Last year was certainly an exciting time to be an investor. Volatility was the name of the game, perfectly exemplified by the market. Early in 2021, most stocks surged as speculative mania took over. However, the prospect for higher interest rates and a continuation of the Covid-19 pandemic hurt investor sentiment near year-end. Accordingly, questions as to whether growth stocks or dividend stocks will outperform in 2022 remain.
With the Federal Reserve now signaling that rates are likely to rise in March, investors are on watch. Rates could rise as many as four times this year, according to experts. What that ultimately means for stocks is depressed valuations, particularly for companies with earnings that are further out into the future.
For dividend-paying stocks, the good news is that these are mainly high-quality companies with excellent earnings. Now, as bond yields rise, these stocks are likely to underperform. However, relative to growth stocks, expectations are more bullish.
Accordingly, for investors taking a longer view, loading up on blue chip dividend stocks is a strategy worth considering. However, picking through the incredible number of options out there isn’t that easy.
Here are seven top options for investors looking to do so:
- Realty Income (NYSE:O)
- Enbridge (NYSE:ENB)
- Coca-Cola (NYSE:KO)
- 3M (NYSE:MMM)
- Chevron (NYSE:CVX)
- International Business Machines (NYSE:IBM)
- Verizon (NYSE:VZ)
Top Dividend Stocks: Realty Income (O)
Among the top sectors many investors go to for growth is real estate. Indeed, real estate investment trusts (REITs) are popular vehicles for investors seeking reliable returns. Much like receiving the rent check from tenants, these large-scale property operators pass on the majority of their net income to investors. Accordingly, those thinking truly long-term, from an income perspective, often like these vehicles.
For investors in Realty Income, one of the oldest and most established REITs, this has been an interesting two decades. This REIT has been publicly-listed since 1994, providing investors with a long-term annualized return of more than 15%. That’s impressive, for any asset class. Considering the volatility we’ve seen in the real estate sector, particularly in 2008, these returns are rather incredible.
Realty Income focuses on single-tenant properties, with over 11,000 properties in its portfolio. Additionally, Realty Income provides a diversified income stream from a geographic perspective. This REIT has properties in 60 different industries and is expanding into Europe.
Currently, Realty Income provides a dividend yield of 4.2%, paid monthly. Thus, income investors looking for monthly income may like the way this company is structured, from a cash flow perspective.
This Canada-based energy giant has been on a tear of late. The company’s share price rose 22% in 2021 and is up another 8% this year. Accordingly, this pipeline company’s dividend yield has come down from well in excess of 7% per year to around 6.4%.
Now, a 6.4% yield on any investment is one that’s certainly considered high. However, Enbridge has gotten its yield to these levels via years of dividend distribution hikes and weak demand for its shares.
Accordingly, for those who think the energy sector is likely to continue to rebound in 2022, Enbridge can be a solid pick. This company’s cash flows are ultra-defensive. Unlike energy companies that tend to fluctuate in value alongside commodity prices, Enbridge is much more stable. This company earns predictable income from energy producers. As a pipeline company, this essential service is often viewed similarly to utilities. (We all saw what happened when the Colonial pipeline was shut down last year).
Thus, Enbridge is a long-term dividend holding worth considering right now. For energy bulls, the thesis is simple. For those less certain, the company’s 6.4% dividend yield provides a wide margin of safety.
Top Dividend Stocks: Coca-Cola (KO)
Perhaps the most iconic brand in the world, Coca-Cola is a world-class company. Indeed, this company’s stock is often viewed as a bond proxy, for good reason. The company’s cash flows remain robust and support higher dividend payouts over time. However, interest in this top-tier blue chip stock has resulted in a rather low yield around 2.8% today.
This low yield shouldn’t deter investors from Coca-Cola. Much the opposite, actually.
Coca-Cola saw its stock price dip alongside pandemic worries. That’s because much of the company’s revenue comes from the hospitality industry. With folks going out to eat less, Coca-Cola saw revenues and profits dip for much of the past two years. However, as a pandemic reopening play, many investors have sought out this company’s shares of late.
