Equity markets continue to bounce around, unnerving many investors as they wonder whether a new wave of COVID-19 cases can trigger another stock market crash. In such volatile times, market participants may want to consider buying solid dividend stocks which typically are more resilient during market downturns. Today I’ll discuss seven of the best dividend-paying stocks for cautious investors.
In recent weeks, a wide range of companies have reduced or completely axed their dividend payments. They have had to strengthen their capital resources due to economic uncertainty posed by the novel coronavirus.
For example, many energy stocks were badly hit by the decline in oil prices, especially in March and April, as well as the collapse in the demand for oil. Royal Dutch Shell (NYSE:RDS.A) was one of the first major energy companies to cut dividends. The oil giant had paid dividends even during World War II.
On June 25, the Federal Reserve announced the results of its annual stress tests and additional sensitivity analyses for banks, such as Wells Fargo (NYSE:WFC). Following speculation about the bank’s dividends, on June 29, the California-based bank also cut its dividend for the third quarter.
Most dividend stocks listed on U.S. exchanges have quarterly payouts. Thus, shareholders can build an annuity-like cash stream. For many established corporations annual dividend yields tend to be around 2%-4%. And the top ones typically increase their dividend amounts over time. When a firm increases payouts, it usually is a signal to shareholders that future earnings and cash flows are expected to be robust.
However, the dividend yield is only one metric to consider when doing due diligence on a company. It’s important to also research the underlying health of the company as would be revealed by a wide range of fundamental metrics. Sometimes a large yield may indeed signal a company that is in distress.
The recent market decline offers investors a wide range of dividend-paying stocks whose share prices are lower than they were in January. In addition, quantitative easing’s effect on interest rates is likely to keep many investors focused on dividend stocks in the foreseeable future.
As another busy earnings season starts, you may want to consider buying the dips in a number of them. Let’s get right to it and look at seven of the best dividend-paying stocks for the second half of the year.
- Archer-Daniels-Midland (NYSE:ADM)
- Cisco Systems (NASDAQ:CSCO)
- Coca-Cola (NYSE:KO)
- Home Depot (NYSE:HD)
- Pfizer (NYSE:PFE)
- Starbucks (NASDAQ:SBUX)
- Walmart (NYSE:WMT)
Best Dividend-Paying Stocks: Archer-Daniels-Midland (ADM)
52-week Price Range: $28.92-$47.20
Current Dividend Yield: 3.7%
Chicago, Illinois-based Archer-Daniels-Midland is one of the firms that feeds the world. It is a leading producer of ingredients for human and animal nutrition, including proteins, flavors, colors, flours and fibers. It operates a global grain transportation network to purchase, store and transport agricultural raw materials, such as oilseeds, corn, wheat, milo, oats and barley.
In late April, the group released Q1 earnings that beat estimates. The group reported revenue in three main segments:
- Ag Services & Oilseeds (delivered results that were in line with the year-ago period);
- Carbohydrate Solutions (results were lower than the first quarter of 2019);
- Nutrition (results were substantially higher YoY).
When it announces financial results next in late July, analysts would like to see the effect of the COVID-19 outbreak, especially during the second quarter when many countries went into lockdown. Nonetheless, the Street expects the group to weather any further storms that may come about as a result of a potential second COVID-19 outbreak. Whatever the health and economic effects of the pandemic, we all have to eat.
Earlier in the year, management announced that the group’s In February 2020, Netherlands-based facility would start producing non-GMO concentrates of soy protein. The Street welcomed the news as there is growing global appetite for high quality plant-based proteins.
I regard Archer-Daniels-Midland as a defensive consumer staples in the lead. Its strong balance sheet, diverse portfolio and global outreach with a respectable dividend yield makes ADM stock one of the best dividend-paying stocks to consider in a long-term portfolio.
Cisco Systems (CSCO)
52-week Price Range: $32.40-$58.26
Current Dividend Yield: 3.11%
Are you looking for tech company that is also a blue-chip business with a strong balance sheet, steady cash flows, and proactive management? Then California-based Cisco Systems should be on your radar. The leading tech company develops, manufactures, and sells networking hardware, software, telecommunications equipment and other high-technology services and products.
In May, the group released Q3 results that beat expectations. It reported non-GAAP earnings of 79 cents per share on revenue of $12 billion, a decline of 8% year-over-year (YoY).
The group divides revenue into two main segments, i.e. Products and Services. The Products segment is divided further into three divisions:
- Infrastructure Platforms (most important), includes sales of core networking technologies of switching, routing, data center products, and wireless;
- Applications, includes sales of software-oriented offerings that sit on top of Infrastructure Platforms; and
- Security, includes sales of threat detection, management and security products and cloud and system management tools.
Overall, the results confirmed that the business is stable and diversified. In fact, CEO Chuck Robbins highlighted the potential for further growth opportunities for Cisco due to increased levels of working from home.
Analysts are expecting 5G internet to be another major growth opportunity for the global technology leader, especially in terms of its infrastructure business. The company is providing operators with a full platform to build 5G capabilities.
Furthermore, Cisco is hoping to become a major player in Industrial Internet of Things (IIoT) by offering solutions to firms wanting to connect industrial systems to the internet. And management is pushing the company toward a mostly subscription-based software business. Finally, the company is not shy to acquire new firms, which may help increase its product offerings as well as its competitive advantage.
Year-to-date (YTD), CSCO stock is down about 3.5%, hovering at $45. The group is next expected to report earnings in August. The stock will likely be volatile around that date. A potential drop below $45 and especially toward $42.50 would make Cisco Systems one of the best dividend-paying stocks to buy in the long run.
