Investing.com | Aug 18, 2020 07:27
Which stocks make an ideal investment if you want to keep them over a long period of time and earn stable income during your golden years?
If you are a buy-and-hold investor, large-cap high-yield dividend stocks are the best choice. These companies tend to have strong business models that allow them to regularly generate revenue for shareholders.
In addition to receiving income when you need it the most, large-cap income-producing stocks are also less volatile during economic downturns, such as the one we’re facing now during the pandemic.
Their strong balance sheets, essential products and services, and large global footprint help generate strong cash flows and provide investors with considerable annualized returns. Below, we've identified three such stocks:
While high-growth, new technology stocks have enjoyed powerful upward momentum since the COVID-19 crisis, old economy, or value-oriented, tech stocks also make a good choice to earn stable dividends.
Many of these companies have legacy businesses that provide substantial free cash flow to support dividends and investments into faster-growth areas, like cloud computing. International Business Machines (NYSE:IBM) is one such stock that should attract buy-and-hold investors due its attractive 5.2% dividend yield and payout stability.
The coronavirus pandemic has hurt IBM’s earnings. Its large customers are delaying purchases of new mainframes and software, but its stock is still a safe bet for income investors who have a long-term horizon.
The current economic downturn isn’t having a major impact on the company’s recurring revenue stream, which mainly consists of financial services, telecom and the public sector. These areas of the economy have largely remained immune from the impact of lockdowns and closures, and will help IBM weather the downturn.
When it comes to growth, during the past decade, IBM has certainly disappointed investors. But after last year’s acquisition of Red Hat, a U.S.-based multinational software company, and with new management in place, we see IBM getting back on the path to growth once the pandemic is behind us.
IBM’s healthy balance sheet, manageable debt and recurring cash flows make its dividend a relatively safe bet for income-oriented investors. The stock, which closed yesterday at $124.44, pays $1.63 a share quarterly.
Consumer staples offer another attractive avenue for buy-and-hold investors. They're considered safe since these companies are less tied to the economic cycle and tend to sell products that consumers need no matter the economic circumstances. For these reasons, we like General Mills (NYSE:GIS), the maker of Cheerios cereals, Yoplait yogurt and Nature Valley granola.
With a price of $64.28 at yesterday's close, the stock is up about 35% since its March lows and it’s unlikely to show much volatility even if the market takes another plunge. Another benefit of owning GIS stock is that investors receive a 3.1% yield, which is a good return to get through this downturn, especially from a company that has paid uninterrupted dividends for 120 years.
To spur growth in recent years, General Mills has tried to diversify its revenue base. In 2018, the company acquired the maker of Blue Buffalo pet food, its largest deal in 18 years.
The deal added a new growth avenue to the company’s portfolio at a time when its traditional food unit was under pressure as consumers are rapidly changing their eating habits, looking for fresher, greener and less sugary food.
GIS is a stock that is likely to underperform in a bull market, but it is a defensive name that will perform better in a bear market.
Traditional utilities have limited dividend growth potential because of higher regulatory scrutiny and high dividend payout ratios. That said, there are select higher-growth utilities that have unique assets or revenue drivers, particularly in unregulated businesses.
Examples include utilities with wind or solar power assets, as well as those that operate export facilities for liquid natural gas. According to Morgan Stanley, the economics of wind and solar power will continue to improve over time, providing income-seeking investors steadily growing returns. Currently, they provide more than half of all new power-generation capacity.
Among the clean-energy producers, we like Bermuda-based Brookfield Renewable Partners (NYSE:BEP) because of its dominant position in the field and its diversified asset base. Brookfield's diversity—it operates hydroelectric, wind, solar and biomass facilities among its other renewables operations—and depth—with 17,400 MW of capacity and 876 facilities in North America, South America, Europe and Asia—give the company a broad array of services.
The partnership pays a quarterly dividend of $0.435 per unit, which is growing at a compound annual growth rate (CAGR) of around 6%.
Going forward, BEP expects its funds from operations, or FFO, per unit to keep rising at a CAGR above 10% through 2024 as it acquires more companies and adds more capacity to its clean power. As per its latest earnings report, Brookfield Renewable is targeting a sustainable distribution with increases aimed at 5-9% annually, on average.
Trading at $43.81 at yesterday's close, BEP stock has proved to be a great bet for investors during the past five years. But we still like this utility for its more than 4% yield, and its potential for future growth.
Written By: Investing.com
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