5 Relatively Secure And Cheap Dividend Stocks To Invest In – April 2024

Author’s Note: This is our monthly series on Dividend Stocks, usually published in the first week of every month. We scan the universe of roughly 7,500 stocks listed and traded on U.S. exchanges and use our proprietary filtering criteria to select five relatively safe stocks that may be trading cheaper compared to their historical valuations. Some of the sections in the article, like “Selection Process/Methodology,” are repeated each month with few changes. This is intentional as well as unavoidable, as this is necessary for the new readers to be able to conceptualize the process. Regular readers of this series could skip such sections to avoid repetitiveness.

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Markets are always unpredictable. However, to be a successful investor, fortunately, we do not need to know exactly where the market is going. We believe it is not possible to catch the exact bottom (or the peak), so it is best to invest regularly and consistently in good, solid dividend-paying stocks when their valuations are attractive. Against this backdrop, keeping some cash reserves and dry powder ready to deal with any scenario is important.

The main goal of this series of articles is to shortlist and highlight companies that have a solid history of paying and raising dividends. In addition, we demand that these companies support strong fundamentals, carry low debt, and are offered at a relatively cheaper valuation. These DGI stocks are not going to make anyone rich overnight, but if your goal is to attain financial freedom by owning stocks that would grow dividends over time, meaningfully and sustainably, then you are at the right place. These lists are not necessarily recommendations to buy but a shortlist of probable candidates for further research. The purpose is to keep our buy list handy and dry powder ready so we can use the opportunity when the time is right. Besides, every month, this analysis is able to highlight a few companies that otherwise would not be on our radar.

Every month, we start with roughly 7,500 stocks that are listed and traded on U.S. exchanges, including over-the-counter (OTC) networks. Using our filtering criteria, the initial list is quickly narrowed to roughly 700 stocks, mostly dividend-paying and dividend-growing. From thereon, by using various data elements, including dividend history, payout ratios, revenue growth, debt ratios, EPS growth, etc., we calculate a “Dividend Quality Score” for each stock that measures the relative safety and sustainability of the dividend. In addition to dividend safety, we also seek cheaper valuations. We also demand that the selected companies have an established business model, solid dividend history, manageable debt, and investment-grade credit rating.

This month, we highlight three groups with five stocks each that have an average dividend yield (as a group) of 3.91%, 5.34%, and 7.50%, respectively. The first list is for conservative and risk-averse investors, while the second is for investors seeking higher yields but still wanting relatively safe dividends. The third group is for yield-hungry investors but comes with an elevated risk, and we urge investors to exercise caution.

Notes: 1) Please note that when we use the term “safe” in relation to stocks and investments, it should be interpreted as “relatively safe” because nothing is absolutely safe in investing. Even though we present only 5 to 10 stocks in our final list, one should have 15-20 stocks at a minimum in a well-diversified portfolio.

2) All tables in this article are created by the author unless explicitly specified. The stock data have been sourced from various sources such as Seeking Alpha, Yahoo Finance, GuruFocus, and CCC-List (drip investing).

The Selection Process

Note: Regular readers of this series could skip this section to avoid repetitiveness. However, we include this section for new readers to provide the necessary background and perspective.

Goals:

We start with a fairly simple goal. We want to shortlist five large-cap companies that are relatively safe, dividend-paying, and trading at relatively cheaper valuations compared to the broader market. The objective is to highlight some of the dividend-paying and dividend-growing companies that may be offering juicy dividends due to a temporary decline in their share prices. The excess decline may be due to an industry-wide decline or one-time setbacks like negative news coverage or missing quarterly earnings expectations. We adopt a methodical approach to filter down the 7,500-plus companies into a small subset.

Our primary goal is income that should increase over time at a rate that at least beats inflation. Our secondary goal is to grow the capital and provide a cumulative growth rate of 9%-10% at a minimum. These goals are, by and large, in alignment with most retirees, income investors, and DGI investors. A balanced DGI portfolio should keep a mix of high-yield, low-growth stocks along with some high-growth but low-yield stocks. That said, how you mix the two will depend upon your personal situation, including income needs, time horizon, and risk tolerance.

A well-diversified portfolio would normally consist of more than just five stocks and preferably a few stocks from each sector of the economy. However, in this periodic series, we try to shortlist and highlight just five stocks that may fit the goals of most income and DGI investors. But at the same time, we try to ensure that such companies are trading at attractive or reasonable valuations. However, as always, we recommend you do your due diligence before making any decision on them.

