In this article we’re taking a look at dividend stocks – the highest possible honor to hold within the dividend haven.
There’s just one need to obtain to be in our list, though it is a doozy: Pay 50 years or more of rising dividends – in a row. No mulligans!
Nevertheless, there are just 44 such stocks around, with a few of the newest ones being:
However we don’t simply desire “any type of old” dividend stock (as if there is such a thing). We intend to have a look at three of the very best and brightest: the top dividend supplies to buy.
Dividend Stock No. 1 – Lowe’s Companies
To start, let’s talk about a preferred dividend stock: Lowe’s Companies, Inc. (LOW). It might be second fiddle in the home improvement duopoly to Home Depot (HD), however it’s still worth discussing.
For years, Home Depot was a well-oiled machine that quickly outpaced Lowe‘s in regards to sales as well as efficiency. And its balance sheet was no slouch either.
However, Lowe’s has actually handled to close the gap more recently. Considering that taking over in July 2018, CEO Marvin Ellison has actually put his fingerprints around this business and also it shows.
Ellison’s resume consists of time acted as CEO at JCPenney and also a decade working in a senior-level operations duty at … wait on it … none other than Home Depot. Mr. Ellison recognized precisely what made that competitor tick, as well as he wasn’t shy about applying that strategy when he moved to Lowe’s.
The outcome is an enhanced supply chain, a solid on-line presence, and also a strengthened relationship with professional consumers – an area HD has controlled over the years. Additionally, Lowe’s stores have actually been revamped to focus on their most popular items, reduce overlap, and rid themselves of slow-moving inventory.
And also the timing couldn’t have been more perfect. Because these changes actually began kicking in appropriate around when home improvement began to grow in 2020 as the lockdowns forced people to reconsider their to-do lists.
The last two years were incredibly strong for the company. Though, admittedly, 2022 has actually proven to be different thus far. A slowing realty market incorporated with workers going back to the office have helped send shares of Lowe’s down significantly.
They’re down 25% year-to-date, which isn’t as negative as it could be considering how Home Depot is down 27%.
Both companies are coming off poor quarters with lower revenue in the middle of greater inflation costs and the slowing down real estate market. That’s why LOW management now expects 2022 revenue to be flat year-over-year.
Home Depot, meanwhile, has actually assisted revenue growth of just 3%.
Recession talks have gone to the center of most investors’ minds since late, and truly slow. Record-high inflation, record-high fuel prices, supply chain problems are bad enough. However then you likewise have to add in the Federal Reserve increasing interest rates and also liquidating assets that have actually been sitting on its overinflated balance sheet.
The latter may be necessary. But it’s a headwind for consumers as well as many businesses alike nevertheless, in addition to the other headwinds provided.
However here’s a bit of comfort to consider …
Lowe’s actually fared fairly well over previous recessions. And also provided the shape it remains in these days – which is perhaps the greatest it’s ever been – it should be no different this time around. Lowe’s ought to be able to weather another downturn simply great.
Shares currently trade at $192. And also analysts anticipate next year’s earnings to come in at $14.75. Because of this, the stock is trading at a forward price-to-earnings multiple of 13x.
Taking a look at the past 5 years, it’s traded at an average P/E of 19.6 x.
In terms of payouts, Lowe’s has a really strong dividend track record. Obviously. It would not be on the Dividend Stocks list otherwise.
Yet to be specific, the firm has actually boosted its reward for 58 years as well as counting. And today, it’s well covered by a reduced payout proportion of 26%.
Over the past five years particularly, Lowe’s has actually boosted its offering at a very strong clip: an average 18%. Yet that’s mosting likely to move higher still thanks to a recently announced 31% hike.
That definitely shows corporate confidence – just another reason that we believe Lowe’s will be a terrific financial investment for the long-term.
Dividend Stock No 2 – Johnson & Johnson
Our next dividend stock is Johnson & Johnson (JNJ), a stock that’s actually up on the year. Investors want defensive names to combat volatility and high inflation, as well as JNJ offers precisely that.
It’s been around for decades so it has a lot of experience guiding through slower economic times. So it has the capability to perform well in any type of provided economic backdrop.
Slow, paused, or quickly, consumers still have a demand for JNJ’s sort of products.
