Who doesn’t like stocks with dividends? As investors, we love companies that generate consistent and above-average returns for us over the long term. When we’re talking about dividend stocks to own, aristocrats are some of the best businesses on earth. A dividend aristocrat is a stock described as raising its dividend for 25 consecutive years.
Keep in mind, that’s not only paying the dividend for the last quarter century, but raising that payout each year during that period. Income-oriented investors are looking for two things: dependability and yield.
While it’s nice to have an above-average yield, reliability of that yield is often more important for investors.
The best part about these types of dividend stocks is that the companies tend to be quite good as well. Any sort of investor can benefit from the long-term exposure to this group, simply because they are high-quality holdings. Income investors may consider over-allocating toward these types of stocks, while growth investors may consider diversifying with them.
Let’s look at seven dividend stocks to own now:
Dividend Stocks to Own: Walmart (WMT)
I want to kick off this list of dividend stocks to own with Walmart. The retailer has proven a number of things to investors over the years and in 2020, least of which is its commitment to the dividend.
Walmart has not only paid but has raised its dividend for 46 consecutive years. However, it’s the strides that Walmart is taking outside of the dividend that have my attention.
For instance, business continues to hum along whether the country or the world is in a recession. Whether that’s the great financial crisis in 2008 or a pandemic-induced recession. In the latter, it’s clear that regulators consider Walmart an essential operation, which is also important from an investment perspective.
The efforts the company has made to increase its online and omni-channel presence also shouldn’t be ignored. Walmart is essentially solidifying its importance in retail for decades to come.
Clorox (CLX)
The biggest issue with Clorox? Its growth and valuation. Obviously a pandemic is going to dial up demand for Clorox’s products. However, when that growth dies down, will the stock — which is up 32.5% in the past year — go down with it?
To an extent, it already has.
Clorox stock peaked near $239 on Aug. 5 and has struggled since, down 15.5%. Shares are about flat for the month of December, but should it finish lower, it will mark the stock’s fifth straight monthly decline.
I’m not saying that to discourage investors. Instead, I’m highlighting the opportunity in Clorox. With its 2.2% dividend yield and more than four decades of rising dividends, this is a safe cash-flow entity.
In a recession or in an economic boom, there will be demand for Clorox. Further, even though there is a vaccine on the way for the coronavirus, companies and consumers alike will continue to keep things sanitary. That bodes well for Clorox, although it does have other brands. Some of them include: Kingsford charcoal, Glad garbage bags, Brita filters, Hidden Valley dressing, Fresh Step kitty litter and others.
AT&T (T)
There is a lot of controversy surrounding AT&T because of its debt situation. However, this belongs on the list of dividend stocks to own.
With a current yield of 6.7%, this company shouldn’t not be overlooked by income-oriented investors. While the debt load may give some investors pause, let’s consider its other financials for a moment.
Over the past decade, AT&T has turned to M&A to fuel its growth. Some of those acquisitions, like DirecTV, came at the pivoting point of cutting the cord. Thus they have been a drain on the company’s financials and a poor use of leverage.
However, other acquisitions, like TimeWarner, were perfectly timed. This has given AT&T a cash-flow heavy asset that is benefiting from a rise in digital entertainment and streaming video via its HBO property.
Because of the enormous boost in free cash flow, AT&T has been able to lower its free cash flow payout ratio from more than 100% down to the 60% range. At the same time, management is looking to shed its underperforming assets to cut down debt and improve its financial footing.
McDonald’s (MCD)
The dividend from the Golden Arches is as dependable as finding a McDonald’s on a road trip.
In all seriousness though, McDonald’s continues to deliver with its consistency. Because of its dependable business for consumers — which is affordable, attainable food at virtually any hour of the day, all over the world — its business has become dependable for investors.
While the company works on longer term ways to improve its margins, there remains growth in the short term. In 2021, analysts expect revenue to rebound 13.7% and for earnings to jump 34%.
Admittedly, that comes after a slump in 2020, as increased costs and temporary store closures weighed McDonald’s down.
But with strong growth in the queue for 2021 and a 2.5% dividend yield, this consistent winner is one to consider. Like Walmart, McDonald’s has raised its dividend every year since its first payout in the 1970s.
Realty Income (O)
Called The Monthly Dividend Company, Realty Income is an instant favorite among REIT buyers.
Realty Income has done an incredible job of building a diversified portfolio of various tenants in various industries. It’s not overly levered to any one company or any one industry.
In short, it has taken its time over the years building a formidable portfolio that any true real estate investor would envy. In an effort to also differentiate itself, the company opted for monthly dividends over quarterly dividends. So while the payments are smaller, it’s nice receiving that payout every month.
Just like any premium stock though, the problem with Realty — if we can even call it a problem — is that the valuation comes at a premium too. With a premium valuation comes a lower yield.
Because REITs are out of favor, investors can snag a solid yield with Realty Income. While up notably from the lows, shares are still down about 25% from the highs, yielding 4.7%.
Federal Realty (FRT)
Everyone loves the last REIT we talked about, as it’s a stalwart in the dividend community. However, Federal Realty deserves plenty of attention in our list of dividend stocks to own.
Federal Realty is considered a crown jewel in the REIT space, having raised its dividend for 53 consecutive years. Think about that … five consecutive decades!
So what’s the only problem with Federal Realty?
The low yield. When demand is high and a stock is bid up, the dividend yield is low. The opposite is true for high-yield stocks — demand is lower. In the case of FRT, the yield has generally been between 2% and 3% for the last decade. It was more like a bond than a stock, and that’s not what investors are looking for in REITs.
Because of the coronavirus-related selloff though, Federal Realty’s yield has swelled toward 5% — and even cleared 6% at one point this year. Anytime FRT is near or above 5%, buyers will want a stake.
Johnson & Johnson (JNJ)
Last but not least is Johnson & Johnson, which absolutely deserves to be on our list of dividend stocks to own.
In April 2020 — just weeks into the coronavirus outbreak in the U.S. — J&J went through with another dividend hike. The firm raised its quarterly payout by more than 6% to 95 cents per share.
Wouldn’t it be nice to get that kind of raise each year?
Here’s the best part: The dividend raise was Johnson & Johnson’s 58th consecutive annual increase. So much has happened in the last six decades, ranging from dot-com busts, financial crises and inflation surges. Through it all though, J&J has been there raising its payout year in and year out.
That’s income you can depend on. Now paying out a 2.7% dividend yield, the company’s payout is about three times the yield on the 10-year Treasury bond.
Combined with shares being just 2.5% below the all-time high, it’s clear we have a winning combination of yield and stock performance with J&J.
On the date of publication, Bret Kenwell held a long position in O and T.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