Selection Criteria:

The S&P 500 currently yields less than 1.60%. Since our goal is to find companies for a dividend income portfolio, we should logically look for companies that pay yields that are at least similar to or better than the S&P 500. Of course, the higher, the better, but at the same time, we should not try to chase very high yields. If we try to filter for dividend stocks paying at least 1.50% or above, nearly 2,000 such companies are trading on U.S. exchanges, including OTC networks. We will limit our choices to companies that have a market cap of at least $10 billion and a daily trading volume of more than 100,000 shares. We also will check that dividend growth over the last five years is positive, but there can be some exceptions.

We also want stocks that are trading at relatively cheaper valuations. But at this stage, we want to keep our criteria broad enough to keep all the good candidates on the list. So, we will measure the distance from the 52-week high but save it to use at a later stage. Also, at this initial stage, we include all companies that yield 1% or higher. In addition, we also include other lower-yielding but high-quality companies at this stage.

Criteria to Shortlist:

• Market cap > $10 billion ($8 billion in a down market)
• Dividend yield > 1.0% (some exceptions are made to include high quality but lower yielding companies)
• Daily average volume > 100,000
• Dividend growth past five years >= 0.

By applying the above criteria, we got around 600 companies.

Narrowing Down the List

As a first step, we would like to eliminate stocks that have less than five years of dividend growth history. We cross-check our current list of over 600 stocks against the list of so-called Dividend Champions, Contenders, and Challengers originally defined and created by David Fish. Generally, the stocks with more than 25 years of dividend increases are called dividend Champions, while stocks with more than ten but less than 25 years of dividend increases are termed Contenders. Further, stocks with more than five but less than ten years of dividend increases are called Challengers. Also, since we want a lot of flexibility and wider choice at this initial stage, we include some companies that pay dividends lower than 1.50% but otherwise have a stellar dividend record and growing dividends at a fast pace.

After we apply all the above criteria, we’re left with 342 companies on our list. However, so far in this list, we have demanded five or more years of consistent dividend growth. But what if a company had a very stable record of dividend payments but did not increase the dividends from one year to another? At times, some of these companies are foreign-based companies, and due to currency fluctuations, their dividends may appear to have been cut in US dollars, but in reality, that may not be true at all when looked at in the actual currency of reporting. At times, we may provide some exceptions when a company may have cut the dividend in the past, but otherwise, it looks compelling. So, by relaxing some of the conditions, a total of 72 additional companies were considered to be on our list. We call them category ‘B’ companies. After including them, we had a total of 414 (342 + 72) companies that made our first list.

We then imported the various data elements from many sources, including CCC-list, GuruFocus, Fidelity, Morningstar, and Seeking Alpha, among others, and assigned weights based on different criteria as listed below:

