Investors often seek out dividend-paying companies as a safer option within the stock market. Dividends provide a steady income stream, and reinvesting these payments can significantly boost overall returns. However, it is crucial to remember that dividends are not guaranteed. Companies retain the right to reduce or even halt their quarterly or annual payouts to shareholders during difficult times when they need to preserve cash. A recent example of this is Intel.
Intel, a leading chip manufacturer, suspended its quarterly dividend of 50 cents per share, which had a yield of 1.7%. This decision came after the company reported another dismal earnings report and provided terrible guidance for the future. This move serves as a stark reminder of the volatility inherent in the stock market and the importance of selecting dividend-paying stocks carefully.
Given the recent market volatility caused by disappointing jobs and manufacturing reports, it is wise for investors to seek out companies that are likely to continue growing their dividends. Christian Chan, Chief Investment Officer at AssetMark, advises investors to focus on companies with strong cash flow and robust balance sheets. He suggests looking for disciplined companies capable of paying dividends consistently.
To identify such companies, Barron’s conducted a stock screen on FactSet, targeting large-cap companies within the S&P 500 that offer a dividend yield of at least 3%. For comparison, the 10-Year Treasury bond currently yields about 3.82%. The screen also considered companies with a history of free cash flow and earnings growth, relatively low debt, and recent dividend increases.
This screening process uncovered 29 stocks. Among these, several standout examples can be highlighted for their strong fundamentals and reliable dividend payouts. For instance, oil giants Exxon Mobil and Chevron both offer dividends with yields around 4%. Despite Chevron’s recent profit miss, both companies reported revenue increases due to higher oil production. Exxon paid $4.3 billion in dividends during the second quarter, while Chevron distributed $3 billion.
In the financial sector, insurers like MetLife, Principal Financial, and Prudential Financial made the list, showcasing their stability and commitment to paying dividends. The real estate sector also featured prominently, with self-storage companies Public Storage and Extra Space Storage offering attractive yields of about 4%.
Consumer staples companies such as Tyson Foods and Hormel Foods (known for its SPAM products) are also reliable dividend payers. In the healthcare sector, Pfizer stands out with a yield of 5.7%, the highest on Barron’s list, while Medtronic, a manufacturer of insulin pumps and pacemakers, also demonstrates strong dividend potential.
Interestingly, the screen also identified Corning, a fiberoptic cable maker with a yield of 3.7%, representing the tech sector. Despite Intel’s current struggles, Corning appears to have a brighter future and solid fundamentals.
These dynamic dividend-paying companies are well-positioned to continue growing their payouts, thanks to their solid fundamentals and strong balance sheets. This diverse selection offers investors stable growth and reliable income across various sectors.
By focusing on companies with the right financial health and growth potential, investors can find valuable opportunities in dividend stocks. This approach ensures a steady income stream even in challenging market conditions, providing a measure of safety and reliability in a volatile market. As always, it is essential to conduct thorough research and consider the long-term prospects of any investment.