52-week Price Range: $36.27-$60.13
Current Dividend Yield: 3.7%
Coca-Cola is the world’s largest nonalcoholic beverage company. It offers over 500 brands in more than 200 countries. Its top five soft drink brands, i.e., Coca-Cola, Diet Coke, Fanta, and Sprite, are recognizable globally. Put another way, it is a juggernaut worldwide.
In late April, the group released Q1 results. Revenue of $8.6 billion meant an adjusted EPS of 51 cents per share. Organic revenue, which takes out the impact of foreign currency, acquisitions and divestitures, was flat. Management said global volumes have plunged 25% in April. The decline mainly came from the closure of restaurants, movie theaters and sports arenas.
Nonetheless, gross margin still stands around 60%. The company also has cash and cash equivalents of $15 billion, which puts in a strong positions to weather any further economic effects of the pandemic.
Q2 results that are due in July are likely to represent a continuation of the trend seen in Q1. Coca Cola had already withdrawn its 2020 outlook in March. KO stock is down around 20% YTD. The robust dividend yield and the globally recognized brands, I believe, make KO stock one of the best dividend-paying stocks for weathering the volatility in the markets.
Management has raised dividend every year for over half a century. I’d look to buy the dips in Coca Cola, especially if the stock price goes below $45.
Home Depot (HD)
52-week Price Range: $140.63-$259.29
Current Dividend Yield: 2.42%
Atlanta-based Home Depot is the world’s largest home improvement retailer. The group operates close to 2,300 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, and Mexico.
Earlier in May, it released first-quarter results. HD reported revenue of $28.3 billion for the first quarter of fiscal 2020, a 7.1% increase from the first quarter of fiscal 2019. Amid the lockdown, its stores have remained open, albeit with decreased business hours. So sales have benefited from the lockdown during the novel coronavirus.
However, net income fell 10.7% to $2.25 billion, or $2.08 per share, compared with $2.51 billion, or $2.27 per share, a year earlier. Management attributed the decline in net income to extra costs incurred due to extra measures, especially regarding store safety and increased wages.
In recent years, the group has been spending heavily to integrate its stores and online business. I expect the business to benefit increasingly from “order online, pick up at a local Home Depot store” trend.
So far in the year, HD stock is up over 13%. The shares may come under further pressure in the near term, especially around the next earnings date. Yet such a decline would give long-term investors a better entry point, especially if it goes toward $240. You may consider HD stock as one of the best dividend-paying stocks to buy.
52-week Price Range: $27.88-$44.11
Current Dividend Yield: 4.5%
New York City-headquartered Pfizer is one of the world’s largest prescription drug companies. Its portfolio includes medicines, vaccines, and consumer healthcare products.
Over the past several quarters, Pfizer’s robust clinical pipeline has provided the company with impressive returns. The group owns two of the world’s best-selling drugs: the breast cancer treatment Ibrance and the blood thinner Eliquis (co-owned by Bristol-Meyers Squibb (NYSE:BMY). Its branded drugs provide the company with reliable earnings and cash flow.
In late April, the group released stronger-than-expected first-quarter earnings. Adjusted earnings were 80 cents per share, down 5 cents from the same period last year but 7 cents ahead of the consensus estimate. The company confirmed its 2020 financial guidance. It now sees revenues in the region of $40.7 billion to $42.3 billion, and adjusted earnings in the range of $2.25 to $2.35 per share.
In recent weeks, the healthcare giant has been in the news as one of the companies working on a vaccine against the Covid-19 pandemic. Management is hopeful that Pfizer will be able to expand human trials of the experimental coronavirus vaccine to test patients in early fall.
YTD, PFE stock is down about 13%. If you are an investor who is interested in passive income from a leader in a defensive sector, then Pfizer should be on your watch list of best dividend-paying stocks to buy.
52-week Price Range: $50.02-$99.72
Current Dividend Yield: 2.23%
On April 28, the coffee chain released Q2 Fiscal 2020 results that said its quarterly global same-store sales fell 10%. Americas and U.S. comparable store sales declined 3%. For the quarter, adjusted earnings per share came at 32 cents. Revenue was $6 billion, a decline of 5% from the prior year due to lost sales related to the viral pandemic.
Management also warned that third-quarter results would take a larger hit from the COVID-19 outbreak, even though sales in China were recovering. In early April, the group had already withdrawn guidance for fiscal 2020.
Starbucks opened 255 net new stores in the quarter, which means a 6% YoY unit growth. At the end of the period, it had 32,050 stores globally, of which 51% and 49% were company-operated and licensed, respectively.
YTD, SBUX stock is down about 17%. Long-term investors may consider buying dips on SBUX stock, especially if it goes toward $70 or lower. I regard it as one of the best dividend-paying stocks to buy, especially in a long-term portfolio.
52-week Price Range: $102-$133.38
Current Dividend Yield: 1.70%
Arkansas-headquartered Walmart is the largest retailer in the world. Each week, over 260 million customers shop at 11,500 stores in 27 countries as well as on e-commerce websites. Despite the group’s all-American reputation, over half the stores are located outside the U.S. Walmart is also the largest employer in the Fortune 500.
In mid-May, Walmart released robust Q1 FY21 results. Quarterly earnings came at $1.18 per share on revenue of $134.62 billion. The group has kept its doors open for business throughout the coronavirus outbreak. E-commerce sales in the U.S. grew by 74% and its same-store sales jumped by 10% in the first quarter as shoppers stocked up during lockdown. If the current economic contraction were to continue, then investors can potentially expect consumers to minimize expenses by shopping at discount retailers such as Walmart.
The group is expected to release earnings next on Aug. 18. WMT stock is up 8% YTD. I regard it as a stable company for both conservative income and total return investors. If you are looking for one of the best dividend-paying stocks to buy, then the retailing giant deserves your due diligence.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil holds covered calls on ADM and PFE (July 10-expiry).