• Current yield: Indicates the yield based on the current price.
• Dividend growth history (number of years of dividend growth): This provides information on how many years a company has paid and increased dividends on a consistent basis. For stocks under the category ‘B’ (defined above), we consider the total number of consecutive years of dividends paid rather than the number of years of dividend growth.
• Payout ratio: This indicates how comfortably the company can pay the dividend from its earnings. We prefer this ratio to be as low as possible, which would indicate the company’s ability to grow the dividend in the future. This ratio is calculated by dividing the dividend amount per share by the EPS (earnings per share). The cash-flow payout ratio is calculated by dividing the dividend amount paid per share by the cash flow generated per share.
• Past five-year and 10-year dividend growth: Even though it’s the dividend growth rate from the past, this does indicate how fast the company has been able to grow its earnings and dividends in the recent past. The recent past is the best indicator that we have to know what to expect in the next few years.
• EPS growth (average of previous five years of growth and expected next five years’ growth): As the earnings of a company grow, more than likely, dividends will grow accordingly. We will take into account the actual EPS growth of the previous five years and the estimated EPS growth for the next five years. We will add the two numbers and assign weights.
• Chowder number: So, what’s the Chowder number? This number has been named after well-known SA author Chowder, who first coined and popularized this factor. This number is derived by adding the current yield and the past five years’ dividend growth rate. A Chowder number of “12” or more (“8” for utilities) is considered good.
• Debt/equity ratio: This ratio will tell us about the company’s debt load in relation to its equity. We all know that too much debt can lead to major problems, even for well-known companies. The lower this ratio, the better it is. Sometimes, we find this ratio to be negative or unavailable, even for well-known companies. This can happen for a myriad of reasons and is not always a reason for concern. This is why we use this ratio in combination with the debt/asset ratio (covered next).
• Debt/asset ratio: This ratio will tell us about the debt load in relation to the company’s total assets. In almost all cases, this ratio would be lower than the debt/equity ratio. Also, this ratio is important because, for some companies, the debt/equity ratio is not a reliable indicator.
• S&P’s credit rating: This is the credit rating assigned by the rating agency S&P Global and is indicative of the company’s ability to service its debt. This rating can be obtained from the S&P website.
• PEG ratio: This is also called the price/earnings-to-growth ratio. The PEG ratio is considered to be an indicator if the stock is overvalued, undervalued, or fairly priced. A lower PEG may indicate that a stock is undervalued. However, PEG for a company may differ significantly from one reported source to another, depending on which growth estimate is used in the calculation. Some use past growth, while others may use future expected growth. We’re taking the PEG from the CCC list wherever available. The CCC list defines it as the price/earnings ratio divided by the five-year estimated growth rate.
• Distance from 52-week high: We want to select companies that are good, solid companies but also are trading at cheaper valuations currently. They may be cheaper due to some temporary down cycle or some combination of bad news or simply having a bad quarter. This criterion will help bring such companies (with a cheaper valuation) near the top as long as they excel in other criteria as well. This factor is calculated as (current price – 52-week high) / 52-week high.
• Sales or Revenue growth: This is the average growth rate in annual sales or revenue of the company over the last five years. A company can only grow its earnings power as long as it can grow its revenue. Sure, it can grow the earnings by cutting costs, but that can’t go on forever.

Downloadable Dataset:

Below, we provide a link to the table with relevant data on nearly 400 stocks. Readers can download this table for further analysis. Please note that the table is sorted by “Total Weight” or “Initial Quality Score.”

Selection Of The Top 50

We will first bring down the list to roughly 50 names by automated criteria, as listed below. In the second step, which is mostly manual and subjective, we will bring the list down to about 15.

• Step 1: First, take the top 20 names from the above table (based on total weight or quality score). At times, some industry segments tend to get overcrowded at the top, so we take the top two (or three) and ignore the rest (we selected 21 this time).
• Step 2: As a second step, we will take the top 10 names based on the highest dividend yield. When it comes to dividend yield, some of the industry segments tend to be overcrowded. So, we will take the top two (or a maximum of three) names from any single industry segment. We take the top 10 stocks after the sort to the final list.
• Step 3: Now, we will sort our list based on five-year dividend growth (highest at the top) and select the top 10 names.
• Step 4: We also want to give priority to stocks that are rated highest in terms of credit rating. So, we will sort the list based on the numerical weight of the credit rating and select the top 10 stocks with the best credit rating. Again, we are careful not to have too many names from the same sector.
• Step 5: Lastly, as the name of the series suggests, we want to have some names that may be trading cheaper in comparison to their historical valuation. So, we select the top ten names with the highest discount. However, they could be trading cheap for just the wrong reasons, so we need to be careful that they meet our other quality criteria.

From the above steps, we now have a total of 60 names in our final consideration. However, the following stocks appeared more than once:

Stocks that appeared two times: ADP, MSFT, NKE, NXPI, PFE, V (6 duplicates).

After removing six duplicates, we are left with 55 (61-6) names.

Since there are multiple names in each industry segment, we will keep a maximum of two or three names (from the top) from any one segment. The top names from each sector/industry segment are presented:

Financial Services, Banking, and Insurance:

Banks- Regional:

Banks- Major:

Financial Services – Others: (CB), (MKTX), (VOYA), (ARCC)

Insurance: (OTCQX:ZURVY)

Business Services/ Consulting:

(V), (ADP)

Conglomerates:

(CSL)

Industrials:

(PH), (DE), (LECO)

Industrial Gases: (APD)

Transportation/ Logistics:

(ODFL)

Chemicals:

Materials/Mining/Gold:

Materials: (ALB)

Mining (other than Gold): (RIO)

Gold: (NEM), (GFI)

