Picking the best dividend stocks to add to your investment portfolio requires more than looking for the highest yields. For years of dependable dividend income, you need to find well-run companies with solid business models capable of maintaining the dividend through tough economic times.
These five companies fit that description and provide your investment portfolio with a diversified array of businesses to boot. The companies are listed in order of their dividend yields based on recent share prices.
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1. AT&T: 6.7% dividend yield
Investors like AT&T (T -0.44%) for its high-yield dividend, but some shy away due to the company's large debt load resulting from relatively recent acquisitions of DIRECTV and Time Warner. DIRECTV has lost millions of subscribers as consumers shift from cable television to streaming services. That's part of why AT&T launched its HBO Max streaming service on May 27.
Even if HBO Max is successful, it won't provide the bulk of AT&T's revenue. That comes from its telecommunications business, which saw wireless service revenue grow 2.5% year over year in the first quarter, the fourth consecutive quarter of revenue growth.
Despite the uncertainty injected into global economies by the coronavirus pandemic, AT&T is committed to paying down its debt and maintaining its dividend. The company has raised its dividend each year for the past 35 straight, qualifying it for Dividend Aristocrat status. The company has the funds to do so, with about $10 billion in cash and $3.9 billion in free cash flow at the end of Q1. Its telecom business will also benefit from the growth in 5G wireless technology, making AT&T a compelling dividend stock.
2. PepsiCo: 3.09% dividend yield
PepsiCo (PEP 0.29%) is experiencing success despite the current economic downturn thanks to its popular array of snack foods and beverages. The company saw first-quarter revenue rise 7.7% year over year, and its sales have grown steadily for the past two years.
PepsiCo exited the first quarter with a healthy balance sheet. It had $85.1 billion in total assets compared with $71.5 billion in total liabilities. It also increased its dividend for the 48th consecutive year in May, putting it two years away from becoming a Dividend King.
With pandemic-induced lockdowns around the world blunting consumer in-store shopping, PepsiCo made the bold move of launching websites to enable direct-to-consumer sales. If successful, it will reduce costs and grow margins. The company's work to evolve its business combined with its financial success and solid dividend makes it an attractive income investment.
3. Target: 2.23% dividend yield
Target (TGT -0.65%) recently reported first-quarter results, and its 11.3% year-over-year revenue growth despite the coronavirus pandemic reflects why the retail giant is a company to invest in.
Target's business includes consumer staples that sell regardless of the broader economy. It invested in omnichannel retail solutions, creating a seamless customer experience between online and in-store shopping. This led to strong comparable digital sales growth of 141% for the quarter.
Target is well-positioned to continue its current success. Revenue has grown the last three years, and the company has increased its payout for 52 consecutive years, a reassuring sign of dividend stability.
4. Allstate: 2.20% dividend yield
Allstate (ALL -0.93%), the insurance company known for its "You're in good hands" slogan, experienced a revenue drop in the first quarter of 2020 not because its business struggled in the face of the pandemic, but because its investments declined with the resulting global economic downturn.
Yet its core insurance business is healthy. That revenue grew 4.4% year over year for the quarter, and has grown every year for the past four years.
Allstate returned $670 million to shareholders in the quarter through stock buybacks and dividends. The company's low payout ratio of 18% means it can support the dividend even amid a global economic decline.
Its financial position is solid with access to $3.4 billion in assets from its holding company and another $8.8 billion from securities salable in a week. With its combination of a steady insurance business and healthy finances, investors will find that Allstate lives up to its slogan.
5. Waste Management: 2.05% dividend yield
Reliable stocks in an economic downturn include utilities and trash collectors. Among the latter, Waste Management (WM -0.49%) is a dividend stock worthy of your portfolio.
Communities need trash collection regardless of the economy. That helped propel Waste Management's first-quarter revenue to $3.73 billion, up from last year's $3.70 billion. Its revenue has steadily increased for the last four years.
Its finances are healthy with $3.1 billion in cash and equivalents, and free cash flow of $318 million at the end of the quarter. This more than covers the $236 million in dividend payments.
The company has reiterated its commitment to the dividend, which has increased for 17 consecutive years. Its payout ratio of 55% means its dividend payout is as resilient as Waste Management's business.
