Consistent income — is that really asking for too much?
In a world in which savings accounts yield practically nothing and the 10-year Treasury yields less than 2%, it might seem to be. But if you’re willing to take some of the ups and downs of the stock market, there is still plenty of income to be found in dividend stocks.
Sure, the S&P 500’s dividend yield is only 2.1% at today’s prices, not a whole lot better than what you’d find in the bond market. But year to date through March, the stocks making up the S&P 500 collectively boosted their dividend payments by 7.5%. And dividends had been growing at a healthy double-digit clip for the previous five years.
So, while stock prices bounce around a lot more than bond prices, dividend stocks are your best bet if it’s income you’re after.
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Today, we’re going to look at seven dividend stocks safe enough to buy, drop in that proverbial drawer and never worry about again.
Dividend Stocks to Count On: McDonald’s Corporation (MCD)
Yield: 2.7%
I’ll start with one of my favorite dividend stocks, Mickey D’s. This time last year, McDonald’s Corporation (MCD) got no love. Fast food stocks were out of fashion … even considered to be pariahs by a lot of investors.
But anyone who cared to look would have seen that McDonald’s is nothing if not a survivor. The company has survived and thrived for decades by constantly adapting to changing consumer tastes, and they’ve done it again with their successful all-day breakfast promotion.
But most importantly, McDonald’s takes care of its shareholders. Today, McDonald’s yields a modest 2.7% in dividends. But it has grown its dividend at an 7.9% compound rate over the past five years … and at a 13.5% rate over the past 10. Had you bought McDonalds five years ago, your dividend yield on your original cost would be an attractive 4%-plus. Now that’s some decent spending money.
Dividend Stocks to Count On: Johnson & Johnson (JNJ)
Yield: 2.8%
Up next is consumer staple and healthcare stock Johnson & Johnson (JNJ). JNJ is almost without equal among dividend stocks, raising its dividend for the past 54 years in a row … and counting. Johnson & Johnson is also one of the two last remaining AAA-rated companies in America. So that gives me faith that its 54-year track record of paying and raising its dividend won’t be broken any time soon.
Today, JNJ yields about 2.8% in dividends. Given that JNJ is nearly as safe as a bond, that’s pretty attractive.
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JNJ has raised its dividend at a 5.6% clip over the past five years and at a 7.2% clip over the past 10. Had you bought JNJ five years ago and held until today, you’d be enjoying a nice 4.6% yield on cost. That’s better than what you’d get on most non-junk corporate bonds these days.
Dividend Stocks to Count On: Realty Income Corp (O)
Yield: 3.7%
Up next is perhaps the most bond-like of any stock currently available on the market today, triple-net retail REIT Realty Income Corp (O).
Realty Income pays its dividend monthly rather than quarterly, which is nice if you depend on the dividends to pay your retirement expenses. And Realty Income has been rock-solid consistent over its life, boasting 549 consecutive monthly dividends and 74 consecutive quarterly increases. Since 1994, it has grown its dividend at a 4.7% annual compound rate, handily beating inflation.
Realty Income manages this stability by buying recession-resistant properties, such as your local corner pharmacy.
In my view, nothing short of nuclear war or zombie apocalypse will get in the way of Realty Income paying its dividend. This is why I have a few shares tucked away in my IRA that I have pledged never to sell … ever. As in for the rest of my life. I will leave the shares to my children … and if they are smart, they’ll leave the shares to their own children as well.
There are few stocks I can credibly call future proof. This is one of them.
Dividend Stocks to Count On: AT&T Inc. (T)
Yield: 4.9%
AT&T Inc. (T) is another long-term survivor. The roots of its name — American Telephone and Telegraph — proves just how adaptable AT&T has been over the decades.
This company was born in the 1870s, when the telegraph was considered new-fangled technology. To put it in perspective, AT&T was founded a few years before Wyatt Earp’s infamous gunfight at the OK Corral.
