In a volatile economy, dividend stocks have always proven to be a safe play. These stable investments can offset losses and help you generate income over time. But picking the right dividend stock isn’t just about buying the ones that offer the highest yield.
Very often, high dividend yield companies can make changes to the payout or stop dividends altogether. This is especially true in periods of economic uncertainty. In such cases, the dividend becomes a liability rather than an asset.
Hence, when buying dividend stocks to safeguard your portfolio, you need to invest in ones that offer a safe payout. These stocks are often recession-proof and remain steady even in a volatile economy. In addition to this, they also offer a steady cash flow to supplement your income.
If you are looking for dividend stocks that show great growth potential and offer a safe payout, here are three top picks.
Dividend Stocks: Johnson & Johnson (JNJ)
As the world anxiously awaits the coronavirus vaccine, health care stocks are heating up. Among the winners of this sector is the global conglomerate Johnson & Johnson.
The company’s stock, like many others, dipped at the start of the pandemic but recouped its losses since then. Trading at $138.69 as of this writing, JNJ stock is back to its pre-pandemic levels.
There are a number of reasons for Johnson & Johnson’s speedy recovery. The slow but steady revival of the economy amplified by the government stimulus is an underlying factor. But its recent gains can be attributed to the coronavirus vaccine. Johnson & Johnson is currently in Phase 3 of its vaccine trials. After an initial hiccup with an unexplained illness in a volunteer, the company is back on track with its research.
JNJ stock is a relatively stable investment in the health care sector. In its most recent quarter, the company reported a 1.7% increase in sales year-over-year. It’s consumer health care and pharmaceutical divisions experienced an increase in revenue as well.
Johnson & Johnson’s key strength lies in its diverse portfolio which can help spread its risks. This is a major reason the company was able to stay afloat during the pandemic.
Another attractive feature is its dividend payout. JNJ stock dividend continues to remain resilient in a volatile economy. The company current dividend yield is 2.9%, which is higher than the S&P 500’s 2%. It has also raised its dividend for the last five decades and shows potential for greater growth.
Waste Management (WM)
When investing in stocks during the corona-economy, it’s worth looking into companies with an evergreen business model. One such investment is Waste Management.
The company operates the largest trash and recyclables collection system in the U.S. This makes its business an essential service because trash needs to be collected regardless of the economic conditions.
There are a number of reasons why Waste Management is a great dividend stock to buy. The company remains the leader in the sector with the potential for greater upside. A growing population means a larger trash collection system. This need has enabled the business to become more efficient and streamline its operations. Waste Management has created a better landfill conservation and reduced the size of its trash collection fleet. It operates with an environmentally-friendly mission focusing on ESG factors.
A more important reason to buy this stock is its super-safe dividend payout. The company currently offers a dividend yield of 1.9%. While this is on the lower end of the spectrum, it has remained consistent for years. A growing stream of cash has enabled Waste Management to increase its dividend for the last 17 years.
With a recession-proof business model and growing dividend, Waste Management is a stock that’s worth holding on to during turbulent times.
NextEra Energy (NEE)
As the world makes the shift from fossil fuels to renewable energy, NextEra energy is leading the trend. The company’s core business is its utilities segment which is a major revenue generator. It supplies electricity to over 5 million customers in Florida.
However, the company’s focus, in terms of its growth potential, is on its renewable business. NextEra is one of the leading producers of clean energy such as wind, solar. The energy giant also has a number of projects in the pipeline to grow its footprint in this sector. In addition to this, NextEra is also working on a battery storage system to advance its position in green technology as well.
NextEra’s business model is poised to benefit from the growing renewable energy trend but that’s not its only attractive feature. The company’s dividend yield is a major reason many investors hold on to this stock for a long time. NextEra has seen an annual increase in its dividend for 26 consecutive years. It hopes to increase the current value by 10% per year by 2022. Given its strong dividend history, NextEra is a poised for greater upside.
The energy sector is fairly recession-proof, so it comes as no surprise that NextEra is able to sustain dividends in a volatile economy. Moreover, the company’s strong position in renewable energy will lower costs and increase its dividend in the coming years.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.