- Dividend stocks are a good way to play market uncertainty.
- Companies with strong cash flow and low payout ratios make for the best picks.
- Investors should also be considering life after coronavirus when choosing dividend stocks.
Security at a time like this is hard to find, but dividend stocks may offer a layer of protection. Not all dividend stocks are created equal though— only the most financially secure companies will be able to deliver on their dividend obligations through a recession.
Duke Energy (NYSE:DUK)
With a global recession imminent at this point, stability in an otherwise turbulent stock market is essential. Utilities can provide a layer of certainty as they deliver steady returns based on consistent, predictable revenue streams.
Duke Energy stands out as a play in the utility space because of its strong balance sheet and hefty dividend yield. Shares of DUK offer a yield of 4.77%, making it the juiciest on this list.
Duke Energy has lost nearly 30% of its value since the end of February, which could be a buying opportunity for long-term investors.
The firm’s payout ratio of 73 suggests it will be able to continue paying its dividend despite the market’s downturn. Cash flow is predictable because come a recession or stock market crash, energy consumption remains relatively constant.
There are a lot of reasons investors have been flocking to 3M during the coronavirus outbreak. The conglomerate makes things like face masks that have been in high demand.
Surging demand for its product isn’t the only reason investors have been considering MMM stock.
The firm is also an upper echelon dividend aristocrat. Dividend aristocrats are companies that have consistently increased their dividend payments for years.
When the market is in a tailspin investors can narrow that field even further to find those companies that have been raising dividend payments for the past 50 years or more.
3M is one of those ten firms. The company’s dividend has risen through such events as September 11, the Great Recession and the Vietnam War. In this group of prestigious dividend stocks, 3M offers investors the best dividend yield at 4.29%
McDonald’s has become somewhat of an institution around the world, and the brand has been able to survive despite attacks on the quality of its food and it’s contribution to the world-wide rise in obesity.
What makes MCD stock worth considering in today’s market is the firm’s financial fortitude and respectable dividend yield of 3.6%.
Of all the dividend stocks on this list, McDonalds’ price-to-cashflow ratio of 14.49 is the highest— suggesting that the firm offers the best value for cash.
Plus, McDonald’s is known for quick, drive-through meals, something that will likely be in high demand as more people practice social distancing.
Amgen is notably not in the race to develop a coronavirus vaccine, but that doesn’t make the firm a dud within the biotech industry.
AMGN stock is worth considering for life after coronavirus—the firm’s promising pipeline of drugs is set to pump up revenue growth through 2020. Plus, Amgen offers investors a 3.12% dividend yield covered by a 45% payout ratio.
Damien Conover of Morningstar noted that some of the optimism regarding Amgen’s drugs pipeline could be dulled as coronavirus patients overwhelm hospital, pushing back non-essential treatment.
He also said we might see delays in clinical development timelines as the medical community focuses on COVID-19. However, Conover also said the healthcare sector should “hold up on a relative basis.”
Lockheed Martin (NYSE:LMT)
Unlike many other industries, defense contractors are funded by government spending so they aren’t as exposed to and economic downturn.
Lockheed represents a strong play in that industry for a few reasons.
First, the firm will see continuous, strong revenue from its F-35 warplanes, which the Pentagon and its allies have committed to buying over the next decade. Plus, its missile and missile defense business has been picking up substantially. All counted, the firm’s backlog of orders totals more than $144 billion.
Of course, LMT stock isn’t immune to coronavirus related issues. The virus has caused factory closures and hurt confidence—but none of that is likely to upend government defense spending in the long-term.
LMT pays a respectable 2.6% dividend yield and boasts the lowest payout ratio of the dividend stocks on this list at 40.95%. That means investors can be confident that their dividend payments will continue no matter how bad things get in the weeks ahead.
Disclaimer: The above should not be considered trading advice from CCN.com. As of this writing, Laura Hoy was long AMGN and DUK
Last modified: September 23, 2020 1:40 PM