3 Mega-Cap Stocks for Safe Dividends

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safe dividends - 3 Mega-Cap Stocks for Safe Dividends

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There are many factors to take into consideration when determining a company’s dividend safety. Among them are strong brands, durable competitive advantages, and the ability to generate steady profits during a recession.

One of these is the company’s size. Generally, larger companies and mega-cap stocks have more established businesses, with products and services that see steady demand even during economic downturns. That translates to more dividend safety.

Investors can focus on the largest businesses by considering mega-cap stocks, defined as those with market caps above $200 billion. These are companies that have grown so large that they can continue to pay (and raise) their dividends even during recessions.

The following three mega-cap stocks have excellent dividend safety:

  • Pfizer (NYSE:PFE)
  • Home Depot (NYSE:HD)
  • Verizon (NYSE:VZ)

Mega-Cap Stocks to Buy: Pfizer (PFE)

Pfizer (PFE) logo on Pfizer building. Pfizer is an American pharmaceutical corporation.
Source: Manuel Esteban / Shutterstock.com

Pfizer is a pharmaceutical giant and mega-cap stock with a market cap around $210 billion. It is a global pharmaceutical company focused on prescription drugs and vaccines. The company generates annual revenue above $51 billion. Eliquis, Ibrance, Prevnar 13, Enbrel (international), Chantix, Sutent, Xtandi, and Xeljanz are some of its biggest brand names.

Pfizer has performed relatively well in 2020, considering the massive economic impact of the coronavirus pandemic. In the third quarter, revenue was down 4% and adjusted earnings-per-share fell 3%. Biopharma revenue increased 4% operationally last quarter. Still, Pfizer remains a highly profitable company, with strong cash flow that can be reinvested in several growth initiatives.

Pfizer’s current product line is expected to grow revenue and earnings over the next several years. Acquisitions, such as the $11 billion takeover of Array BioPharma, are a growth catalyst, as is R&D investment in new products.

The company has also invested heavily in its own pipeline, and now has multiple products such as Eliquis (cardiovascular), Ibrance (oncology), Xtandi (oncology), and Xlejanz (rheumatoid arthritis) that are all posting robust sales growth. Vyndaqel/Vyndamax (transthyretin stabilizers) and Inlyta (renal cell carcinoma) are following suit.

According to a report by Prakash Kolli, “Pfizer is one of the largest pharmaceutical companies in the world. … This gives Pfizer the ability to bring new therapies to market, partner with smaller companies or acquire entire companies outright. The current pipeline is robust, and some will likely be blockbuster drugs.”

Pfizer plans to invest $8.6 billion to $9.2 billion in R&D this year.

In the meantime, the stock has a high dividend yield above 4%. By contrast, the average yield in the S&P 500 Index is well below 2%, making Pfizer particularly attractive for income investors. With a dividend payout less than 60% expected for 2020, the current dividend payout appears safe, with room for continued raises.

Home Depot (HD)

a Home Depot store is seen from the outside
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Home Depot was founded in 1978, and has built its name the leading home improvement retailer, with almost 2,300 stores in the U.S., Canada, and Mexico. In all, Home Depot has generated over $125 billion in revenue over the trailing 12 months. Home Depot’s massive size lends it unique competitive advantages, as it dominates the home improvement retail industry alongside Lowe’s Companies (NYSE:LOW).

Home Depot’s considerable financial resources also allowed it to invest heavily in its e-commerce business, which has fueled the company’s continued growth in 2020. In the most recent quarter, sales increased 23% from the same quarter last year. Average ticket size and number of transactions both increased by double-digit percents in the second quarter, while sales leveraging digital platforms increased approximately 80% versus the third quarter last year.

Home Depot’s most compelling competitive advantage is its leadership position in the home improvement industry. Demand is surging and, as mentioned above, two companies dominate the industry.

Home Depot has also been strong despite recessions, including the pandemic. In fact, Covid-19 has arguably helped Home Depot, as many consumers were stuck at home.  Home Depot has a projected 2020 dividend payout ratio just above 50%, which indicates a safe dividend.

Shares currently yield 2.2%, and the company raises the dividend regularly. Home Depot has paid 135 consecutive quarterly dividends, and raised its dividend by 10% in 2020. Further dividend increases are likely due to Home Depot’s industry leadership and high growth.

Verizon (VZ)

Verizon (VZ) Wireless sign and trademark logo.
Source: Ken Wolter / Shutterstock.com

Verizon is a major telecommunications company. Verizon Wireless contributes three-quarters of the company’s revenue, as Verizon competes with AT&T (NYSE:T) and T-Mobile (NASDAQ:TMUS) in the U.S. wireless industry. The company is widely regarded as the nation’s strongest network, as its network covers ~300 million people and 98% of the United States. Its premier wireless network also allows the company to charge higher rates than its competitors, and raise prices over time.

Revenue fell 4% in the most recent quarter, but adjusted earnings-per-share remained flat from the same quarter last year. Verizon had a total of 553,000 retail postpaid net additions, including 428,000 postpaid smartphone net additions which exceeded estimates of 311,000 postpaid additions. Churn was also very low at 0.89% wireless churn and 0.69% retail postpaid churn.

Verizon continues to perform well in a difficult economic environment, as consumers are extremely unwilling to give up their wireless and other telecom services. Cash flow from operations year to date was $32.5 billion, up $5.7 billion compared to the previous year. For 2020, Verizon expects adjusted EPS in a range of flat to up 2% for the year.

We expect Verizon to generate 4% annual earnings-per-share growth going forward, comprised of modest revenue growth achieved through customer additions and price increases, as well as share repurchases.

This growth will allow Verizon to continue rewarding shareholders with a hefty dividend, currently yielding 4.2%. The company has increased its dividend for 14 years in a row, including a recent 2% increase. With a recession-resistant business model, and a projected payout ratio below 60% for 2020, Verizon’s dividend appears safe.

On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.


Article printed from InvestorPlace Media, https://investorplace.com/2020/12/3-mega-cap-stocks-for-safe-dividends/.

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