Defense:

None

Consumer/Retail/Others:

Cons-Staples: (HSY), (PEP), (ADM)

Cons-discretionary: (NKE), (CHDN)

Cons-Retail: (TGT), (WMT)

Tobacco: (BTI)

Communications/Media

(BCE), (VZ)

Healthcare:

Pharma: (BMY), (JNJ), (PFE)

Healthcare Ins: (UNH), (CI)

Technology:

(MSFT), (NXPI), (AMAT)

Energy:

Pipelines/ Midstream: (MPLX), (ENB)

Oil & Gas (prod. & exploration): (EOG), (OVV), (FANG)

Energy Majors: (CVX)

Utilities:

(NEE), (NRG)

Housing/ Construction:

(PWR), (LEN)

REIT:

(GLPI), (WPC).

Final Step: Narrowing Down To Just Five Companies

In this step, we construct three separate lists of five stocks each, with different sets of goals, dividend income, and risk levels.

The lists are:

1) Relatively Safe (Low-yield) Dividend list,

2) Moderately High Dividend List,

3) Ultra High Dividend List, and

4) A combined list of the above three (duplicates removed).

Out of the top 50, we make our judgment calls to make these three lists, so basically, the selections are based on our research and perceptions. So, while most of the filtering until now was based on automated criteria, the last step is pretty much subjective. We try to make each of the three lists highly diversified among various sectors and industry segments and try to ensure that the safety of dividends matches the overall risk profile of the group. We certainly encourage readers to do further research on the highlighted names.

Nonetheless, here are our three final lists for this month:

Final A-List (Relatively Safe Income):

Average yield: 3.91%

• (UNH)
• (ADM)
• (BMY)
• (APD)
• (ENB)

Table-1A: A-LIST (Conservative Income)

We think this set of five companies (in the A-List) would form a solid diversified group of dividend companies that would be appealing to income-seeking and conservative investors, including retirees and near-retirees. The average yield is 3.91%, which is nearly three times what the S&P 500 pays. The average dividend growth history is nearly 30 years, and the average discount from a 52-week high is very attractive for these stocks at -18.5%. Also, all five companies have an investment grade credit rating, and four out of five have an excellent rating of AA- or higher. If you must need higher dividends, consider B-List or C-List, presented later.

UnitedHealth Group (UNH):

UnitedHealth is one of the largest healthcare insurers in the U.S. UnitedHealth business segments include UnitedHealthcare (the insurer business), Optum RX (pharmacy benefit manager – PBM), Optum Health (provider), and Optum Insight (health analytics). It also happens to be in the healthcare industry, which is second only to information technology in terms of growth. The company has compounded the investors’ wealth at an astounding rate of 22% in the last ten years, as well as since 1991.

Recently, its share price lost nearly 10% of its value due to dual incidents of concern. There was an announcement of a regulatory probe and as well as a cyberattack on one of its units. The cyberattack impacted its ‘Change’ unit (part of the Optimum Insight), which handles nearly 50% of the nation’s medical claims. The other recent bad news was about the Department of Justice (DOJ) initiating an antitrust review of the company, specifically regarding the ties between UnitedHealth insurer and its Optum health-services arm.

Both of these incidents are pretty serious in nature, but that’s why the stock cratered nearly 10%. Both of these issues will cause some headwinds in the short term, but in the long term, it should not have any material impact on the future of the company. However, due to the current issues and uncertainties with the company, invest only if you intend to keep the shares for the long term.

The company has grown its dividends at a very healthy clip of 16% and 21% over the last 5 and 10 years. Besides, the payout ratio is low at 25%, and it has an excellent credit rating of A+ (by S&P). Barring the short-term headwinds, it should continue to compound shareholder value.

Air Products and Chemicals (APD):

The company is listed under the Materials sector, but it produces and sells industrial gases (a form of commodity) to businesses with manufacturing operations. Since these gases are vital to its customers so that they can run their operations without interruptions, APD is able to sign long-term contracts at rather premium prices. APD has global operations and in recent years, has fueled its growth in the emerging markets. In 2018, it acquired the gasification businesses of GE and Shell and has become the global leader in this segment. Even then, it is only the third largest in terms of global market share of the Industrial Gases. Also, in recent years, the company has embarked upon a massive capital allocation plan of nearly $30 billion to derive growth and market share.

