In Search Of Stable Income During Recession? Consider These 3 Dividend Stocks
Investing.com | May 14, 2020 08:19
For income investors searching for higher yields, the landscape continues to become more challenging. As the U.S. economy slips into a deep recession triggered by the COVID-19 pandemic, expectations that a low-rate environment will persist for longer have spurred investors to seek high-yield alternatives while taking riskier bets.
Though dividend stocks, with their solid income streams, can provide shelter as the skies get darker, it’s also important to understand that investing in high-yielding dividend stocks isn’t always profitable.
Investors should carefully pick their holdings, by focusing on companies with strong balance sheets, low levels of debt and a long history of rewarding investors. Below are three dividend stocks which we believe could prove a good long-term bet for investors hunting for stable income.
h2 1. Home Depot /h2Home Depot (NYSE:HD) is one of the retailers best-positioned to survive the increasingly-likely impending recession.
Just before the deadly pandemic hit, the home improvement chain with more than 2,200 stores in the U.S. as well as outlets in Mexic and Canada, was reaping the reward for its $11-billion spending to modernize the company’s stores, upgrade digital options and enhance offerings for its key trade customers. Armed with these upgrades, there is a good chance that Home Depot’s same-store sales will revive quickly in the post-crisis era.
The strength of the U.S. housing market is also going to help Home Depot thrive once the coronavirus outbreak is contained, as lower borrowing costs boost house prices, making it easier for homeowners to increase spending on renovations.
As well, this retailer is a reliable dividend payer. Its quarterly dividend has expanded by 380% over the past decade, and with a healthy payout ratio of 42%, it has much more room to grow.
The stock, which closed yesterday at $230.10, yields 2.58%, paying $1.5 a share quarterly. The stock has gained 5% this year.
h2 2. Enbridge/h2Utilities are another area where investors can find a good income stream if they hold for the long-run. North America’s largest gas and oil pipeline operator, Enbridge (NYSE:ENB) could be a good fit in this sector, with its massive moat and its crucial position in North America’s energy supply chain.
Get The App
Enbridge's cash flows are well diversified across many businesses and geographies, helping the utility to weather the economic downturn better than other companies.
For instance, while the pandemic is hurting oil consumption across the board, Enbridge’s gas transmission, distribution and storage businesses, which account for about 30% of cash flows, are not expected to experience a meaningful impact from COVID-19.
This revenue stability makes Enbridge a good defensive stock to hold when the economic headwinds begin to churn. The company pays $0.577 a share quarterly dividend, with an annual yield of 7%.
Over the past three years, Enbridge has been carrying out a restructuring plan, selling assets, focusing on its core strengths, and paying down its debt. These measures are likely to benefit long-term investors whose goal is to earn steadily growing income.
Enbridge stock, down 21% to date in 2020, closed at $31.24 yesterday in New York.
h2 3. Honeywell/h2The outlook for industrials is becoming gloomier by the day. Any company whose fate is closely tied to the health of the economy generally underperforms when growth risks accelerate. But Honeywell International (NYSE:HON), which produces specialty industrial machinery, may be one of the few exceptions to that rule.
The company’s diversified portfolio provides a lifeline to many industries, including homes and building, aviation, defense and space. Honeywell’s enduring competitive advantage is so large that challenging its dominance on a global scale is difficult.
Darius Adamczyk, who is in his third year as the CEO, is trying to transform the 135-year industrial giant into an enterprise with a start-up culture. He has introduced more software-based products since he took control, to help clients better manage their supply-chains, providing the Charlotte, North Carolina-based company with a stronger financial outlook.
Honeywell also has an impressive track record when it comes to paying dividends. Currently yielding about 3%, its $0.90 a share quarterly dividend has grown over 11% per year during the last five years. Shares closed yesterday at $122.97. The company has paid uninterrupted dividends for more than two decades, while maintaining a low payout ratio, currently at 49%.
Bottom Line
A recession is undoubtedly a time when prudent investors look to reduce their risks and avoid investing in stocks whose fate is closely tied to economic growth. But for investors with a longer time horizon, who aim to generate passive income for the duration, any market downturn could present opportunities to buy solid dividend-paying stocks.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.