There's never been a more dangerous time to hold dividend stocks. Companies are suspending or cutting dividend payments as they grow worried that the coronavirus pandemic will wreak havoc on their businesses for a long time.
However, there are still some safe dividend stocks investors can rely on, as certain companies are better positioned to handle the pandemic than others. Below are three stocks you can still expect to collect payouts from because they aren't in imminent danger.
1. Merck
Merck (MRK -1.56%) isn't likely to see a decline in demand for its products in the midst of the coronavirus. Its cancer-fighting drug Keytruda is a treatment for people with lung, stomach, and many other types of cancers. It's crucial for patients, and that's a big reason why the drug manufacturer is one of the more stable dividend stocks around. Although its stock dipped in March, shares of Merck are down a modest 9% since the beginning of the year. That's better than the S&P 500, which is down 14% over the same period.
The company's sales grew by 10.7% in 2019, and in three years they're up 17.7%. Merck's also consistently posted a profit in each of the past five years. Last year, it netted a profit margin of 21%, and only once in the past five years has that percentage fallen below 9%. The stock is currently trading at a price-to-earnings ratio of around 20.
Image source: Getty Images.
Currently, the healthcare stock pays its shareholders a quarterly dividend of $0.61, which is an annual dividend yield of 3.1% -- above the typical 2% dividend investors can expect from the average S&P 500 stock. The company has consistently increased its dividends on an annual basis since the end of 2011.
2. Unilever
Unilever Group (UN) doesn't offer necessary drugs for patients, but it does have many popular consumer goods brands that people need, whether there's a pandemic or not. From beauty and personal care products to home care, and food and refreshment, Unilever has a broad mix of products that give the company some important diversification. In its 2019 annual report, the bulk of Unilever's sales came from beauty and personal care, which accounted for 42% of its revenue. Food and refreshment made up 37% of sales, and home care represented 21% of the pie.
And like Merck, it's also a solid bet to remain in the black, as Unilever's recorded a profit margin of more than 10% in each of the past three years. Broad diversification in its business strengthens Unilever's future, and that can help make it a stable, long-term investment. With shares of Unilever down 13% thus far in 2020, it's an enticing opportunity to buy the stock on a big dip in price. Unilever's also trading at around 20 times its earnings.
The Dutch-based company issues dividends in euros, and investors can expect to earn around $1.81 annually from the stock, which equates to a yield of around 3.6% today. Unilever has a solid reputation for increasing its dividends over the years and is one of the safer options for income investors today.
3. Royal Bank
Royal Bank of Canada (RY -0.64%) is a top-five bank in Canada, and it's another safe bet to continue paying dividends and increasing them too. During the financial crisis over 10 years ago, Royal Bank still paid dividends -- although it didn't increase them. Since then, the company's been regularly increasing its dividend payments over the years, the latest being a hike of 2.9%. Like Unilever, its dividend payments are based in another currency, and so U.S. investors will see some fluctuations in their payouts. However, Royal Bank investors earn a dividend yield of about 5% annually.
The bank will likely take a hit if the Canadian economy falls into a recession as a result of the coronavirus. However, the bank remains a strong long-term investment, as the pandemic isn't going to keep the economy down forever. Royal Bank's recorded a profit margin of more than 26% in each of its past five fiscal years. It also showed strong growth in fiscal 2019, with sales up 7.9% from the prior year.
Shares of Royal Bank are down 20% year to date. The last time the stock was this low for a sustained length of time was in 2016. The bank will face headwinds from a beaten-up economy, but it's also a good bet to recover as well. That's why buying shares of the big bank stock could be a great decision today to lock in a great yield and secure a low price for the stock. Royal Bank stock currently trades at less than 10 times its earnings.
Which stock is the best buy today?
For long-term income investors, the ideal pick is Royal Bank. With strong financials, a great dividend, and the stock near its four-year low, there are many reasons why the stock looks to be a steal at this price. Bank stocks do well when the economy is strong, and while the coronavirus pandemic will cause problems for the economy, over the long term those issues shouldn't stand in the way of the bank's growth. It may take months before businesses are back up and running, but once they are, it should pave the way for a recovery for bank stocks, as well as many other stocks that have taken a beating at the hands of the coronavirus.
