This story was originally published here.
This has been the most traumatic year for dividend investors since 2008, if not longer. Major blue-chip companies have been announcing dividend cuts or suspensions almost every day. Last Tuesday, Disney (NYSE:DIS) joined the crowd with its shocking decision to not pay its dividend for the first half of 2020. And in the high-yield space, it’s been an absolute bloodbath. Whole segments of the market, like energy, mortgage REITs and business development companies have seen their payments shrivel up. It’s looking grim for many dividend stocks.
Consider this. In 2008, it took the S&P 500 a subsequent three years to reach a new record dividend payout. If you owned an index exchange-traded fund in 2007, you were earning more income by the end of 2011. This time around, it appears the damage will last a lot longer.
The CME Group (NASDAQ:CME) lists dividend futures contracts, which are settled based on how many dividends one unit of the S&P 500 pays out over a year.
If you owned one “share” of the S&P 500 last year, it would have been worth around $3,000 and it paid out $56 in dividends in 2019. That’s as you’d expect. The S&P 500, as an index, has yielded around 2% recently. And normally, the index pays more and more dividends every year.
Now, however, the novel coronavirus has messed that up. The dividend futures suggest that the S&P 500 will only pay out $50 this year, marking an 11% drop from 2019. For 2021, dividends will be down again to just $44. It won’t be until 2026 that dividends get back to 2019’s level of $56 per unit of the index.
If you use index funds, that’s a depressing outlook. Meanwhile, inflation keeps ticking on, eroding purchasing power. There’s a solution to this unpleasant forecast: Pick dividend stocks that can maintain their payouts despite the sour economic conditions at present.
Here are seven such dividend stocks that are standing tall despite the coronavirus:
Dividend Stocks to Buy: Johnson & Johnson (JNJ)
Dividend Yield: 2.7%
Johnson & Johnson isn’t the highest-yielding stock out there by any means. But it is one of the bluest of the blue-chip dividend stocks. And with the coronavirus disrupting even many formerly safe companies, it’s worth going with the best of the best. In healthcare, that’s Johnson & Johnson.
The company’s diversified business model protects it from many short-term ills. Johnson & Johnson generates profits from pharmaceutical drugs, consumer medical and hygiene products, and medical devices. When one business isn’t going well, the other two can carry the weight.
Now, for example, medical devices are a bit slow as patients are delaying elective surgeries. But sales of consumer healthcare products, on the other hand, are brisk.
At 19x earnings, Johnson & Johnson isn’t screaming cheap here, but it’s not a bad price. Johnson & Johnson has hiked its dividend for 57 years in a row. And it’s maintained a constant 6% dividend growth rate over the past decade.
A rock-solid 2.7% yield from J&J with 6% annual hikes beats the S&P 500’s 2% yield by a wide margin.
Editor's Note: To see the other six stocks, click here for the full story.
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