It’s not an easy time for yield-hungry investors. The dividend yield on the S&P 500 Index is just 1.4%, the lowest in 150 years, excluding the peak of the dot-com bubble two decades ago. That situation isn’t helpful if you’re investing to manage your monthly cash flows.
Many top companies have slashed or suspended their dividends during the past year in order to survive in one of the harshest economic downturns we have seen in our lifetime. Boeing (NYSE:BA), Royal Dutch Shell (NYSE:RDSa) and Disney (NYSE:DIS) are among them.
While payouts from S&P 500 companies are comingback slowly as the economy reopens, you should still be careful when picking your dividend stocks. We've short-listed three reliable stocks from the income universe. Each is considered a relatively safe choice due to their ample cash reserves, healthy balance sheets and reasonable payout ratios.
1. Verizon
- Yield: 4.28%
- Quarterly Payout: $0.6275
Telecoms are considered a defensive play in times of uncertainty. In general, these companies regularly increase payouts. And in many cases, they've been boosting dividends regularly for decades. In this space, we like wireless service provider Verizon (NYSE:VZ).
For the past many years, Verizon has been focusing on improving its infrastructure. The company has avoided making big acquisitions, like those made by AT&T (NYSE:T). Instead, Verizon has placed smaller bets focused on ways to quickly improve its network. Due to its timely acquisition of Straight Path Communications in 2018, Verizon is ahead in the race to build a 5G network—part of an industry-wide effort to increase speed and open up new sources of revenue.
In March, Verizon spent more than $52 billion on mid-band airwaves as part of its push to have 5G signals available to a third of the nation early next year. The carrier expects its revenue growth to double to 4% by 2024, riding a wave of new 5G services.
With its strong balance sheet, growing dividends and leading position in the 5G rollout, Verizon is a solid—and comparatively safe—income choice for long-term investors.
2. Realty Income
- Yield: 4%
- Quarterly Payout: $0.70
When interest rates decline, many investors take refuge in real estate investment trusts (REITs) due to their higher yields and payout stability. But during the pandemic, the risk profile of many top REITs changed as buildings that once housed restaurants, shopping malls and offices went quiet.
Even in this tough operating environment, we can’t place all REITs in the same basket. Realty Income (NYSE:O), which rents space to top-notch clients, including Walgreens (NASDAQ:WBA), FedEx (NYSE: FDX) and Dollar Tree (NASDAQ:DLTR), is one such REIT that fixed income investors should consider.
Due to the strength and diversification of its portfolio, Realty Income was able to escape the worst of the pandemic. Its portfolio of 6,662 properties, located in the U.S., Puerto Rico and the UK, had an occupation rate of 98% by the end of Q1, with a 94% rent collection rate.
"Looking forward, our rent collections have improved and stabilized, the business is well-positioned to capitalize on our active global investment pipeline, and we finished the quarter with approximately $2.5 billion of liquidity,” the company said in an earnings statement this week.
3. Cisco Systems
- Yield: 3%
- Quarterly Payout: $0.37
Cisco Systems (NASDAQ:CSCO) is not a high-flying technology player that will double in value in a few months, but it is a cash-rich company well-positioned to pay uninterrupted dividends. The San Jose-based networking giant is the world's largest producer of routers, switches and other gear that companies use to connect computers.
The company has meaningfully improved its future growth prospects after an aggressive diversification drive away from hardware to a software-driven model within new, high-growth areas of the market, such as cybersecurity, applications and services.
These growth initiatives, coupled with the company’s dominant position in the Americas, where it generates the majority of its sales, have positioned the company to outperform when the macroeconomic risks decrease.
Goldman Sachs upgraded the stock in March, saying in a note that a return to offices would lead to better IT spending in general, with Cisco also seeing a tailwind from a replacement cycle for older technology.
In addition to growth, Cisco is also a reliable dividend payer. Though not yet considered a dividend aristocrat, given it has only been paying a dividend for 11 years, Cisco has nonetheless raised its payout every year, making it an attractive option for those seeking growing income.