9 Dividend Stocks That Can Help Anyone Looking for Income -- Barrons.com
DOW JONES & COMPANY, INC. 5:59 AM ET 10/5/2020
Symbol Last Price Change
ABBV 87.24down +1.12 (+1.3005%)
MMM 162.65down +2.29 (+1.428%)
QUOTES AS OF 11:30:26 AM ET 10/05/2020
With the Federal Reserve signaling it is going to keep interest rates near zero for at least three years, income- hungry investors have had to go farther afield. Bond managers increasingly see companies with a proven history of increasing their dividends and strong balance sheets as a less risky place to hunt for income.
Dividends have been an increasingly important source of investment income as bond yields have plummeted in recent years. And the Fed's aggressive monetary policy to help the economy heal from the pandemic is expected to keep the benchmark Treasury yield below that of stocks indefinitely, according to a recent note from Jack Ablin, chief investment officer from Cresset Capital.
The pandemic has already brought a wave of dividend cuts and certain sectors -- like airlines and financials -- could be hampered in their ability to pay bigger dividends if they take financial support. Just this past week, the Federal Reserve decided to leave in place restrictions on buybacks and dividends banks can pay, extending the steps they took in the summer to make sure banks have enough capital to deal with losses that may come out of this pandemic.
To find companies that are in good position to keep paying dividends, Barron's took the S&P 500 Dividend Aristocrats -- 64 companies that have increased their dividend for at least 25 years -- and sifted through them to find companies with strong balance sheets, free cash flow growth between 2017 and 2019 and a free cash flow yield of more than 1% -- signs the company generates enough money to keep paying dividends. The screen excluded financials, given some of the restrictions on the sector.
The screen turned up nine companies as a place to start for investors looking for high yields from companies with a strong record of increasing payouts.
The highest-yielding company is energy giant Chevron , which pays a 7.3% dividend yield. The company has been battered along with the rest of the energy sector but has one of the strongest balance sheets in the energy patch. Shares are down 42% so far this year as oil prices fall to levels last seen at the middle of 2019. The average 12-month price target among analysts covering Chevron on FactSet is $99.48, implying about 43% upside from current levels.
Drug distributor Cardinal Health (CAH), which has taken a hit as people defer elective medical procedures, also appeared in the screen. Despite the difficult conditions, the company was able to continue raising its payout, which it did in the second quarter of 2020.
AbbVie (ABBV) , which yields more than 5%, also appeared. The company was one of the picks in Barron's recent health care roundtable, with fund managers seeing 20% plus upside, citing its strong immunology and oncology businesses, as well as investors getting more comfortable with its recent acquisition of Allergan.
Several cyclical companies are also on the list, including steelmaker Nucor (NUE). The company is a lower-cost steel supplier, which tends to hold up better in tough times. It's also benefiting from an improvement in nonresidential construction and strength among auto makers. Another industrial on the list, 3M(MMM) , is also poised to benefit as small hints of an industrial recovery emerge.
Also on the list: AT&T Corp. (T), which yields 7.6%, Coca-Cola (KO), industrial giant Emerson Electric (EMR) and Leggett & Platt (LEG), which makes components for office and home furniture.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
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