For income investors looking for higher returns, the landscape is becoming increasingly challenging. As the U.S. economy plunges into a deep recession triggered by the COVID-19 pandemic, expectations that a low-yield environment will continue for longer have prompted investors to look for high-yield alternatives and make riskier bets.
While dividend stocks, with their solid income streams, can provide shelter when the sky turns dark, it is also important to understand that investing in dividend-rich stocks is not always profitable.
Investors should choose their interests carefully by focusing on companies with strong balance sheets, low debt and a long history of rewarding investors. Below are three dividend stocks that we believe could be a good long-term bet for investors looking for stable income.
1. Home Depot
Home Depot (NYSE 🙂 is one of the retailers best positioned to survive the increasingly looming recession.
Just before the deadly pandemic, the construction chain with more than 2,200 stores in the US and outlets in Mexic and Canada reaped the rewards of spending $ 11 billion to modernize the company's stores and upgrade digital options and offerings for its main trading customers. Armed with these upgrades, the Home Depot store is likely to revive quickly in the post-crisis era.
The strength of the US housing market will also help Home Depot flourish once the coronavirus outbreak has subsided, as lower borrowing costs drive up house prices, making it easier for homeowners to increase renovation spending.
This retailer is also a reliable dividend payer. The quarterly dividend has increased by 380% over the past decade, and with a healthy payout ratio of 42%, it has much more room to grow.
The stock, which closed at $ 230.10 yesterday, delivers 2.58% and pays $ 1.5 per share every quarter. The stock has gained 5% this year.
2. Enbridge
Utilities are another area where investors can find a good income stream if they maintain it long term. Enbridge (NYSE :), North America's largest and pipeline operator, could well fit into this sector, with its massive canal and pivotal position in the North American energy chain.
ENB Weekly TTM
Enbridge's cash flow is well spread across many companies and regions, enabling the utility to withstand the economic downturn better than other companies.
For example, while the pandemic harms oil consumption across the board, Enbridge's gas transport, distribution and storage companies, which account for approximately 30% of cash flows, are not expected to be meaningfully impacted by COVID -19.
This makes Enbridge a good defensive stock to hold when the economic headwind starts to churn. The company pays a quarterly dividend of $ 0.577, with an annual return of 7%.
Enbridge has implemented a restructuring plan for the past three years, sold assets, focused on its strengths and paid off its debt. These measures are likely to benefit long-term investors who aim to earn steadily growing income.
Enbridge stock, down 21% to date in 2020, closed in New York at $ 31.24 yesterday.
3. Honeywell
The prospects for industrial companies are getting darker by the day. Any business whose fate is closely linked to the health of the economy generally performs worse as growth risks increase. But Honeywell International (NYSE :), which produces specialized industrial machinery, may be one of the few exceptions to that rule.
The company's diversified portfolio provides a lifeline for many industries, including homes and buildings, aviation, defense and aerospace. Honeywell's enduring competitive advantage is so great that it is difficult to challenge its dominance on a global scale.
Darius Adamczyk, who is in his third year as CEO, tries to transform the 135-year-old industrial giant into a company with a start-up culture. He has introduced more software-based products since taking over control, to help customers better manage their supply chains, making the Charlotte, North Carolina-based company one.
Honeywell also has an impressive track record when it comes to paying dividends. It currently yields about 3%, and its quarterly dividend of $ 0.90 per share has risen by more than 11% annually in the past five years. The shares closed at $ 122.97 yesterday. The company has paid continuous dividends for more than two decades, while maintaining a low payout ratio, currently at 49%.
Bottom Line
Undoubtedly, a recession is a time when cautious investors want to reduce their risks and avoid investing in stocks whose fate is closely tied to economic growth. But for investors with a longer time horizon, who strive to generate passive income for the duration, any market decline could offer opportunities to buy solid dividend-paying stocks.
