2020 has hammered home the importance of investing in safe dividend stocks, such as these 10 picks with conservative payout management.
When investors evaluate dividend stocks, they'll typically
look at the yield first, then maybe delve into how much it's growing. Far less
exciting is how safe the dividend is – but if 2020 isn't a lesson in why it's
important to invest in safe dividend stocks, nothing is.
Hundreds of companies have reduced or suspended their
dividends this year, including dozens of big-name firms such as Boeing (BA),
Ford (F) and Disney (DIS). For younger investors, that's less money you can put
back to work and compound over time. For investors who rely on dividends in
retirement, that's literally an income reduction that can negatively impact
your quality of life.
So, how do you identify safe dividend stocks? One of the
easiest places to start is with the dividend payout ratio, which measures the
percentage of profits that are paid out as distributions. It's an easy
calculation: Simply divide dividends per share by earnings per share. The
higher the percentage, the more net profits go toward sustaining the dividend –
and the more risk that a sudden reduction in profits would lead to a negative
dividend action.
The average S&P 500 payout ratio in 2019 was 42%. That's
a fine benchmark, but in the spirit of finding truly safe dividend stocks,
we're going to explore a group of companies with a payout ratio of 25% or less.
We're also going to look for stocks that have a history of relatively recent
dividend growth, even if that growth has temporarily stalled as a result of
COVID-related financial hurdles.
Here are 10 safe dividend stocks that have plenty of
breathing room. Some have slumped in 2020, while others have bucked the trend
and shot meaningfully higher. But in all cases, conservative dividend
management is serving them (and investors) well.
A really interesting list of stocks! Some of them are a bit too low yield for me but certainly worth checking out, especially as they all seem to have good dividend growth prospects.
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