[Editor’s note: “7 Super Stable Dividend Stocks to Buy Now” was previously published in March 2020. It has since been updated to include the most relevant information available.]
It’s been a long few months for the market as COVID-19 worries have taken the main stage.
Before things tanked, the stock market, as measured by the S&P 500, was up 15% just since October. Some sectors of the economy, like software-as-a-service stocks, were up much more than that. However, those days are over and many investors are looking for a safe harbor.
Even as the markets make their way back, there are lots of people who are understandably gunshy.
One way to deal with this uncertainty is to move into safer dividend stocks. This way, you still have exposure to the stock market as prices begin to recover.
On the other hand, if the market takes another tumble, these defensive names should fall much less than the overall market. Regardless of whatever may come, they’ll kick out a steady income stream that helps buffer your portfolio from market volatility.
Dividend Yield: 1.64%
If you’re thinking of super safe dividend stocks, your mind may start out with the Dividend Aristocrats. These are in fact true royalty — the select few companies that have managed to increase their dividends annually for at least 25 years in a row. At present, there are around 55 American firms that qualify.
Of these, only two — yes, two — managed to generate a positive total return between October 2007, when the stock market peaked, and the March 2009 Financial Crisis bottom. Walmart (NYSE:WMT) was the winner of the bunch, with its stock actually going up 7% over that span. Needless to say, generating a positive return during a time when the stock market plunges 50% is a most remarkable feat.
Making it doubly-impressive, chief Walmart rival Target (NYSE:TGT) plummeted 61% over the same span. Walmart’s unique blend of lowest-cost supply chain and unrivaled focus on customer value delivered the goods during the economic downturn. Recently, investors have focused more on Walmart’s possibilities in the e-commerce space. But don’t forget that when it comes to delivering value, Walmart is still the proven king of retail during recessions.
Dividend Yield: 2.30%
Colgate (NYSE:CL) was another of the best-performing Dividend Aristocrats during the Financial Crisis.
It didn’t eke out a positive return over the stretch, but it only fell 20%. That’s exactly the sort of thing you want from super safe dividend stocks.
What makes Colgate so safe? To put it simply, the company has a ridiculously strong moat. It sells more than 40% of the world’s toothpaste and a third of its manual toothbrushes. Go to nearly every corner of the world, and you’ll find Colgate products. It’s one of the world’s most omnipresent American brands.
Combine that with a market that never changes — people need to clean their teeth regardless of what else happens in the world — and you have unmatched safety.
Colgate stock used to be quite expensive. But after five years of the share price going nowhere, Colgate is more reasonably-valued now. It pays a 2.3% dividend and could offer surprisingly high growth in the coming years as emerging markets pick up steam.
It also has made a play in the more competitive though higher-growth pet food market, and success there could energize the stock. Even if that fails, however, the core toothpaste market will continue carrying the stock through any storms that may come.
Dividend Yield: 3.01%
Pepsico (NYSE:PEP) may not look like the cheapest dividend stock out there at first glance. Yes, it is selling for more than 25x earnings. And yes, it is also selling near its all-time high price. From a short-term trading perspective, this probably isn’t the best moment to get into Pepsico stock.
For longer-term investors, however, there’s still a lot to like. The company’s snack food division has given it more resilience and growth than its arch-rival beverages company.
Additionally, due to its heavy exposure to emerging markets, Pepsi has seen a major currency headwind in recent years. With the U.S. dollar near 20-year highs, this drag is likely to reverse at some point, leading to a significant earnings boost.
Then there’s the dividend yield. Pepsico has yielded between 2.5% and 3.2% for virtually all of the past decade. This means that while Pepsico’s stock price has appreciated dramatically, it is actually backed up by the rise in its earnings and dividends over the past 10 years. That’s definitely not the case for many other defensive slower-growing companies.
If you can get Pepsico on a pullback, all the better. But even at this price, it’s not a bad choice for investors seeking safe dividends.