AT&T’s dividend track record doesn’t quite go back that far, but at 31 years of consecutive annual increases, it’s certainly not too shabby.
At current prices, AT&T yield about 4.9%, making it one of the highest-yielding stocks in America. Its business lines in mobile telephony, internet and paid TV are all mature, so we probably shouldn’t expect blistering growth rates any time soon. But for good current income and steady dividend growth, AT&T is a safe bet.
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Over the past five years, AT&T has boosted its dividend at a 2.2% rate, slightly beating the rate of inflation. Over the past 10 years, AT&T has grown its dividend at a slightly higher 3.8% rate. All in all, that’s a good run for a company as old as the Wild West.
Dividend Stocks to Count On: Exxon Mobil Corporation (XOM)
Yield: 3.4%
Energy giant Exxon Mobil Corporation (XOM) has had a rough go of it of late, as sagging oil and gas prices have taken a toll on profits. This is the bluest of blue chip among energy majors, but this has been a difficult road for even mighty Exxon. It even lost its prized AAA credit rating, which, while not material to the company’s operations, is something of a psychological blow.
That said, not even the worst energy bear market in three decades is enough to stop Exxon from raising its dividend. XOM just announced a 3% dividend bump for its June payment. This marks 33 consecutive years of dividend growth. Not a bad run!
At current prices, Exxon yields 3.4%. Over the past five years, it has managed to grow that dividend at a 9.8% rate. And over the past 10 years, it has boosted it at a 8.9% rate.
With energy prices still under pressure, I would expect lower growth rates for the next few years. But I would expect the growth to still vastly outpace the rate of inflation.
Dividend Stocks to Count On: Kinder Morgan Inc (KMI)
Yield: 2.9%
This next addition may seem an odd fit among dividend stocks. After all, pipeline giant Kinder Morgan Inc (KMI) slashed its dividend by a massive 75% at the end of last year. So with that in its recent history, how could I in my right mind include KMI on a list of sleep-at-night dividend stocks?
It’s pretty simple, really. I’m looking forward rather than backward. KMI’s decision to cut its dividend was not your typical case of a company falling on hard times and being forced to scramble for cash. In KMI’s case, the situation was more complex. The entire master limited partnership (MLP) model — in which virtually all profits were distributed to investors and new growth initiatives were funded with debt or equity issues — came under attack.
KMI made a rational move to change its capital funding structure to more resemble a “normal” corporation. That means that growth initiatives will be funded, at least in part, with retained earnings.
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After the dividend cut, the risk is largely out of KMI stock. Its cash flows are mostly “bond like” and tied to long-term contracts. So long as Americans need natural gas, KMI should be in good shape. And in another year or so, I expect KMI’s robust dividend growth to restart. Until then, enjoy the competitive 2.9% dividend.
Dividend Stocks to Count On: Enterprise Products Partners L.P. (EPD)
Yield: 6.1%
And finally, we come to Kinder Morgan’s rival in the pipeline space, Enterprise Products Partners L.P. (EPD).
As much as I love Kinder Morgan, its management team always was a little too comfortable with taking risk in its goal to continually boost dividend growth. Enterprise, on the other hand, has always been a lot more conservative.
While still following the MLP model of paying out most of its cash flow in the form of distributions to shareholders, Enterprise was always more hesitant to pile on debt in order to do it. For EPD, it has been a case of slow and steady winning the race.
Like KMI, EPD’s underlying businesses have bond-like cash flows, making it a fine choice among dividend stocks. And due to the quirky nature of MLP taxation, most of EPD’s cash distributions will be considered a non-taxable return of capital rather than a taxable dividend.
At current prices, EPD yields about 6.1%, and it has been steadily raising its payout for years. It has grown the distribution at a 5.7% rate over the past five years and at a 5.9% rate over the past 10. I see no reason why this streak won’t continue.
So long as America continues to need natural gas, EPD should continue to pay and raise its payout to investors.
Charles Sizemore is the principal ofSizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long MCD, JNJ, O, KMI and EPD
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