3 of the Most Rock-Solid Dividend Stocks in the World

These income stocks look incredibly secure for a long time to come.

Sean Williams
Sean Williams
Jul 23, 2019 at 6:06AM
Energy, Materials, and Utilities

The stock market offers few certainties. Yet one of the surest bets we can make as investors is buying dividend-paying stocks. Though the choice between buying a dividend stock and non-dividend-paying stock might not seem like a big deal, the data doesn't lie: Dividend stocks run circles around their non-dividend-paying counterparts over the long run.

One of the reasons dividend stocks are so special is that they're often profitable and time-tested businesses. That means a dividend payment acts like a beacon to alert investors of a financially sound company. After all, few companies are going to share a portion of their earnings with shareholders if there's trouble on the horizon.

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Payouts can also be reinvested into shares of more dividend-paying stock through a dividend reinvestment plan, or Drip. Though Drips might sound pretty boring, they're potentially the single-most effective tool to compounding your wealth, and are regularly used by the most successful money managers to build wealth for their clients.

But as you can imagine, there are a lot of dividend stocks for investors to choose from. Although we'd like the highest income stream possible, the irony of dividend investing is that bigger yields usually mean higher risk. Remember, yield is simply a function of payout and share price, meaning a failing business model with a falling share price could give the impression of a soaring yield when trouble is actually on the horizon.

If you're looking for the perfect combination of minimal risk and with income growth potential, then take a gander at three of the most rock-solid dividend stocks on the planet.

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Johnson & Johnson

It's arguable, yet totally plausible, that healthcare conglomerate Johnson & Johnson (NYSE:JNJ) has the safest dividend payout in the world. Aside from being only one of two publicly traded companies to hold a AAA credit rating (that's higher than the U.S. government), Johnson & Johnson leans on each of its three business segments to bring something important to the table that its other segments lack.

Johnson & Johnson's consumer healthcare products division grows the slowest and produces the smallest annual sales of the three operating segments. But it also generates the most predictable cash flow, and almost always has strong pricing power, which means organic volume gains can be supplemented with price increases.

Secondly, J&J has its medical devices unit, which lands in the middle in terms of sales, and has been a modest laggard in terms of growth in recent quarters. But keep in mind that the global population is aging and access to medical care is improving. That bodes well for one of the largest device makers in the world, with maintenance care likely providing a spark for J&J's medical device segment over the long run.

Lastly, Johnson & Johnson's pharmaceutical segment is responsible for nearly half of its sales, and the bulk of the company's margins. Branded therapies only have finite patent protection periods, but this is the growth wing of J&J. Between organic research, partnerships, and acquisitions, J&J's pharma operations have delivered for the company and investors

Having raised its quarterly payout for 57 consecutive years, and grown its adjusted earnings for 35 straight years, it's safe to say that J&J's 2.9% yield is as rock-solid as they come. 

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AvalonBay Communities

Keep in mind that you can also look beyond megacaps (i.e., stocks with market caps in excess of $100 billion) to find some of the most rock-solid dividend stocks in the world. For instance, apartment-focused real estate investment trust (REIT) AvalonBay Communities (NYSE:AVB) sports a $29 billion market cap (less than a tenth of J&J), a 2.9% dividend yield, and has a virtually unstoppable business model.

What, exactly, qualifies as "unstoppable?" How about an apartment-REIT that's seen its annual revenue decline only once (2002), and marginally at that, since 1996.

What makes AvalonBay so special, and allows it to stand out from other apartment REITs, is its focus on middle-to-upper income renters. AvalonBay tends to gravitate to coastal states where real estate markets lead to higher pricing and above-average inflation. But these are also markets where the average worker also tends to bring home more income. This helps to serve two purposes for the company.

First, by focusing on a more affluent clientele, AvalonBay is partially shielding itself from any fluctuations in the U.S. economy. More affluent renters are less likely to be phased by slowdowns in the U.S. economy relative to lower-income workers, which means less potential for turnover and uncollectible rent, and a greater likelihood of consistent cash flow.

Second, by strategically planting itself in major cities and suburbs, AvalonBay gives itself plenty of pricing power. With home prices still on the rise in a number of major markets, renting remains the only viable alternative for millions of individuals and families.

Currently boasting a portfolio of more than 85,000 apartment homes across a dozen states, and strong rental occupancy rates, I fail to see how this company, and its dividend, don't continue to grow.

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NextEra Energy

One of the easiest means of procuring an exceptionally safe payout is by purchasing companies that deal with a basic need. As you've seen above, healthcare and shelter are two examples of basic-need goods and services. The need for electricity is a third, which is why NextEra Energy (NYSE:NEE) and its 2.4% dividend yield are so rock-solid.

Traditionally, utilities (electric, natural gas, and water) are defensive investments that are turned to when the stock market is floundering and/or the U.S. economy is wavering. In short, they're slow-growing investments that rival the excitement of watching paint dry or grass grow. But NextEra Energy isn't like your typical utility stock. It's proactively changing the way utilities operate and is on the leading edge of the renewable energy shift.

Right now, there isn't a single electric provider that's generating more capacity from wind and solar power than NextEra. That's important, because while these renewable projects aren't cheap, they immediately lower the costs of electric generation once they're put into commission. This should allow NextEra to see a pretty substantial and steady increase in margins and profitability over time.

And NextEra's not done. It's pledged $40 billion in infrastructure projects through 2020, with the goal of seeing its wind capacity grow to between 10,100 megawatts and 16,500 megawatts. In layman's terms, we could be looking at wind becoming more than a quarter of NextEra's net generating capacity. Further, the company is planning to install 30 million additional solar panels in Florida by 2030 (the 30-by-30 project), boosting capacity by another 10,000 megawatts.

The icing on the cake is that NextEra's non-renewable operations are regulated. Sure, it can't just pass along price hikes as it sees fit, but having to go through a state-level energy commission for hikes allows for very predictable cash flow estimates to be established, and it shields NextEra from potentially volatile wholesale electricity pricing.