With the COVID-19 pandemic growing against the backdrop of a presidential election, investors are understandably anxious. Incumbent Donald Trump and challenger Joe Biden have considerably different ideas about how the economy should be managed, just as both major political parties have their own ideas about responding to the coronavirus.
In situations such as this, the smart investing decision isn't taking calculated risks on post-election winners and losers. Rather, the smart move is simply to step into stocks that dish out reliable income regardless of the environment. Here are three such dividend stocks to consider, each currently yielding more than 5%.
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Prudential Financial
Dividend yield: 6.4%
Most insurance stocks have suffered of late, with investors broadly fearing the pandemic is prompting unexpectedly high payouts. Prudential Financial (PRU 0.74%) has been no exception to this headwind. Although up since March's low, shares of this life and health insurer are still down more than 30% from February's pre-COVID peak. The company hasn't offered much in the way of specifics as to its COVID-related costs, but it did suggest it would see operating income lowered by $70 million for every 100,000 coronavirus deaths. It also indicated during its second-quarter earnings call that COVID-19 mortalities would cost the company around $55 million.
Despite the tragic death toll from the virus, investors appeared to be expecting far more troubling numbers.
Largely overlooked during (and even after) the stock's steep sell-off are the strange, surprising upsides of the coronavirus pandemic. Shutdowns and other slowdowns, for instance, were projected to reduce the company's travel and entertainment expenses by $30 million during the third quarter that ended in September. The company further noted last month that the pandemic has prompted record-breaking interest in life insurance, with 36% of Americans now saying they intend to purchase coverage within the coming 12 months.
Point being, the knee-jerk selling of Prudential shares during the early days of the pandemic in the U.S. was rooted in more fear than was merited. Even after a rough second quarter, the insurer's per-share operating income of $1.85 was still more than enough to cover the quarterly dividend payout of $1.10. The mathematics may have even improved in the meantime, bolstering the potential of this already undervalued stock.
PPL Corp.
Dividend yield: 5.8%
Utility stocks generally make for great dividend investments for an obvious reason: Consumers may skip a vacation or postpone the purchase of a new car, but they do whatever it takes to keep the lights on and the water running. That reliable bill-paying funds the reliable income stream that in turn funds reliable payouts.
Enter PPL Corp. (PPL 0.28%), which has not missed a quarterly payout since 1946 and has raised its dividend every year since 2000. Better still, it can afford to reliably pay them. Of the $4.85 it's earned over the course of the prior two fiscal years, only $3.27 of it has been consumed by cash dividends. After adjustments, this year's payout ratio is shaping up with a similar degree of breathing room. In other words, this utility company can reliably afford to return cash to shareholders.
The market seemed to forget about this long-term resiliency earlier this year. Between February's peak and March's low, PPL shares lost half of their value. Even with the rebound in the meantime, the stock is trading 20% below its pre-coronavirus highs, explaining the oddly high dividend yield of 5.8%. That pricing ultimately underestimates the utility company's prospects, opening a window of opportunity for investors willing to crawl through it.
Huntington Bancshares
Dividend yield: 5.7%
Finally, add Huntington Bancshares (HBAN 1.29%) to your list of worthy dividend stocks currently sporting yields better than 5%.
Like so many other stocks, Huntington suffered greatly in the early days of the coronavirus pandemic. Bank stocks -- and regional banks in particular -- took on more than their fair share of water, as plunging interest rates threatened already thin profit margins on what little lending business banks would have been able to do in the midst of shutdowns, and in the face of economic weakness. While up on the order of 50% from April's low, Huntington's stock is still down 26% from its February high.
Now that the dust has started to settle, it's becoming clear that banks and consumers are still connecting to make and take new loans. In fact, Huntington CEO Stephen Steinour commented during last week's third-quarter earnings call that in the past two quarters alone, the bank made about as many mortgage loans as it did in the entirety of 2019. Total revenue grew 5% during Q3, and the bank anticipates 7% to 8% year-over-year top-line growth for the quarter now under way.
The company is using this strength as an opportunity to increase the amount of cash it's returning to Huntington shareholders. Although the Federal Reserve has extended its third quarter cap on banks' dividends into the the quarter now under way, Steinour is already eyeing the time when these caution-minded limitations are likely to be lifted. He explained during last week's conference call "we are seeking approval and expect to increase our capital return to shareholders in 2021." Steinour also said he's more interested in buybacks than raising the dividend, although both help boost the stock's value and Huntington is already paying out well above the banking industry's average yield.
