In this series of articles, we start the search for the top ten safest dividend stock using different angles and selection processes. Long-term dividend growth investors, need to pay less attention to the short-term movements of the market and focus on the quality and business models of the companies in their portfolio.
However, these days where both the stock market and investor emotions are rollercoasters, it is not so easy to stick to an investment strategy. Especially when in March 75 dividend cuts were announced, mainly related to the Corona-virus. The dividend is an essential part of the total return of a dividend growth portfolio and the main building block of income and retirement portfolios.
Part 1: What do analysts say?
In this first article, we look at what the analysts of Goldman, Jefferies are reporting on safe dividend stocks. The Goldman strategists forecast that more dividend cuts will be announced with the release of quarterly financial results. Overall they estimate dividends for S&P 500 stocks will decline 25% to $44 per share in 2020. In contrast to Europe, “banks are in a position to maintain dividends at or close to the current run rate.”, according to Goldman.
Goldman scanned the Russell 1000 for companies with an annualized dividend yield greater than 3%, a good cash position, healthy balance sheets, and “reasonable” payout ratios. This resulted in a list of
“best bets for investors seeking income”. Each of the stocks on this list have not underperformed the rest of the market since the peak mid-February, and are rated by S&P as at least BBB+. On average the companies have paid its dividend for 90 quarters (23 years) without reducing its distribution.
The top highest-yielding stocks from each of the 10 sectors of this Goldman list are below.
It will not be a surprise that analysts often have a different opinion. For example, the Jefferies analysts, create a list of stocks most vulnerable to a dividend cut. This list is based on two ratio’s:
- Dividend coverage ratio
- Net-debt-to-equity ratio
Both could be an indicator of a potential dividend cut, when the net income is relatively low to the declared dividend and when also companies are also highly levered. For example, a dividend coverage value above 2.0 is considered to be healthy. 3M (MMM) is at risk according to Jefferies, while Goldman is indicating this as a safe dividend stock.
Other Sources of Dividend Investment Ideas
The Dividend Aristocrats list is not the only way to quickly screen for businesses that regularly pay rising dividends.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of less than 20 businesses with 50+ years of consecutive dividend increases.
- The MoneyInvestExpert Defensive Aristocrats is a performance-based top-10 selection of the Dividend Aristocrats to outperform the market on the long-term.
- Portfolio lists like the Berkshire Hathaway Portfolio or Bill Gates’stock portfolio can be a source.
- For the European focused investors there is also the list of European Dividend Aristocrats.
- Dividend Champions are not necessarily members of the S&P 500 index, have increased their dividend for 25 or more consecutive years.
- 100+ years of dividend, the list of stocks that pay over 100 year of dividend can be an list of inspiration.
Next to selecting the right dividend stocks, important principles for successful long-term investing are Disciple, Diversification, Defensive & indeed Dividend. Read more about this in our free e-book.
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