Here are simply a few it needs to offer:
Band-Aids, Tylenol, Benadryl, Listerine, Neutrogena … All these items are used despite whether the economy is expanding or slowing down.
On the year, shares are up 3.5%. Which isn’t also surprising. The company has actually been as steady as they come over the years in terms of stock performance and dividends.
The company presently operates in 3 segments:
- Consumer health
- Medical devices
The consumer health segment is its traditional area and also the most consistent grower. Not the fastest particularly, yet the most consistent.
The pharmaceutical and also medical device segments on the other hand, are more fast-growing. The initial of those two gives over 50% of all JNJ sales.
Those provide compelling factors to buy into this stock. But so does the company’s pending break-up, believe it or not. That has the potential to unlock value for JNJ.
In case you didn’t know, Johnson & Johnson is in the process of spinning off its consumer health segment. Undoubtedly, this is primarily to separate itself from the large number of ongoing lawsuits against it.
But this will certainly also allow it to give more focus to its pharmaceutical and also medical devices segments, possibly unlocking even more value.
Shares of JNJ presently trade hands at $177. Experts are expecting it to have earnings per share (‘EPS’) of $10.92 next year. So shares are trading at an ahead P/E of 16x.
Looking at the chart below, shares have traded at an average P/E of 17.4 x over the past five years.
In terms of the dividend, JNJ has actually paid one for 59 successive years now. The company has a five-year growth rate of 6%.
Again, JNJ is about as consistent as they come. It will certainly be interesting to see how the spinoff plays out, yet I think it will certainly be a favorable for the company in its entirety moving forward.
Dividend Stock No. 3 – 3M Company
The last Stock King we’ll consider today is 3M Company (MMM)… which has actually remained in the news this year for many of the wrong reasons. Manufacturer of the popular N95 mask, it did very well throughout the pandemic, selling MILLIONS of them.
But fast-forward to 2022, as well as 3M has actually been marred by legal problems regarding ear plugs sold to US military personnel. The claim is that they’re faulty.
A court in Florida awarded veteran James Beal a victory in his suit against 3M for that very product. The company was ordered to pay $77.5 million based upon his claim of having hearing damage from wearing them.
Since May, the same Florida courthouse had greater than 290,000 cases over the same concern. This poses a huge legal threat to the company moving forward, which is why shares have been under pressure this year.
So far, 16 cases have been heard, in which the company has actually won six of those and is appealing the other 10.
The negotiation amount ultimately will be large. We completely recognize that. Yet investors require to put things into perspective …
3M is an industrial giant with a strong balance sheet. Like Johnson & Johnson over the years, it’s had its fair share of legal battles. It includes the territory as well as is nothing new.
As an investor, you have to try as well as decipher if you think the legal problems ahead are currently reflected in the stock price. As you do, consider the selloff we saw when news of the lawsuits was announced a few months back.
Regardless, 3M has still managed to turn respectable results even in the midst of our current economic mess. Organic sales rose 2% in the previous quarter, though adjusted EPS was down 10% due to higher gas prices and the like.
Yet the company boasts an A+ rated balance sheet. So once a few of these “transitory” problems begin to improve, we could see a straight result to 3M’s profits.
Another point to note is that China is beginning to relieve its Covid restrictions. This must have workers returning to its Shanghai facilities, which consequently will assist improve 3M’s supply chain woes.
On the year, shares of MMM are down 18%, having fallen hard after the legal announcement earlier in the year.
The stock presently trades at $145. Taking a look at the FAST Graph chart below, we can see analysts expect following year’s earnings at $11.34. This suggests MMM is presently trading at an onward earnings multiple of 12.7x.
Over the past 5 years, its average P/E has actually been 19.6x, recommending shares are exceptionally undervalued based on this one metric.
MMM currently yields a dividend over 4%, which is quite high for them. The payout ratio goes to 59%, so investors ought to keep an eye on that as the years go on.
The company has increased the dividend for 63 successive years with a five-year growth rate of 5%.
If you think we’re headed towards an economic downturn and that the most awful of the legal troubles are currently priced into the stock … then shares of MMM could offer a terrific buying opportunity at current levels. In the past, industrial plays like MMM have performed well during slowing down economic periods.