In a world where the typical savings account interest rate is close to zero and the 10-year US Treasury yield is perpetually below 1%, it can be difficult to find investments that offer both a safe income stream and allow their holders to sleep well at night.
Coca Cola (KO -2.38% ) has long been a blue chip stocks and a company whose products continue to be bought through good times and bad, making it a relatively safe way to invest and earn a respectable dividend (current yield of 3.09%). But times keep changing, and what was a solid investment in the past may not always be so in the future. Investing is looking to future profits, not the past.
Some stocks that offer both a higher dividend yield than Coca-Cola and better prospects for future growth are Verizon (VZ -0.78% ), Pfizer ( DPF -1.38% )and JP Morgan hunt (JPM -3.86% ). Let’s find out a bit more about these three dividend-paying stocks.
For its millions of customers, much of daily life runs through one of Verizon’s services. Its wireless network keeps them connected to family and friends via their smartphones; its high-speed Internet service allows those who can to work remotely, learn remotely, and more; and its Fios cable service brings video entertainment to their homes. By providing these services, the telecommunications giant has been able to generate more than $19 billion in free cash flow over the past 12 months.
Although Verizon’s revenue grew at an annualized rate of just 2.4% per year in the 2010s, that was enough for it to continue investing in its own services and to keep increasing its dividend each year. The company’s payout went from $1.93 per share in 2010 to $2.44 per share last year, representing a yield of 4.15% at the current share price. Verizon shares should find a place in the portfolios of investors seeking income and peace of mind.
Pfizer, which pays a dividend yielding 4.0% at the current share price, has spent the past two years transforming itself from a Johnson & Johnson lookalike into an innovative company developing treatments for some of humanity’s most incurable diseases. As part of a series of deals struck after CEO Albert Bourla took over in early 2019, Pfizer transferred its consumer healthcare portfolio to a joint venture with GlaxoSmithKline, and divesting its Upjohn unit, which houses its generic and off-patent drugs. These changes will allow the lean company to focus on its patent-protected medicines and vaccines.
This transformation was validated by the recent announcement of positive results from the phase 3 trial of its vaccine candidate against COVID-19. Although Upjohn’s split (expected on Friday) and its immediate merger with Mylan (MYL) (closing scheduled for Monday), will lower Pfizer’s dividend, shareholders will receive shares in the new company, which will be called Viatris. Added together, the overall size of their payments should not be affected. Pfizer has undergone an exciting transformation and appears to continue to line shareholders’ pockets while focusing on cutting-edge research and development.
3. JPMorgan Chase
With benchmark interest rates so low, you might find it surprising that anyone would recommend investing in a bank. After all, these institutions make much of their money from the interest they earn on the funds they lend. The net interest margin – the difference between the interest rates they earn and the interest rates they pay to depositors – is a key factor in banks’ profitability.
Of all the major U.S. banks, JPMorgan has demonstrated the most obvious ability to profit in the face of uncertainty — and low interest rates — since the financial crisis. The company now has leading franchises in investment, commercial and retail banking, credit cards and wealth management. This broad leadership has translated into growth across a multitude of metrics. JPMorgan has increased its book value – the difference between its assets and liabilities – by 7% per year since 2010. Its dividend now sits at $3.60 per share, a 3.15% yield that is easily covered by the net profit. The company earned $10.72 per share in 2019 and its EPS has grown every year since 2013. Like Verizon and Pfizer, JPMorgan is big, stable, a leader in its field, and has a history of rewarding shareholders with a bumper dividend. Income-minded investors would be wise to buy shares there.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.