Dividend stocks can be a great source of income, especially during challenging times like these. They can help provide stability for your portfolio and minimize your losses during a market crash as well. Stable dividend stocks are in short supply lately, but the three stocks listed below offer investors a good mix of value and dividends, and they all look like solid long-term buys.
1. AbbVie
AbbVie (ABBV -0.30%) is a top drug manufacturer, and its Humira drug is critical for patients with various types of arthritis as well as people who have Crohn's disease. The drug made up 58% of the company's revenue in 2019. And while the drug did well with $19.2 billion in sales last year, that was less than the $19.9 billion it generated in 2018. AbbVie as a whole saw its top line rise by just 1.6% last year. It's an underwhelming result, but that's why the company's $63 billion purchase of Allergan (AGN) could prove to be pivotal for its future. The move will add some high-profile drugs into AbbVie's portfolio that could help pad its growth, including Botox. The companies expect the deal to close as early as next month.
AbbVie's stock currently pays its shareholders a quarterly dividend of $1.18. That yields around 5.6% on an annual basis, and it's well above the 2% that investors can expect from the average S&P 500 stock. What makes the stock a great buy is that AbbVie is a Dividend Aristocrat and its payouts have increased by 195% since it separated from Abbott Laboratories in 2013. The acquisition of Allergan should strengthen AbbVie over the long term, and it could pave the way for more dividend increases in the future, making it an even better buy for income investors today.
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2. UPS
United Parcel Service (UPS 0.53%) is an attractive stock to hold for a number of reasons. The first is that as long as Amazon continues pumping out strong numbers and online sales, that's a sign that online shopping remains strong, and so does demand for logistics and delivery companies like UPS. The coronavirus pandemic is the exclamation point on that right now. Consumers are more dependent than ever on online orders as shopping options are limited, since many stores are closed down or have reduced their operations significantly.
But whether there's a pandemic or not, online shopping is still likely to soar. Data from Amazon's most recent annual results show that in two years, sales from its online stores have risen by more than 30%. Amazon's certainly not the only place where consumers can buy products online, but its sales numbers can help gauge the strength of e-commerce in general.
It's no surprise then that UPS has continued to grow as well. Its sales are up by more than 12% in two years. And if we look at over the past five years, UPS's top line has grown by 27%. They aren't earth-shattering growth numbers, but there's nothing wrong with steady, consistent increases over the years. And with UPS recording a profit in each of the past 10 years, the business model is a strong one. That's what dividend investors look for, as the last thing you want with a dividend stock is instability.
UPS raised its payouts in February, and investors will now receive $1.01 every quarter for each share that they own. With a price of around $100, that means the stock's dividend yield is around 4% per year. While UPS doesn't have the impressive track record for dividend growth that AbbVie has, it's been increasing its payouts on a regular basis since 2010.
3. Wells Fargo
Wells Fargo (WFC -1.11%) could face some challenges ahead, as the coronavirus pandemic has already hit the economy hard, and that's going to have a trickle-down effect onto the big banks as well. The company released its first-quarter results on April 14, and they weren't pretty -- the bank reported a per-share profit of just $0.01. But that's after the bank set aside a "reserve build" of $3.1 billion in anticipation of some tougher economic times, which weighed down its results.
A recession is all but official, and things aren't going to be pretty for Wells Fargo in the months ahead. So you may be wondering why, then, Wells Fargo would be on a list of dividend stocks to buy today. There are a few very good reasons for that.
The first is that while Wells Fargo was building up its war chest in anticipation of a significant slowdown in the economy, it didn't announce a suspension or a cut to its dividend. That's a good sign because the company cut its dividend in 2009 during the financial crisis. This could indicate that as concerned as Wells Fargo is about the future, it may not be anticipating that things will be as bad as they were in 2009, or that it's in better shape today than it was back then. However, a dividend cut or suspension is always in the cards, especially if the coronavirus pandemic lasts longer than people expect it to. But for now, the bank stock anticipates that it should be in good enough shape to continue on with the payouts as they are today.
Another reason why it's an opportune time to buy the stock? It's trading near its 52-week low and the dividend yield is now up to over 7%. That's a monstrous payout for a top bank stock like Wells Fargo. Lastly, holding shares of Wells Fargo is a long-term play. For all the adversity faced by the bank, perhaps most notably the fake accounts scandal which resulted in a $3 billion payment, Wells Fargo's been able to preserve payments. Even if the bank does need to cut or suspend dividend payments, once the economy recovers it'll go back to increasing its payouts and investors could be right back to earning a dividend. And buying near the stock's low could set up investors for stronger future returns and dividend yields in the years ahead.
Which stock is the best buy?
Let's have a quick look at how these three stocks have done this year compared to the S&P 500:
AbbVie has performed the best thus far, and if you're a risk-averse investor, then the healthcare stock is likely your best bet going forward as well. With a strong track record for increasing dividends, it's going to be one of the more stable dividend stocks that you can hold in your portfolio today. But if you want a bit more than just recurring cash flow, then UPS could offer the best mix of dividends and growth. And if you're willing to take on some short-term risk, Wells Fargo could provide the best total returns on this list. With a high dividend and the stock coming off a disappointing quarter, it could be an opportune time to buy the stock at a low.
However, if you're a long-term investor, then any one of the three stocks listed above could be great additions to your portfolio.
