For long-term investors, the post-pandemic environment has made it difficult to find safe, high-yielding dividend stocks.
Many blue-chip dividend stocks were forced to cut or freeze their payouts to preserve cash as the COVID-19 pandemic turned their businesses upside down within days.
According to a recent report in the Wall Street Journal, in the second quarter, US companies revealed their strongest dividend cuts since 2009. Shareholders were informed of a net cut of $ 42.5 billion in dividends on common stock during the period, according to S&P Jones Indices. A total of 41 companies suspended their dividends this year to save money during the pandemic, including American Airlines Group (NASDAQ 🙂 Carnival Corporation (NYSE 🙂 and Marriott International (NASDAQ :), the report said.
By increasing the negative impact on income investors as corporations drained dividends, the Federal Reserve pushed interest rates to rock bottom to combat the pandemic-induced economic downturn. So, in the search for returns, investors raise the stock prices of stocks that pay a respectable dividend.
Even in this difficult environment for investors looking for fixed income, there are some areas of the market that offer reasonable returns. Below we look at three high-yielding stocks. These names provide a starting point for further research.
1. Toronto-Dominion Bank
Yield: 4.81%
Quarterly Payout: $ 0.59
Banks are considered cyclical stocks and generally perform poorly when interest rates are very low. But if you're a long-term investor and looking for a stable dividend income, Canada's best lenders are still attractive.
In Canada, banks operate in an effective oligopoly, where their internal affairs are well protected from external competition and regulation is much stricter than in many other developed markets.
To gain exposure to one of the best banking systems in the world, Toronto-Dominion Bank (NYSE :), (TSX 🙂 appears to be a good bet with a dividend yield of nearly 5%. The country's second largest lender generates hefty cash flows and pays out about half of its income in dividends each year.
The current economic crisis has certainly hurt TD's and has set aside more money to absorb any credit losses. But the $ 0.59 per share quarterly payout is safer than buying riskier US bank stocks.
Shares are up 25% over the past three months amid signs that the bank is managing the crisis well and that dividends are safe. The stock closed at $ 50.46 in New York on Wednesday.
2. Verizon
Yield: 4.14%
Quarterly Payout: $ 0.615
Telecommunications are considered a defensive game in times of uncertainty. In general, these companies are increasing payouts regularly and in many cases they have been increasing dividends regularly for decades.
Holding these shares over the long term is an excellent way to ensure a stable income stream. They deliver above average returns even when other parts of the market are undergoing sharp adjustments.
In this space, we like wireless service provider Verizon (NYSE :). Rather than building its balance sheet with mega deals, Verizon is focusing on improving its infrastructure. The company has avoided making the kind of "big entertainment" purchases that peers like AT&T (NYSE 🙂 have been pursuing.
Instead, Verizon has made smaller bets focused on ways to rapidly improve its network. The timely acquisition of Straight Path Communications in 2018 puts Verizon at the forefront of the race to build a 5G network – part of an industry-wide effort to increase speed and unlock new revenue streams.
The latest news from the company showed that the telecom operator is weathering the economic downturn fairly well. While net income has taken a hit, the largest US cell phone provider continues to add more connections by subscribers.
In April, Verizon made another smart addition when it announced the acquisition of BlueJeans Network, a private video conferencing rival to Zoom (NASDAQ :), which became the face of working from home during the pandemic. BlueJean has a market value of $ 42 billion.
With its strong balance sheet, growing dividends and leadership position in the 5G rollout, Verizon is a solid and relatively safe income choice for long-term investors looking to earn higher income. Shares closed at $ 59.46 yesterday, up slightly on that day
3. Enbridge
Yield: 7.47%
Quarterly Payout: $ 0.61
Utilities are another area where investors can find a good income stream if they are held for the long term. Enbridge (NYSE :), the largest pipeline operator in North America, would be a good fit for this industry, with its huge moat and critical position in North America's energy supply chain.
Enbridge's cash flows are well diversified across many companies and regions, allowing the utility company to weather the economic downturn better than other companies.
For example, while the pandemic is hurting oil consumption across the board, Enbridge's gas transmission, distribution and storage businesses, which account for about 30% of cash flows, are not expected to be significantly impacted by COVID-19 .
In the latter case, Enbridge was able to exceed expectations, mainly due to stronger US revenues from natural gas transmission and distribution.
This revenue stability makes Enbridge a good defensive stock when the economic headwinds begin to churn. The company pays a quarterly dividend of $ 0.61 per share, with an annual return of more than 7%.
Over the past three years, Enbridge has implemented a restructuring plan, sold assets, focused on its core strengths, and paid off its debts. These measures are likely to benefit long-term investors whose goal is to generate steadily growing income.
Enbridge stock, down 81% so far in 2020, closed at $ 32.15 yesterday in New York, down 1.62% on the day.