However, the shares have lost nearly 20% since Sept. 2023, and nearly 30% from the peak in 2022. So, they are trading relatively much cheaper compared to just 6 months ago (nearly 16% below Morningstar’s fair value estimates). This is mostly due to the slowdown in China and revised lower guidance. Moreover, the demand for its business and products is subject to economic cycles and the outlook of global demand.

On the positive side, the company has paid and increased dividends for 42 years straight and is only eight years away from being a dividend king. It has provided nearly 10% dividend growth in the last 5 and 10 years. That said, the last dividend raise was just a token increase of 1.1%. The payout ratio is very reasonable at nearly 55%, and the current yield is decent at 2.92%. It also enjoys an excellent credit rating of ‘A’ from S&P.

BMY (Bristol-Myers Squibb Co):

Bristol’s share price currently appears to be undervalued, though less undervalued compared to the previous month. Even then, it offers a very nice dividend yield of 4.5% at current prices. Only Pfizer is another major pharma company that offers a higher dividend yield at this time, but also comes with significantly higher risks. The share price has declined 30% from its peak in 2022 due to several headwinds that include patent expirations, generic threats, decreasing pricing power owing to managed-care constraints, and product liability cases. The Celgene acquisition in 2019 added a large amount of debt that continues to be a financial risk, though the company has reduced its long-term debt from $48 billion in 2020 to $32 Billion in 2023.

BMY is quite adept at making partnerships, deals, and acquisitions. In the process, Bristol has created a strong pipeline and has partnered with other companies to lower the development costs of the new drugs as well as diversify the risks of regulatory failure. They also have a cardiovascular partnership with Pfizer, managing the blockbuster potential of the Eliquis drug. Another recent deal is a licensing deal with SystImmune to bolster BMY’s oncology pipeline, which could turn out to be worth multi-billion dollars. BMY increased its quarterly dividend payout early this year from $0.57 a share to $0.60 (a 5.26% increase). In balance, BMY is an attractive and relatively safe buy for income investors. (BMY was recommended last month as well for high dividend and relatively lower valuation).

ADM (Archer-Daniels-Midland Company):

ADM was founded more than 100 years ago, in 1902. Today, it generates over $100 billion in annual revenues by providing food and nutrition to both humans and animals. It has global operations and serves over 200 countries. From an income investor’s point of view, it is a dividend-king and has paid and increased annual dividends consistently for 50 years. Overall, it has paid dividends to its shareholders for the last 91 years. Broadly, the company procures grain crops all over the world and processes them in its more than 300 processing plants to process, produce, and sell a wide variety of food, feed, and nutritional products.

More recently, the stock was hammered in late January, when it lost over 25% of its value in a single day when it announced that it is under investigation on its accounting practices (attributed to its Nutritional business segment). The company withdrew its guidance for the Nutritional business segment and also lowered its EPS estimates. Since then, it has recovered nearly half of its losses. Even then, the stock price sits nearly -28% below its 52-week highs and is offering a meaningful discount. The company recently increased the dividend payout by 11% while completing the 50^th year of consecutive annual increases. So, in the bigger picture, fundamentally, the company has not changed nor the potential of its businesses. There is simply a cloud of uncertainty about the impact of the investigation and whether it would result in a revision of past earning statements. That said, the investigation appears to be centered on certain intersegment transactions rather than earnings. We are not undermining the impact of the situation as the uncertainties will remain for some time. But for long-term investors, it should not have any meaningful impact. We feel it is a buying opportunity and capture its relatively safe and growing 3.20% dividend yield. (ADM was recommended last month as well for similar reasons).

ENB (Enbridge):

Enbridge is a midstream energy company based in Canada and serves markets both in Canada and the United States. They operate one of the longest and complex liquids transportation networks, with over 17,000 miles of pipelines. Enbridge’s natural gas pipelines connect supplies to major North American cities and population centers, as well as LNG export facilities. Another subsidiary of Enbridge, Enbridge Gas, will become one of the largest natural gas utilities in North America (after their September 2023 acquisition closes in 2024). However, more important is that shares are trading at a large discount to their fair value and nearly -10% below 52-week highs. The current dividend yield, at 7.5%, is very attractive and fully covered by DCF (distributable cash flow). The company has paid and grown the dividend at a very respectable pace for 27 years (in Canadian dollars).

