The market’s turbulence has caused investors to seek solace in safe investments that offer some protection against wild swings. That said, dividend stocks — or companies that pay a dividend — have been a popular choice because of their steady income potential and perceived safety.
However, not all dividend stocks are created equally — especially in times of economic crisis.
For that reason, investors should be looking for solid companies whose finances will allow for lasting dividend payments. Cash flow, a history of maintaining dividend payments and a strong business case are the hallmarks of defensive dividend stocks.
With that in mind, here’s a look at three potential winners with respectable, safe dividends to get investors through the hard times.
Dividend Stocks to Buy: Lockheed Martin (LMT)
Dividend Yield: 3.3%
Defense contractors aren’t impacted by economic volatility in the same way that other industries are, making that group a good place to turn when the economy looks shaky. Lockheed Martin (NYSE:LMT) is one of the largest defense contractors in the world, and its reliance on government contracts should insulate it somewhat in the coming year.
While Lockheed Martin stock offers the lowest dividend yield on this list at 3.3%, its dividend payments are also the safest. The firm’s payout ratio comes in at just 39.58%, suggesting that Lockheed is more than capable of continuing to pay out dividends even in a worst-case scenario.
Moreover, much of Lockheed’s revenue is predictable because of its backlog of orders. Lockheed Martin’s backlog totals a whopping $144 billion worth of orders — a promising source of revenue in uncertain times. So no matter what the future holds, investors can be confident that government spending on defense will be one of the last expenses to be cut. And that makes LMT a good bet in the current climate.
3M (MMM)
Dividend Yield: 4.28%
As a maker of vital healthcare supplies like face masks, 3M (NYSE:MMM) has gotten a lot of exposure recently. But the firm makes for a good buy not only because demand for its products is heightened right now, but also because its dividend can withstand just about anything.
Not only is 3M a dividend aristocrat, it’s one of the best dividend aristocrats you can buy. 3M has raised its dividend every year for at least the past 50 years. That means the firm continued to pay investors through such events as the Vietnam War, the Great Recession and 9/11. Only nine other stocks can boast as much, and none of them have as high a yield.
Also, 3M’s 4.28% dividend yield adds a cushion during these uncertainty times. And the firm’s lengthy history of dividend hikes suggests that will increase over time.
Duke Energy (DUK)
Dividend Yield: 5.53%
Boring is best when it comes to market downturns, and you can’t get more boring than utility stocks. While they don’t hold the same excitement as a biotech or tech company, they offer a predictable revenue stream that’s unlikely to change even as the economy shifts into a downturn. After all, bear market or not, people are still going to consume energy.
Duke Energy (NYSE:DUK) makes for a good pick in the energy sector because of its financial strength and respectable dividend yield. Since the end of February, Duke Energy stock has shed almost 30% of its value. This fall has brought the yield up to 5.53%, and created a good entry point for long-term investors.
Furthermore, not only does Duke Energy’s business look likely to survive coronavirus, but its dividend does as well. Cash flow drives dividend payments and Duke’s predictable, constant influx of cash makes it a good pick for investors seeking safety.
With a payout ratio of 72.56%, Duke Energy looks likely to maintain its payments even if things take a turn for the worst. However, it’s worth noting that’s the highest payout ratio on this list.
Coca-Cola (KO)
Dividend Yield: 4.28%
Coca-Cola (NYSE:KO) is another smart play among dividend stocks. Like 3M, Coca-Cola has been upping its dividend payments for more than 50 years. That status makes it unlikely that management will cut its dividend payments unless absolutely necessary.
Moreover, Coca-Cola’s underlying business looks resilient in the current market. In economic downturns, big-ticket items are the first things consumers cut back on — not food and beverages. In fact, the demand for affordable treats like bottled beverages sometimes rises, as people look for ways to indulge without breaking the bank.
KO’s nearly 4.3% dividend yield makes the stock worth holding onto as the market tumbles, and Coca-Cola’s improving business will be a good reason to keep the stock once coronavirus fears have lifted. Last year, the firm was able to grow its revenue by 9% and improve margins substantially. The result is a high quality company that offers a reliable business — something investors should covet in the face of a recession.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she was long DUK.