The recent rally in equities may be prying some cash off the sidelines. But if you’re investing in pure growth stocks and avoiding dividend stocks altogether, I’d urge caution.
No, I’m not talking about what the Federal Reserve will do with interest rates. I’m looking at corporate layoff announcements, the weak housing market, and inflation that may not be going up (but is certainly not going down), at least not where Americans need it most.
I know what the bulls are saying. As I write this, more than 60% of the companies that reported this earnings season posted higher earnings. However, earnings are a lagging indicator. I’m not hearing a bullish outlook on the economy from many of these companies, at least looking out over the next couple of quarters.
This means that there may be one or more legs down to go for stocks. One way to manage through this situation is to buy dividend stocks.
I usually like to provide a little something for every investor. But this time, I’m sticking to some of the top dividend stocks on the market today. For some investors, that means looking at dividend yield. Others look at the annual payout per share. That’s the money that’s going back into my brokerage account every quarter – the money that makes the magic of compounding work.
So, let’s get right to it. Here are seven dividend stocks that you should buy now, or you’ll wish you had.
Chevron (NYSE:CVX) is one of the first dividend stocks that came to mind, mainly because the company recently announced a 6% increase in its quarterly dividend. This makes it 37 consecutive years of dividend increases for the Dividend Aristocrat.
Chevron’s dividend is growing this year and will likely continue growing. The company’s payout ratio is just over 32%. Its dividend yield of 3.2% is slightly better than the average of the S&P 500. But it’s below the sector average. That shouldn’t concern investors too much, because with this dividend increase, Chevron will have paid out $5.77 per share in dividends for the year.
CVX stock has been moving up and down with oil prices. But some economists and industry analysts suggest that Russia’s continued war with Ukraine and China’s economy reopening is putting a floor of around $80 for crude oil prices. That means that Chevron may have more runway for growth, even after a 40% gain in the last 12 months.
If you’re looking for dividend stocks with a nice payout and an excellent yield, you should check out the current situation with Verizon Communications (NYSE:VZ). The wireless company reported earnings on Jan. 24, announcing a quarterly dividend of 65 cents per share. That gives VZ stock an annual payout of approximately $2.60 per share. Notably, Verizon has also been increasing its dividend for the last 18 consecutive years.
On top of that, it has one of the best dividend yields in the entire market at over 6.4%. There is some concern about the company’s payout ratio, which is currently around 50%. This is because Verizon’s earnings are projected to slow to between $4.55 and $4.85 per share in 2023, as opposed to the $5.17 it posted in 2022.
However, at just under 8-times earnings, the stock is cheap. And the company believes that much of the spending to build out its 5G infrastructure is behind it. That creates an opportunity for the company to focus on increasing earnings even as it still is heavily reliant on its consumer business.
Many investors would say that the stocks owned by Warren Buffett are like the simple black dress – always in fashion. That may be a weird way to think about Coca-Cola (NYSE:KO), but there’s nothing strange about owning the company’s stock.
Coca-Cola fits Buffett’s definition of a “forever” stock. But critics might note that KO stock has only grown 30% over the past five years and is currently just above pre-pandemic levels. Plus, at 26-times earnings, there are cheaper options out there.
But the story of Coca-Cola is its iconic brand that allows the company to generate steady earnings back to shareholders. Coke has increased its dividend for 61 consecutive years, making it part of the exclusive Dividend Kings group. And iys dividend yield of 2.9% is above the sector average of 2.62%.
Like that simple black dress, Coca-Cola isn’t a stock you’ll embrace daily. But in times like these, you’ll be glad it’s in your portfolio.
When it comes to the taste of their products, there may be a difference between Coca-Cola and PepsiCo (NASDAQ:PEP). But as dividend stocks, there’s not much distinction, so it’s good to have both stocks in your portfolio.
What many investors prefer about PepsiCo is that the company has branched out from fighting the cola wars. Pepsi has become a snack food giant that houses the Frito-Lay’s and Quaker Foods brands, among others. As I wrote in early January, PepsiCo “straddles the line between “junk foods” and healthy options.”
As for the company’s dividend, PepsiCo currently pays $4.60 per share annually with a yield of 2.7%. Like Coca-Cola, PepsiCo is a Dividend King. The company has increased its dividend in each of the last 51 years. There could be some concern over a payout ratio of 65%, but there is no sign that the dividend is in trouble.
I can’t fault investors for thinking that AbbVie (NYSE:ABBV) is a “show me” story in this market. The company’s upcoming patent expiry for its key Humira drug in Europe, with a pending expiry in the U.S., means that this is a biotech company with an uncertain outlook. Indeed, Humira has been a cash cow for AbbVie, so investors are right to show some concern.
So far, however, it appears that AbbVie has passed its check-up. A big reason for that is the revenue being delivered by Skyrizi and Rinvoq. These two drugs are expected to bring in approximately $15 billion over the next three years.
And then there’s the dividend. AbbVie is another Dividend King with a history of increasing its dividend for the last 51 years. It currently sports a yield of 4% and an impressive annual payout of $5.92 per share. AbbVie’s payout ratio of over 70% is probably not sustainable. But ABBV stock is trading at just 19-times earnings, roughly equivalent to the S&P 500.
Fairways and greens are a good mantra for golfers facing volatility. It can also apply to dividend stocks like Lowe’s (NYSE:LOW), which can keep your lawn green, as well as your portfolio.
Okay, that was terrible, but it does lead to my point. Lowe’s is a home improvement company. And home improvement doesn’t stop just because the housing market is weak. People need to “love the one they’re with,” so to speak, and Lowe’s is well-positioned to help with products for the professional and the do-it-yourselfer.
Lowe’s is yet another Dividend King on this list, with a yield of 2.1% and an annual payout of $4.20 per share. The company also has an attractive price-earnings ratio of just 19-times earnings, equivalent to the S&P 500. And with a profit margin that is above the sector average, investors should feel confident about the company’s earnings growth in the coming years.
United Health Group (UNH)
Last on this list of dividend stocks is United Health Group (NYSE:UNH). I’ve included this stock because healthcare continues to be a hot sector for investors.
Joel Baglole recently reminded investors that United Health Group is “the largest healthcare company by revenue and the largest insurance company by net premiums in the world.” Looking at sector leaders is an excellent place to start when you’re looking for dividend stocks to buy for the long haul.
And if investors are looking for a short-term catalyst, the company’s pharmacy services arm, Optum Rx, just launched Price Edge. This drug price comparison tool helps its members get the lowest prices for generic drugs.
Then you can see the company’s dividend. The yield of 1.3% is unimpressive compared to the S&P 500 average. However, it’s desirable among other healthcare stocks. And with a payout ratio that is only 30%, the dividend looks very sustainable.
On the date of publication, Chris Markoch had LONG positions in CVX and LOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.