In early February, the company announced its 4th quarter and full year 2023 results, meeting or exceeding guidance. The company achieved a 6.1% growth in adjusted EBITDA, 1% growth in DCF (Distributable Cash Flow), and a Debt/EBITDA ratio of 4.1x (which was much better than the targeted 4.5x to 5.0x). The DCF increase was in spite of the dilution in shares due to pre-funding of the acquisition of Dominion’s utility assets. All this bodes well for the investors in terms of the company’s ability to continue growing its dividend for the foreseeable future, albeit at a slower pace.

Final B-List (High Yield, Moderately Safe):

Average yield: 5.34%

• (ADM)
• (BMY)
• (APD)
• (ENB)
• (BCE)

Note 1: Very often, we include a few low-risk stocks in the B-list and C-list. Also, oftentimes, a stock can appear in multiple lists. This is done on purpose. We try to make each of our lists fairly diversified among different sectors/industry segments of the economy. We try to include a few of the highly conservative names in the high-yield list to make the overall group much safer.

Table-1B: B-LIST (High Yield)

In the B-List, the overall risk profile of the group becomes slightly elevated compared to the A-List. That said, the group (as a whole) will likely provide safe dividends for many years. This list offers an average yield for the group of nearly 5.34%, an average of 29 years of dividend history, and an average discount of -22 % (from 52-week highs).

BCE (BCE Inc):

BCE is the largest communications company in Canada. It has paid and raised the dividend payouts consecutively for 15 years (in Canadian dollar terms). It offers a wide range of telecommunications products and services, including wireless, wireline, Broadband, and TV services, to approximately 22 million subscribers in Canada. BCE is currently paying a very attractive dividend yield of nearly 8.6%. However, there are some risks that investors should be aware of. It operates in a very competitive environment, and just like other telecom companies in the industry, it carries a large debt burden of nearly $25 billion. We should not expect much growth in the share price, but with over 8.5% dividend, even 2-3% capital appreciation would make it a reasonably good investment.

Final C-LIST (Yield-Hungry, Less Safe):

Average yield: 7.5%

Notes:

Note 1: Oftentimes, a stock can appear in multiple lists. We try to include one or two conservative names in the high-yield list to make the overall group much safer.

Table-1C: C-LIST (Yield-Hungry, Elevated Risk)

NOTE: MPLX is structured as a partnership (not a corporation) and issues a K-1 tax form instead of the usual 1099-Div. Please use due diligence.

MPLX (MPLX LP):

We included ENB from the energy sector in the A-List and B-List. However, to enhance the yield slightly, we are replacing ENB with MPLX in the C-List. First of all, it is a Partnership and issues a K-1 tax form (partnership income) instead of the usual 1099 in case of regular dividends.

MPLX is a diversified midstream energy company structured as a master limited partnership. It was formed in 2012 by Marathon Petroleum Corporation (MPC) for the purpose of owning, operating, acquiring, and developing midstream energy infrastructure assets. To date, MPC remains the largest unitholder of MPLX.

MPLX maintains a solid balance sheet with investor-grade BBB credit rating and pays a very attractive yield, currently at 8.2%. It has paid and raised the dividend payout since its inception in 2012 and raised the payout by 9.6% in Nov. 2023. With a partnership, price appreciation may be limited, but we can expect a very stable and over 8% dividend payout for the foreseeable future.

GLPI (Gaming and Leisure Properties):

GLPI came into existence as REIT in 2013, due to the spinoff from when Penn National Gaming. Since then it has continually expanded its operations, at a steady pace and now owns a portfolio of 61 gaming properties with nearly 15,000 hotel rooms, spanning 18 states. Even though it is geographically diversified but most of its properties are in the north-eastern and south-central parts of the United States. Its portfolio is considered as high quality with several that are ranked number one in their respective markets. The only other publicly traded REIT in the gaming industry is VICI, which is much larger than GLPI in terms of its growth, assets and market-cap.

GLPI’s occupancy rates have been extremely good at 100% for most of its existence. However, over 80% of the rents are received from just a handful of well-respected operators. So, in that sense, it is rather tenant-concentrated but that is the nature of gaming industry, as there are limited number of operators.

