far as shareholder value maximization goes. But Exxon’s more diversified approach ensures that it remains solidly profitable even when the price of oil plummets, as it did in recent years.
XOM stock is hardly the most exciting in a high growth market. But at 14x earnings and paying a slightly greater than 4% dividend yield, it is a fine option for defensive investors. And with the stock little changed year-to-date, buyers here are still getting a fair value.
At the time of this writing, Ian Bezek owned DEO, CPB, PACW, KHC, NYCB and XOM stock. You can reach him on Twitter at @irbezek.