After a year of uncertainty due to the global COVID-19 pandemic, income investors now have much more clarity about the trajectory of their income portfolios.
Many companies that cut their dividends to counteract the negative financial impact Moving away from lockdowns and business outages, they are slowly resuming payouts as US economic reopening gains momentum Silverblatt, senior index analyst at S&P Jones Indices. The median dividend increase in July was 11.1%, up from 8.3% last month and 6.3% in July 2020. Silverblatt said:
“Dividends were strong for the month as banks continued with Fed-approved hikes. The actual payment in the third quarter of 2021 appears to be a potential record.”
If vaccinations continue and the economy reopens, Silverblatt expects dividend payouts to rise by 5% in 2021, which would be a new annual record for payouts.
In this favorable environment for higher dividend income, we analyze below three blue chip stocks that could suit any retirement portfolio.
1. International Business Machines
International Business Machines (NYSE:) has been in a turnaround mode for many years. The uncertainty surrounding the existing IT infrastructure business and the slow transition to cloud computing has meant that the dividend yield is high compared to other technology giants.
But there are now clear signs that this 109-year-old tech giant is succeeding in making its turnaround, making its 4.5% dividend yield attractive to long-term investors. The Armonk, New York-based company posted its largest revenue in three years last month, fueled by strong demand for cloud computing. These numbers helped IBM stock move 14% higher this year. Indeed, the company's stock outperformed many other mega-cap tech stocks. Arvind Krishna, who took over as CEO from Ginni Rometty last April, is focusing on artificial intelligence and the cloud to reinvigorate growth. Krishna has reorganized the company's operations around a hybrid cloud strategy, which allows customers to store data on private servers and across multiple public clouds. IBM, in our view, is a safe dividend stock, especially after its new management's clear shift to cloud computing, a fast-growing business. These moves are encouraging and could unlock the value of IBM stock, which has increased its dividend for 26 years in a row.
2. Lockheed Martin
Lockheed Martin (NYSE:) is not the kind of stock or company that makes headlines every day. But it's certainly one of those names that would fit well in a long-term retirement portfolio.
The aerospace and defense giant pays a quarterly dividend of $2.6 per share, which translates into an annual dividend yield of 3%. This payout is supported by the Bethesda, Maryland-based company's strong cash flows and recession-proof business. During the pandemic, Lockheed's revenues, sales and cash flow continued to grow, helped in part by accelerated prepayments from the US Department of Defense, which were then passed on to suppliers. Lockheed still trades at about 14 times the lagging P/E ratio, indicating that this stock is inexpensive and could be a solid addition to a fixed income portfolio. Lockheed Martin shares closed at $362.05 on Friday.
In a recent analysis of the company, the Wall Street Journal said:
"While all the major arms makers are trading at a huge valuation discount to , which is common in times of peak defense budgets, Lockheed has become the cheapest of them all, both in terms of free cash flow and revenue to enterprise value."
According to the report, LMT remains well positioned in space and hypersonic technology, areas where spending will almost certainly increase to keep pace with China and Russia.
3. Procter & Gamble
Consumer goods giant Procter & Gamble (NYSE:) is another solid dividend stock that can help you earn steadily growing income for a retirement portfolio. The Ohio-based company has increased its dividend for 66 years in a row.
With a yield of 2.47% per year, P&G pays a quarterly dividend of $0.87 per share. Over the past decade, the value of its stock has more than doubled, including dividends, giving shareholders a nice total return. P&G shares closed at $141.41 on Friday.
The company's growth momentum suggests that shares of the maker of household staples like Bounty paper towels, Gillette razors and Tide laundry detergent are a safe bet for long-term investors.
The organic sales of the company 4% in the quarter ended June, better than analysts' estimate of 3%. Growth was faster than expected in the care products, healthcare and textiles and home care segments.