All that said, GLPI is a slow growing but very stable cash-flow generator. With the exception of 2020, when it cut the dividends, it has raised the dividends every year. Besides, it has paid special dividends occasionally. The average dividend growth has been slightly over 4% over the last 5 years (in-spite of the cut in 2020). The current yield is nearly 6.7%.

BTI (British American Tobacco)

Some investors may not like Tobacco stocks, and that is understandable. But if you are fine with investing in Tobacco stocks, it probably can’t get better than this. The current yield is quite high at 9.6%. Moreover, the company has excelled in growing the new categories of products. However, this is purely an income investment, and we should not expect much growth, but the dividend appears to be reasonably safe. Please be aware that it is quite possible for the stock to become even cheaper than current levels, but it appears unlikely. It may be much safer to buy this stock in multiple lots using the dollar-cost-averaging. You may like to read our previous article here, which covered BTI in more detail.

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Apparently, this list (C-List) is for yield-hungry DGI investors. The yield goes up as much as 7.5%. However, this list is not for conservative investors. As you can see, the average credit rating of this set of companies is much lower than the A-List or even B-List. Dividends are moderately safe in this list, but the yields are very attractive. At least a couple of companies in this list come with an elevated level of risk. We urge due diligence to determine if it would suit your personal situation. Nothing comes for free, so there will be more risk involved with this group. That said, it’s a highly diversified group spread among five different sectors.

We would like to caution that each company comes with certain risks and concerns. Sometimes, these risks are real, but other times, they may be a bit overblown and temporary. So, it’s always recommended to do further research and due diligence.

What If We Were to Combine the Three Lists?

If we combine the three lists and remove the duplicates (because of combining), we would be left with eleven names.

Two-time duplicates: ADM, APD, BCE, ENB (4 duplicates).

Three-time duplicates: BMY (2 duplicates).

After removing these duplicates, we are left with nine names.

Also, from the energy sector, we have two names (ENB and MPLX); we will keep ENB, since we can avoid MPLX, a partnership. We are finally left with eight names.

The combined list is highly diversified in as many as eight industry segments. The stats for the group of 8 are as follows:

Average yield: 5.5%

Average discount (from 52WK High): -19%

Average 5-yr dividend growth: 6.93%

Average 10-yr dividend growth: 8.80% (six names)

Average Payout Ratio: 46%

Average Total Quality Score: 76.20

Table 2:

Conclusion

In the first week of every month, we start with a fairly large list of dividend-paying stocks and filter our way down to just a handful of stocks that meet our selection criteria and income goals. In this article, we have presented three groups of stocks (five each) with different goals in mind to suit the varying needs of a wider audience. Even though the risk profile of each group is different, each group in itself is fairly balanced and diversified.

The first group of five stocks is for conservative investors who prioritize the preservation of their capital above everything else. Obviously, in return, they are willing to settle with a relatively low yield. The second group reaches for a higher yield but with only a slightly higher risk. However, the C-group comes with an elevated risk and is certainly not suited for everyone.

This month, the first group yields 3.91%, while the second group elevates the yield to 5.34%. We also presented a C-list for yield-hungry investors with a 7.5% yield. The combined group (all three lists combined with duplication removed) offers an even more diversified group with eight positions and a 5.5% yield.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ABT, ABBV, CI, JNJ, PFE, NVS, NVO, AZN, UNH, CL, CLX, UL, NSRGY, PG, TSN, ADM, MO, PM, KO, PEP, EXC, D, DEA, DEO, ENB, MCD, BAC, PRU, UPS, WMT, WBA, CVS, LOW, AAPL, IBM, CSCO, MSFT, INTC, T, VZ, CVX, XOM, VLO, ABB, ITW, MMM, LMT, LYB, RIO, O, NNN, WPC, ARCC, ARDC, AWF, BST, CHI, DNP, UTF, UTG, RFI, RNP, RQI, EVT, EOS, FFC, GOF, HQH, HTA, IFN, HYB, JPC, JPS, JRI, LGI, KYN, STK, MAIN, NBB, MCI, TLT either through stock ownership, options, or other derivatives.

Disclaimer: The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. The author is not a financial advisor. Please always do further research and do your own due diligence before making any investments. Every effort has been made to present the data/information accurately; however, the author does not claim 100% accuracy. The stock portfolios presented here are model portfolios for demonstration purposes. For the complete list of our LONG positions, please see our profile on Seeking Alpha.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.