Even during the worst economic downturn, wars or famine, investors relied on Wall Street's best dividend-paying companies to provide a steady flow of solid income. And they are rarely disappointed.
But the pandemic of COVID-19 has changed that dynamic. Businesses are now facing an unprecedented loss of sales as they are forced to close businesses worldwide, coupled with social distance guidelines that are pushing consumer demand.
In this very depressed tax environment, many previously determined dividend-paying companies have been forced to reduce, eliminate, or suspend their distributions because they struggle to keep money.
As we enter the second half of 2020, the virus continues to spread and in the US, some states are pausing their reopening plans.
To help investors navigate this unpredictable environment, we have compiled a list of three blue chip stocks that we believe can withstand a severe downturn due to the strength of their cash reserves, healthy balance sheets, and reasonable payout ratio & # 39; s.
1. Walmart
Retail giant Walmart (NYSE 🙂 has shown during the current crisis that it is a haven for investors when many other income-producing companies saw sales erode. . Wall Street analysts expect a double-digit increase in the company's stock price over the next 12 months, according to the average price target calculated by FactSet. The stock closed yesterday at $ 119.69, keeping it stable for the year.
Last week, UBS upgraded Walmart's stock to buy from neutral, citing higher productivity, rapid growth in e-commerce, and accelerating the retailer's implementation of technology. "WMT offers prospects for best-in-class consistency in an uncertain environment," the note said.
The largest physical store in the world also has an impressive track record when it comes to returning cash to investors. Earlier this year, the behemoth from Bentonville, Arkansas, announced a quarterly dividend increase of 4% to $ 0.54 per share for a return of 1.8%.
With this boost, Walmart has increased its dividend every year for the past 46 years. A steadily rising income provides good hedging and protects the value of your investment against erosion from inflationary pressures.
With a payout ratio of 50%, the retailer is a secure dividend bet, especially when the company succeeds in its plan to attract more online customers as it faces Amazon's growing competitive threat (NASDAQ :).
2. Microsoft
Many investors consider Microsoft (NASDAQ 🙂 as a pure technology stock still in growth mode, a good bet for quick profit. However, in our opinion, Microsoft is also one of the safest income stocks, even during the current health crisis.
The tech colossus benefits from a perfect convergence of fundamental conditions: a wave of technology investment, its quest for cloud computing, and the power of its core Office products. But analyze Microsoft more deeply, and it becomes clear that it is also a great dairy cow company, with more than its competitors.
The company has an 82% share of the desktop operating system market and generates huge amounts of recurring cash through licensing fees. Plus Office, which is now a subscription-based service for the millions of Microsoft home and business users, remains a powerful revenue driver.
If you are an income investor, you need to find companies like Microsoft in your portfolio. These are the giants who have the power to defend their business and pay you for the rest of your life, no matter how uncertain things get.
And Microsoft has an excellent track record when it comes to rewarding investors. Since 2004, when it first started paying out a dividend, the company's payout has grown nearly five times.
Dividend growth was supported by a very low payout ratio, only 34.67% and strong underlying companies. The stock, which has an annual yield of 1%, closed at $ 204.70 yesterday. Microsoft pays a quarterly dividend of $ 0.51 per share.
While returns may seem small to some investors, remember that Microsoft continues to grow, so the value of its stock also offers great upside. Including dividend payments, Microsoft has achieved 361% of the total return over the past five years. It is clear that this technology giant has plenty of room to expand its capital return program.
3. Procter & Gamble
Powerful Consumer Powerhouse Procter & Gamble Company (NYSE 🙂 is another reliable revenue generator, thick or thin. The stock, which closed at $ 119.98 yesterday, is currently delivering 2.65%. The Cincinnati, Ohio-based company has raised dividend payments for 61 consecutive years, a track record few companies can match.
This consistent dividend growth also shows how powerful the company's cash flow generation is. P & G's product range, including globally recognized brands such as Pampers diapers, Tide detergents, Mr. Clean home care products, Vicks cold and flu medications and Charmin toilet paper are strong enough to support revenue growth through wars, recessions and market declines.
Analysts are forecasting double-digit gains for inventory over the next 12 months as the consumer giant benefits from the increased demand for pharmaceuticals and hygiene products. For the first quarter, P&G reported for decades in the United States.
According to management, consumption of its products is unlikely to disappear even if consumers change their health, hygiene and cleaning habits.
With a payout ratio of 66%, the company has enough runway to continue increasing its income stream for investors. Over the past decade, P&G's dividend has doubled to $ 0.79 per share per quarter.
