When the curtain closes in 2020 in just over five months, it is likely to fall as one of the wildest and most volatile years in history.
The uncertainty surrounding the 2019 coronavirus disease pandemic (COVID-19) sent the benchmark S&P 500 less than 34% drop in less than five weeks during the first trimester. But in the next four months, the broad-based index has made up most of what was lost, while the tech index Nasdaq compound It has hit more than two dozen closing highs of all time.
There is no doubt that technology and innovation have led this rebound since March 23. But I would like to put dividend stocks back on your radar as they have been a great long term bet.
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Here’s why dividend stocks should be on your radar
In 2013, Bank of America/ Merrill Lynch published a report that examined the performance of dividend-paying stocks versus non-dividend-paying stocks over the course of 40 years (1972-2012). The analysis found that companies that pay and increase their dividends during this four-decade period returned an average of 9.5% per year. By comparison, dividend-free stocks averaged a meager 1.6% annual return over the same period.
Dividend-paying companies are often profitable, have transparent prospects, and are almost always time tested (that is, they have survived their fair share of recessions and economic recessions).
But as you know, not all dividend stocks are created equally. That’s why if income investors want the best of the best, they generally turn to dividend aristocrats. A Dividend Aristocrat is a group of more than five dozen S&P 500 companies that have increased their annual dividend for at least 25 consecutive years. In other words, they are a model of consistency.
Right now, there are three dividend aristocrats who are crying out for patients, investors looking for income.
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Walgreens Boots Alliance
This has not been a pretty year for the pharmacy chain. Walgreens Boots Alliance (NASDAQ: AMB). The company has lost about a third of its value as weaker-than-expected earnings have reduced investor optimism and the COVID-19 pandemic has hampered foot traffic in its stores. But while short-term investors see trouble, I see Walgreens at about $ 40 a share as a great opportunity for those looking for income.
On the one hand, Walgreens is the type of company that was created perfectly to take advantage of the aging population. No country spends more on health than the United States. As baby boomers age, the number of maintenance therapies prescribed by doctors is likely to increase dramatically, resulting in a boost to Walgreens’ highest-margin segment – its pharmacy.
Walgreens should also see substantive longer-term results for its personalized medicine initiatives. The company has more than 370 Walgreens Healthcare clinics located across the United States to handle simple diagnoses and vaccines, and has generated double-digit sales growth year-over-year from its Boots.com website. In addition, Walgreens’ Find Care digital solution aims to help people with chronic conditions connect with medical staff. Ultimately, interacting with more consumers locally and / or improving patient comfort can play an important role in landing future pharmacy businesses.
Currently on a 44-year streak of increasing its dividend, Walgreens is paying 4.6% (which is more than double the performance of the S&P 500) and is priced at less than 8 times the Wall Street earnings per share forecast for 2021. Even With some profit margin, this is an economic stock that screams for being bought.
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ExxonMobil
While oil reserves won’t be for everyone, income seekers who aren’t scared of the idea of owning a name in the oil patch should seriously consider ExxonMobil (NYSE: XOM).
It has definitely been a year to forget for investors in oil stocks. ExxonMobil has lost approximately 35% of its value in annual terms, while the S&P 500 is more or less flat. At one point in April, the price of a barrel of West Texas Intermediate (WTI) crude turned briefly negative, with WTI and Brent crude simply trying to recover the past three months. Given the unprecedented level of global disruption we have witnessed at COVID-19, demand for oil has fallen at a record rate.
And yet, despite these issues, ExxonMobil is a buy-in. That is because it is an integrated oil and gas giant that is built to survive disruptions as we are experiencing it now. Even though ExxonMobil generates its juiciest earnings from the drilling and exploration side of the business, it can lean on its subsequent refining and chemical operations when crude prices drop. Decreasing WTI and Brent prices mean low input costs for the company’s subsequent operations, and often increased demand for petroleum products by consumers and businesses.
ExxonMobil also has many levers that you can pull if needed up front on costs. The company has already cut up to $ 10 billion from its original capital spending plans of $ 30 billion to $ 33 billion by 2020. But make no mistake about it, ExxonMobil still has its eyes on expanding the Payara project outside of Guyana. . With the increase in bankruptcies in the oil sector, ExxonMobil may have a clearer path towards expanding global drilling in a post-COVID-19 bull market.
After increasing his payment for 37 consecutive years, ExxonMobil’s 7.8% return seems certain.
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AT&T
I have said it before and I will say it again: sometimes boring is beautiful.
Telecommunications giant AT&T (NYSE: T) it is undoubtedly past its prime and has been defeated in recent months by the uncertainty of COVID-19 and the growing prospect of cutting the cord. AT&T owns satellite television operator DirecTV, which is one of the few largest cable players to have seen a steady decline in subscribers. But growth catalysts are on the horizon, and that makes AT&T, which is valued at just 9 times Wall Street’s projected earnings per share for 2021, a bargain.
Perhaps the most exciting development for AT&T is the deployment of 5G networks. AT&T will spend a lot of money to upgrade its existing infrastructure to 5G in the coming years. Your reward will be a multi-year technology upgrade cycle that will result in customers and businesses consuming data like never before. As a reminder, AT & T’s wireless segment generates its juiciest data margins, so this is undoubtedly an opportunity to enhance AT & T’s organic growth.
AT&T also has the opportunity to increase its transmission offerings. Almost two months ago, AT&T launched HBO Max, which aims to become a streaming service with 80 million subscribers by 2025. HBO Max’s more than 10,000 hours of premium content could be the hanging carrot that helps reverse the weakness of DirecTV.
With AT&T halting its share buyback program earlier this year, it’s virtual certainty that its dividend, as well as its 36-year streak of increasing that base payment, are safe. That means AT&T’s 7% return can double your money on its own, with reinvestment, about once a decade.
