After a year of uncertainty brought by the global COVID-19 pandemic, income investors now have much more clarity about the trajectory of their income portfolios.
Many companies which slashed their dividends to counter the negative financial impact of lockdowns and business disruptions are slowly resuming their payouts, as the economic reopening gathers pace in the U.S.
Cash dividend payments in July increased 10.6% from a year earlier, according to a report via CNBC.com, citing Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. The median dividend increase in July was 11.1%, up from last month’s 8.3% and July 2020′s 6.3%. Said Silverblatt:
“Dividends were strong for the month, as banks followed through on Fed-approved increases. The actual Q3 2021 payment looks like a potential record.”
If vaccinations continue and the economy reopens, Silverblatt expects dividend payments to increase 5% for 2021, which would be a new annual record for payouts.
In this favorable environment for higher dividend income, below we analyze three blue-chip stocks which could prove a good fit for any retirement portfolio.
1. International Business Machines
International Business Machines (NYSE:IBM) has been in a turnaround mode for many years now. The uncertainty related to its legacy IT infrastructure business and its slow transition to cloud-computing has kept its dividend yield high when compared with other tech giants.
But there are now clear signs that this 109-year-old tech giant is succeeding in its turnaround efforts, making its 4.5% dividend yield attractive for long-term investors. The Armonk, New York-based company last month posted its biggest quarterly increase in revenue in three years, boosted by strong cloud-computing demand.
These numbers helped push IBM stock 14% higher this year. Indeed, the company's shares fared better than many other mega-cap tech stocks.
Arvind Krishna, who took over as CEO from Ginni Rometty last April, is focusing on artificial intelligence and the cloud to revive growth. Krishna has reorganized the company’s business around a hybrid-cloud strategy, which allows customers to store data in private servers and on multiple public clouds.
IBM, in our view, is a safe dividend stock, especially after its new management’s clear shift to cloud computing, which is a high-growth business. These steps are encouraging and could unlock the value of IBM stock, which has hiked its dividend for 26 years straight.
Trading at $144.09 as of Friday's close, IBM pays a quarterly dividend of $1.66 per share.
2. Lockheed Martin
Lockheed Martin (NYSE:LMT) isn’t the kind of stock—or company—that generates daily headlines. But it's certainly one of those names that fits nicely in a long-term retirement portfolio.
The aerospace and defense giant pays a quarterly dividend of $2.6 a share, which translates into a 3% annual dividend yield. This payout is backed by the Bethesda, Maryland-based company's strong cash flows and recession-proof business.
During the pandemic, Lockheed posted earnings, sales and cash flow that kept rising, helped in part by accelerated progress payments from the US's Department of Defense, which were then passed on to suppliers.
Lockheed still trades at roughly 14 times its trailing price-to-earnings ratio, indicating that this stock isn’t expensive and could be a solid addition to a fixed income portfolio. Lockheed Martin shares closed on Friday at $362.05.
In a recent analysis of the company the Wall Street Journal said:
“While all major weapons makers are trading at a huge valuation discount to the S&P 500, which is common in periods of peaking defense budgets, Lockheed has become the cheapest of them all, both in terms of free cash flow and earnings relative to enterprise value.”
According to the report, LMT remains well positioned in space and hypersonics, areas in which spending is almost certain to increase to keep pace with China and Russia.
3. Procter & Gamble
Consumer staple giant Procter & Gamble (NYSE:PG) is another solid dividend stock with which to earn a steadily growing income for a retirement portfolio. The Ohio-based company has increased its dividend for 66 consecutive years.
Yielding 2.47% per annum, P&G pays a quarterly dividend of $0.87 per share. During the past decade, the value of its shares have more than doubled, including dividends, giving its stockholders a handsome total return. P&G shares closed on Friday at $141.41.
The company’s growth momentum suggests that shares of the maker of such household mainstays as Bounty paper towels, Gillette razors and Tide laundry detergent are a safe bet for long-term investors.
The company’s organic sales grew 4% in the quarter that ended in June, beating the 3% estimate from analysts. Growth was faster than expected in the grooming, health care and fabric and home care segments of the business.