Keeping track of all the dividend cuts and suspensions of late is a tall task, and it likely puts many dividend investors on edge. That's why it's more important than ever for investors to consider stocks that are stable and where payouts aren't at significant risk. While you may sacrifice yield in going that route, it's a whole lot better than finding out that a company is going to be stopping its payouts and seeing your recurring dividend payments come to an end. Below are three stocks that are in good shape financially and that will pay you better than the average 2% dividend yield you can normally expect with the average S&P 500 stock.
1. CVS
CVS Health (CVS 3.50%) provides essentials to customers and patients, and that's why the healthcare stock should be a safe investment to hold even as the coronavirus pandemic keeps people at home. For those who don't want to venture out to its stores, the company provides delivery options for both prescriptions and items that you can find in-store as well. The pharmacy retailer is anticipating significant demand during the pandemic.
On March 23, CVS announced it would be adding 50,000 positions which would include temporary, part-time, and full-time workers to help meet the needs of its customers. It's in stark contrast to the moves other businesses are making, as many have had to shut down their operations or lay off staff due to the pandemic. It's an encouraging sign to investors of CVS that the stock isn't in danger, and that it may even see some strong growth this year.
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Currently, the company pays its shareholders a quarterly dividend of $0.50. Although it hasn't increased its payouts since 2017, the dividend still yields a very respectable 3.2% annually. It's a decent payout and one that's not in any imminent danger; CVS's payout ratio is very healthy at under 40%. And in only one of the past 10 quarters has CVS failed to generate a profit, as normally at least 3% of its revenue trickles through to the bottom line.
2. PepsiCo
PepsiCo (PEP -0.37%) may not offer consumers essential products, but its assortment of healthy and unhealthy beverages and snacks is likely to find its way onto many shopping lists during the pandemic. Growth may be a challenge for PepsiCo, but its revenue has been very consistent. In each of the past nine years, the company's top line has been above $62 billion. And during that time, only twice has its profit margin fallen below 9%. That puts the company in an excellent position to continue paying its dividend.
In its fourth-quarter earnings release, PepsiCo announced on Feb. 13 that it would be raising its dividend for the 48th consecutive year. The 7% increase means that investors can expect to earn an annual dividend of $1.0225 from the Dividend Aristocrat, which at its current price will yield around 2.9%. With earnings per share of $5.20 during the most recent fiscal year, that puts PepsiCo's payout ratio at 79%. Although it's notably higher than CVS's payout, it's still a manageable amount as it's nowhere near 100%.
3. Rogers
Rogers Communications (RCI 1.51%) is a large telecom provider in Canada that normally doesn't see a lot of volatility in its share price. Although the company didn't generate any sales growth in 2019, its top line has increased by 17% over the past five years. And the company's profit margin has only fallen below 10% once in the past decade. Being an industry leader, Rogers' position atop its industry in Canada is secure and the stock offers investors a lot of diversification. In 2019, just 61% of its revenue originated from its wireless business. Another 26% came from cable, while its media segment, which includes the company's television channels and radio broadcasting, accounted for approximately 14% of its top line.
Currently, the stock pays investors a quarterly dividend of 0.50 Canadian dollars, which yields about 3.4% on an annual basis. Although the company's increased its payouts over the years, they haven't been consistent and investors shouldn't budget for regular hikes. But with a payout ratio of around 50%, this is another stock that dividend investors won't have to worry about.
Which stock is the best buy today?
Here's a quick look at how each of these three stocks have done over the past year:
Rogers is the only stock that's underperformed the S&P 500, with both PepsiCo and CVS showing much stronger performances.
For investors looking for the best combination of dividends and growth, CVS looks to be the best bet moving forward. With its hiring spree and strong demand for health services and products for the foreseeable future, it could stand to see the most growth in the next one to two years, as the coronavirus pandemic is still far from over. But for investors who just want a dividend stock they can buy and forget about for the long term, it's hard to go wrong with a stock like PepsiCo that has such a strong track record for growing its payouts over the years. And if you already have some good blue-chip dividend stocks in your portfolio, then investing in Rogers may be appealing for the sake of not just dividend income but diversification, as well to gain exposure outside of the U.S. market.
However, with all three having sustainable payout ratios and paying more than what you can earn from the average S&P 500 stock, investors looking for recurring income have three solid stocks here that they can put in their portfolios today.