Dividend Yield: 2.64%
Moving to harder beverages, we have international spirits leader Diageo (NYSE:DEO). Even, or maybe especially, during hard times, DEO is one of the most reliavle dividend stocks to buy.
The maker of Johnnie Walker, Crown Royal, Smirnoff, and Guinness, among other brands, has gone back on sale. Diageo’s stock price has slipped in recent weeks.
This makes some sense; Diageo has built an increasing portion of its business in recent years selling to wealthy customers in leading Asian markets. Sales in places such as Hong Kong have plummeted due to the virus.
As is always the case for the alcohol industry, however, setbacks tend to not last long. Liquor consumption is not closely linked to the economy or political developments, thus making these the safest sorts of dividend stocks.
Diageo has a track record of raising its dividend every year so far this century (as measured in its home currency of British pounds) making it a reliable choice for steadily increasing income. While Diageo may suffer a bad quarter or two thanks to the virus-driven sales slowdown, this will be a non-event in due time for the company’s loyal shareholders.
Dividend Yield: 6.94%
Some investors have given up on oil stocks given the carnage in recent years. And that’s an understandable reaction. Truth be told, there are still super safe dividend stocks in the sector, namely in the pipeline space.
For example, look at Enbridge (NYSE:ENB). Enbridge and other Canadian energy giants have faced a longer downturn in their market conditions already than their U.S. peers have. This has led to more capital discipline, thus these firms are more likely to turn a corner first.
This improved capital position is leading to another great thing for income investors: dividend increases. In fact, this year, Enbridge announced a 10% dividend hike. That is, by the way, its third year in a row of double-digit dividend hikes despite the hard times for the energy industry in general.
Take one of the best companies in the industry, and then combine it with an upturn in the long-beleaguered oil and gas markets, and Enbridge stock could deliver a strong upside in addition to its fat yield.
Dividend Yield: 3.82%
Unilever (NYSE:UL) is one of the world’s largest consumer products companies. Selling everything from energy drinks to ice cream, soap, cleaning supplies, and more, the company almost undoubtedly has some products in your pantry or laundry room.
Companies like Unilever are known for their rock-solid dividend records. In fact, 2020 should mark the company’s 4oth consecutive year of increasing its dividend; that’s a generous offer in today’s market.
Sure, some folks will complain that Unilever hasn’t shown a lot of growth in recent years. And that’s a fair criticism. At 25x earnings, Unilever stock doesn’t look particularly cheap, either.
If you’re just here for one of the safest blue-chip dividends around, however, it’s hard to go wrong with Unilever.
Compared to a Certificate of Deposit or government bond, Unilever’s 3.8% dividend with annual increases to that figure makes for a compelling alternative.
People’s United Financial (PBCT)
Dividend Yield: 6.23%
Remember how I said there were only two Dividend Aristocrats that made it through the Great Financial Crisis with a positive total return? The well-known one is Walmart, of course. But a plucky Connecticut bank, People’s United Financial (NASDAQ:PBCT), made it as well. PBCT stock managed a 2% positive return during that brutal span from late 2007 to the March 2009 low.
This is doubly amazing because People’s United is a bank, after all. Almost all the big banks were in desperate straits, if not outright bust at that point. But People’s United proved its mettle as a super-stable dividend company during the crisis.
Its banking market is the northeast, particularly in wealthy New York City and Boston suburbs. As a result, its well-off customers fared relatively well despite the crisis. And its lending book, largely vanilla home mortgages, was built to withstand a downturn.
People have the perception that banks are dangerous black boxes. That’s true of many too-big-to-fail banks. However, for People’s United, a crisis is actually an opportunity because they remain solvent and can absorb more business from their struggling peers.
In any case, they kept their now-27 year annual dividend hike streak alive during 2008 and 2009. PBCT stock now yields 6.23% and comes with an annual, if modest, increase. The knock on the bank now is that it is too conservative and doesn’t grow quickly enough. But as 2008 proved, that “weakness” is in fact the bank’s true strength.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned ENB, PBCT, UL, and DEO stock.