It was more of the same with U.S. stock markets in May, meaning that investors won’t be getting much reprieve from volatility in the near future. Virtually every U.S. stock index has more or less succumbed to bear markets. Hence, investors gravitate towards safe stocks that provide a hedge against troubling market conditions.
You invariably think about dividends with safe stocks, which have been an investing staple for the past several years. Dividends offer investors a consistent income stream, similar to fixed-income securities that have become incredibly popular. Rising interest rates have made growth stocks significantly less attractive than income-oriented stocks.
Moreover, most stocks, including the safer ones, have taken a beating with the market downturn. Therefore, many of the safe stocks discussed in the article are trading at multi-year lows.
|American Water Works
Safe Stocks: American Water Works (AWK)
American Water Works (NYSE:AWK) is the leading water utility, offering regulated water and wastewater services to over 10 million people across 24 different U.S. states.
AWK has been a remarkably attractive utility due to its tremendous growth profile. Its diluted adjusted earnings per share have grown over 14% on average over the past five years. With its top and bottom-line performance strength, the company’s dividends have grown at an exceptional 10% annually over the past five years.
The thesis behind investing in AWK is straightforward. The services it offers are a necessity, and its business will continue to flourish with rate hikes and a steady increase in population growth rates. The U.S. experienced an impressive 7.4% increase in population growth from 2010 to 2020, equating to 22.7 million people. Hence, there’s a tremendous growth runway ahead with AWK.
Chip-maker Intel (NASDAQ:INTC) has been posting mediocre results for multiple years now, denting investor confidence.
However, it now has a clear strategy to turn its fortunes around. Its clear strategic direction could potentially lift its glowing dividend profile, which currently offers a 3.3% yield to investors.
Chipzilla plans to invest heavily in future growth through accelerated capital spending. It plans to spend $27 billion on advancing its research and development efforts. From 2026 and beyond, the management is targeting 10% to 12% annual revenue growth.
Intel’s management is hopeful that these investments will lead to strong revenue expansion for several years, stemming from its traditional and emerging businesses. For instance, it plans to invest about €33 billion in R&D in expanding its foundry services during the first quarter alone, representing a 175% bump from the same quarter last year.
American Express (AXP)
Credit card company American Express (NYSE:AXP) has outperformed its competition so far this year, with its stock price up over 7.5% over the past six months. It recently released its encouraging first-quarter results, where it comfortably beat analyst estimates on the back of a 29% increase in sales on a year-over-year basis.
Travel spending is a key growth driver for American Express, so it struggled immensely during the pandemic. It is a leading provider of credit cards that offer various incentives and travel rewards to its consumers.
In March, it reached an incredible milestone where travel and entertainment spending returned to pre-pandemic levels due to a resurgence in travel spending. The trend continued into April and is likely to continue in line with the pandemic fade. This development bodes well for income investors, as dividend yields could potentially increase over the 3.3% it currently offers.
Beverage giant Coca-Cola’s (NYSE:KO) stock has had it rough amidst the challenging macro-economic conditions, including inflation, coronavirus-led shutdowns, and geopolitical conflicts.
However, its inflation-resistant business remains as solid as ever, posting an 18% increase in organic sales during the first quarter. Its leading distribution network, pricing strategies, and humongous marketing budget is starting to pay off.
Investors should expect higher returns from dividends and stock buybacks. KO stock currently yields over 2.50%, with a remarkable payout ratio of over 70%. Moreover, the dividend king has paid and increased payouts for the past 59 years.
Communications and media conglomerate Comcast (NASDAQ:CMCSA) has been a steady performer over the past several years, driven by growth across multiple segments. Its recently released report showed a 14% spike in sales driven by strong theme park attendance, movie ticket sales, and increased viewership at NBCUniversal due to the Winter Olympics.
Furthermore, the business saw remarkable growth in its communications segment, which notched solid increases during the quarter. 194,000 new customers were added during the quarter for various services offered by the company. Additionally, broadband subscribers rose to nearly 32.2 million during the first quarter compared to just 31 million from the same period last year.
Though it’s not exactly a growth stock, Comcast has been an excellent dividend stock that pays an attractive 2.70% yield. Additionally, it trades just 1.60 times forward sales, compared to its 5-year average of 1.92.
CVS Health (CVS)
CVS Health (NYSE:CVS) Corporation is one of the oldest healthcare providers in the U.S., with roughly 85% of Americans living within a 10-mile radius of a CVS location. It’s been a top performer in the healthcare space with a penchant for consistently rewarding its shareholders. CVS offers an incredible yield of over 2.36%, with a 34% payout ratio.
In 2021, the company’s sales increased 8.7% to $292.1 billion. Product sales form the bulk of its business at $203.7 million, generating $76.1 billion from insurance premiums. The rest of its sales accrue to services and investment income. Moreover, it reported a net income of $7.9 billion and consistently posted profits.
Digital healthcare is a key growth catalyst for CVS, a niche that will explode in the coming years. It had 35 million digital customers, 80% of which remain actively engaged. The enterprise plans to deploy $40 to $50 billion in capital over the next couple of years to explore new growth avenues, including the expansion of digital services and share repurchases.
Safe Stocks: Clorox (CLX)
Cleaning products giant Clorox (NYSE:CLX) is currently tackling higher costs of doing business. Moreover, it is also facing supply chain troubles coupled with rising input costs. It will be looking to pass on the higher costs to customers, but the impact is imperative.
However, despite its iffy performance over the past several years, the enterprise has proven to be a solid investment, primarily due to its robust dividend policy. It has bumped its dividend payouts every year for over 50 years.
Annual payouts have risen over 400% in the last 20 years, and its effective yield is currently at around 3%. It’s a dividend aristocrat and a dividend king at the same time, making it one of the more attractive plays.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.