These global brands will always be solid plays.
There is a downside to dividend stock investing that doesn’t get highlighted very often. A stock with a dividend may not always be able to pay that dividend. The ability for a company to return cold hard cash to shareholders in any sustainable fashion is dependent on the company’s ability to generate enough free cash flow to both grow its business organically or through acquisition, and pay a dividend.
Yet, not all dividends are sustainable. During the financial crisis, virtually every hotel REIT suspended its common dividend, and some even suspended preferred dividends. They had to hoard as much cash as they could because business was destroyed.
Dividends that seem too high may be that way because the stock price has fallen, boosting the yield. The stock price may have fallen for a good reason and the company may be on the rocks for some time to come.
But these five stocks are different. Each of these companies has been around for decades. They are now world-class brands, with global reach, mountains of free cash flow and/or cash on hand, and have a track record of either stable or increasing dividends for many years.
So if you are investing for retirement, or you just like to get those juicy deposits each month, or if you recognize the long-term benefit of reinvesting in dividends and enjoying compounded growth, then these 5 safest dividend stocks in the market are for you.
Safest Dividend Stock No. 1: Novartis (NYSE:NVS)
Novartis is a perfect selection because it has a slew of pharmaceutical products and always is on the hunt for new ones. Like Merck, that means consistent and reliable cash flow, which means consistent and reliable dividends. Novartis’ 3% yield is supported by free cash flow such that the dividend represents about 50-60% of annual FCF.
Safest Dividend Stock No. 2: DuPont (NYSE:DD)
DuPont is another classic play that I also like as part of a core stalwart portfolio. DuPont’s 10% long-term earnings growth, plus a 2.6% yield, on top of free cash flow that is churned out like clockwork make DD stock a no-brainer.
Safest Dividend Stock No. 3: Merck & Co. (NYSE:MRK)
Merck is not a stock I’d place in your high-growth portfolio, but if you are looking for a 3% dividend, look no further. Merck has a very long history of fat cash flow, with dividends representing about 50-60% of annual FCF, so MRK’s dividend isn’t going anywhere.
Safest Dividend Stock No. 4: Coca-Cola (NYSE:KO)
The venerable soda company continues to see its tendrils reach to the furthest reaches of the globe. Coca-Cola generates well over $8 billion in free cash flow annually and spends about 60% of it paying KO shareholders a 2.9% dividend. Coca-Cola makes scads of money, and there’s no sign that’s ever going to change.
Safest Dividend Stock No. 5: Exxon Mobil (NYSE:XOM)
I’ve written before that the world will always need oil and producers like ExxonMobil always will provide it. XOM literally generates tens of billions of dollars in cash flow every year and only pays out a third of it to shareholders. Its 2.7% dividend might not be gigantic, but it’s always going to be there.
These are just five of many stocks that are world-class operations with such rich histories that they will be around long after all the high-growth, non-dividend-paying momentum stocks have vanished. And the money they put in your pocket will last even longer.
Lawrence Meyers does not own shares in any company mentioned.
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