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Forget Exxon Mobil: Here Are 3 Better Dividend Stocks

By David Jagielski – Updated Apr 13, 2020 at 4:52PM

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There's just too much risk in oil and gas these days.

ExxonMobil's (XOM 4.16%) dividend yield of 8% looks quite enticing for investors today -- in fact, it would be downright mouthwatering if the stock weren't so risky. But low oil prices and general volatility in the industry make the oil and gas giant (and its dividend) dangerous to rely on. In the past year, the stock has cratered by more than 45%. In comparison, the S&P 500's losses amount to less than 5% during the same period. Although Exxon's CEO recently reaffirmed the company's commitment to its dividend, investors shouldn't take a chance on it. Instead, consider buying shares of the three dividend stocks listed below.

1. Pfizer

Pfizer (PFE -0.68%) is a big name in healthcare, and that's a sector that's hard not to want to invest in right now. Healthcare companies are reminding investors how recession-proof some of them may be. These aren't, after all, discretionary expenses; people need drugs like Pfizer's for everything from treating cancer to clearing up infections. And with the company spinning off its Upjohn business, which focuses on off-patent medicines, Pfizer can focus on developing newer and better drugs for consumers, helping to drive growth in the years to come. 

Growth could be a big bonus for investors, as it's not something Pfizer investors have seen much of in recent years. The company's sales were down 3.5% in 2019, and in 2018, revenue rose by just 2.1%. But Pfizer's bottom line has remained consistent over the years, with the company posting a profit margin north of 20% in each of the past three years. 

Bottle with pills spilling out.

Image source: Getty Images.

Strong financials are a key ingredient for a good dividend stock, and that's also why the company's been able to increase its dividends on an annual basis since 2010. Dividend payments of $0.16 more than a decade ago are now up to $0.38 per share. Investors are currently earning a dividend yield of 4.3%. While that may not be as high as Exxon's, it's still better than the 2% dividend yield that investors can typically expect from the average S&P 500 stock. 

2. 3M

3M (MMM -0.17%) may not be a healthcare stock, but the company's face masks are in high demand as consumers try to stay safe during the coronavirus pandemic. It's gotten so dire that President Trump has even tried to get 3M to stop exporting the masks to Canada and other parts of the world in order to secure as many as possible for the United States. In the final decision, 3M agreed to supplement its domestic production of masks with imported ones.

The company offers more than just masks, including adhesives and personal safety products that are used in industrial settings. But with an economic slowdown, there may be some challenges ahead in moving some of those products. That said, its broad mix of offerings makes 3M a company with a lot of diversification, which helps make the stock a stable buy.

Like Pfizer, 3M hasn't generated much growth over the years; its sales have been within a range of $30 billion to $33 billion for seven straight years. But its profit margin has remained very consistent, staying above 14% in each of the past 10 years. 

In February, 3M announced that it would be increasing its dividend for the 62nd straight year. Its dividend payment will rise by 2%, with investors to receive $1.47 every quarter for each share they own. Currently, the stock provides investors with a dividend yield of approximately 4% per year. 3M is a Dividend King, and it's one of the safest dividend stocks investors can buy today. 

3. TD Bank

Toronto-Dominion Bank (TD -1.37%) is another stock that's a better alternative for investors than Exxon. While the big bank faces headwinds as the Canadian and U.S. economies struggle in the face of the coronavirus pandemic, that won't change its long-term trajectory. As both economies recover, so too will TD's stock, as the bank has strong footprints in both countries. It's coming off a new four-year low, and for investors, now could be a great time to buy this top bank stock at a reduced price.

Although its dividend is based in Canadian dollars, U.S. investors can still expect to earn a yield of about 5.2% annually. The company recently raised its payouts, and it's been consistent in doing so since the end of the last financial crisis about 10 years ago.

TD's shown a bit more growth than the other two stocks on this list, with its revenue increasing by 5.7% in 2019. Its top line is also up 20% over the past three years. And like the other stocks on this list, profitability hasn't been a problem for TD, either. Its profit margin has come in above 28% in each of the past three years. 

Which stock is the best buy today?

Here's a glimpse at how each of the three stocks have performed so far this year, compared against Exxon and the S&P 500:

XOM Chart

XOM data by YCharts

All three stocks are trading at discounts this year, with TD seeing the largest decline outside of Exxon. It's also trading at the lowest price-to-earnings (P/E) multiple at less than 10. Investors are paying 12 times earnings for Pfizer, while 3M's at a P/E of around 18. With a solid payout of more than 5% and a low valuation, TD will get you the most bang for your buck and is the best buy today.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pfizer Stock Quote
Pfizer
PFE
$44.16 (-0.68%) $0.30
ExxonMobil Stock Quote
ExxonMobil
XOM
$99.23 (4.16%) $3.96
3M Stock Quote
3M
MMM
$115.42 (-0.17%) $0.20
The Toronto-Dominion Bank Stock Quote
The Toronto-Dominion Bank
TD
$64.22 (-1.37%) $0.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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