Coca-Cola’s focus on low-calorie options and a resurgence in its core restaurant business has resulted in strong earnings performances of late. This past quarter, the company surpassed revenue and earnings expectations, bringing in $10 billion on the top line and earnings per share of 65 cents. For a stock trading at roughly $60, the valuation of this blue chip stock is hard to ignore.
Thus, those looking for bond-like income may want to consider Coca-Cola. It’s a company providing a reasonable yield, alongside juicy capital appreciation upside potential.
In recent years, 3M has seen growth stagnate. The diversified consumer goods producer was not necessarily a winner or loser from the pandemic. However, looking forward, the diverse range of products makes 3M’s portfolio compelling and trustworthy.
The company produces more than 60,000 products such as lubricants, medical supplies (surgical masks), dental tools, electronics, sponges and more. Due to this wide range, 3M is a stock many view as relatively “shockproof,” in relation to disruptions in individual markets.
This American multinational conglomerate displays consistent growth in net income and revenue and boasts dividend increases for 63 consecutive years. The company’s dividend yield currently sits at 3.3%. However, those looking for long-term dividend growth will note this company’s track record and ability to do so.
The company’s most recent earnings highlighted the strength and stability of this company’s core business. 3M brought in $1.5 billion in free cash flow, increased its revenue by more than 7% and announced plans to sell underperforming business segments. This report was one many long-term investors liked and highlights a strong investment thesis in this blue chip stock right now.
Top Dividend Stocks: Chevron (CVX)
Back to the energy sector, Chevron is a key player in the fuel supply chain. A company with upstream, midstream and downstream operations, Chevron does it all.
Accordingly, this stock is one that’s fluctuated wildly, along with commodity markets. The pandemic hit fuel demand expectations hard, driving down Chevron and its peers. However, with energy demand expectations picking up, this company has finally seen its day in the sun.
Thus, those taking a long-term view of the energy sector will like how Chevron is positioned. The company’s most recent earnings highlight just how positive this current environment is. Chevron brought in diluted earnings of $5.7 billion this past quarter, compared to just $340 million in the same quarter of 2020. Of this cash flow, roughly half went to pay out massive dividends of $2.6 billion to shareholders.
Thus, Chevron is a company that’s among the best dividend distributers in the energy sector today. Famous investors such as Warren Buffett have stepped into Chevron in a big way. Accordingly, those looking to follow in the footsteps of legends may want to consider this company with a 4.2% dividend yield.
International Business Machines (IBM)
IBM is found in plenty of lists of blue chip stocks. This information technology company has disappointed its shareholders for the last few years with decreasing revenue and earnings. But as a dividend stock, many investors are satisfied to see IBM increasing its dividends consistently. Last quarter, IBM made impressive dividend payments of $5.8 billion, signaling the strength of the company’s capital redistribution plans.
The stock plummeted after the release of its third-quarter earnings report, but it has been steadily rising since then. IBM entered 2022 with upward momentum and regained most of its Q4 losses following its previous earnings report. However, this stock has lagged a bit over the past couple weeks, as investors price in macro headwinds into this legacy computing stock.
For dividend investors, IBM’s commitment to redistributing capital to shareholders is the key with this stock. The company has increased its dividend for 22 consecutive years, now providing a yield of 4.9% for investors. That’s meaningful, considering where the company’s peers are at right now. Accordingly, those taking a positive long-term view of IBM’s cash flow prospects may want to consider this dividend growth company on dips moving forward.
Top Dividend Stocks: Verizon (VZ)
The wireless phone industry in the U.S. is generally considered to be an oligopoly. As such, companies like Verizon hold an incredible amount of market power. Indeed, it’s estimated that Verizon’s user base makes up approximately 30% of the entire U.S. cellular market.
As far as dividend stocks go, Verizon continues to do well in terms of providing income to its investor base. The company’s current dividend yield of 5% is supported by a strong and growing user base. This past quarter, Verizon brought in wireless service revenue of $17.1 billion, 3.9% higher over the same quarter last year.
Accordingly, dividend investors looking at the stability of Verizon’s business model certainly have a reason to consider this stock at these levels. Over the past year, VZ stock has only increased by 7%, a factor that has pushed this company’s yield higher. Should investors take a more bullish view on the stability of Verizon’s cash flows, I expect to see this company’s yield come down and valuation increase over the course of this year.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.