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3 Safe Dividend Stocks With Above-Average Yields

By David Jagielski - Apr 21, 2020 at 7:29AM

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These stocks should be safe sources of cash flow for income investors.

Dividends are being cut and suspended all over the place of late, and keeping track of it all is a tall task that it likely puts many dividend investors on edge. That's why it's more important than ever for those investors to consider stable stocks, ones whose payouts aren't at significant risk. While that approach may sacrifice some yield, it's certainly preferable to later receiving news that a company intends to stop its dividends entirely.

Below are three companies that are in good shape financially and whose stock will pay you better than the average 2% dividend yield of the S&P 500.

1. CVS Health

CVS Health (CVS 1.38%) provides essentials to customers and patients, and that's why the healthcare stock should be a safe investment to hold even as the coronavirus pandemic keeps people at home. For those who don't want to venture out to its stores, the company provides delivery options for both prescriptions and in-store items. The pharmacy retailer is anticipating significant demand during the pandemic.

On March 23, CVS announced it would be adding 50,000 positions -- including temporary, part-time, and full-time workers -- to help meet the needs of its customers. That's in stark contrast to the many other businesses that have had to shut down their operations or lay off staff due to the pandemic. It's an encouraging sign to CVS investors that the stock isn't in danger, and that it may even see some strong growth this year.

Medical products in a pharmacy.

Image source: Getty Images.

Currently, the company pays its shareholders a quarterly dividend of $0.50. Although the payouts haven't increased since 2017, the dividend still yields a very respectable 3.2% annually. It's a decent payout and one that's not in any imminent danger; CVS's payout ratio is very healthy at less than 40%. And in only one of the past 10 quarters has CVS failed to generate a profit -- normally, at least 3% of its revenue trickles through to the bottom line.

2. PepsiCo

PepsiCo (PEP 1.64%) may not offer consumers essential products, but its assortment of healthy and unhealthy beverages and snacks is likely to find its way onto many shopping lists during the pandemic. Growth may be a challenge for PepsiCo, but its revenue has been very consistent. In each of the past nine years, the company's top line has been above $62 billion. And during that time, only twice has its profit margin fallen below 9%. That puts the company in an excellent position to continue paying its dividend.

In its fourth-quarter earnings release Feb. 13, PepsiCo announced that it would be raising its dividend for the 48th consecutive year. The 7% increase means that investors can expect to earn an annual dividend of just more than $1 from the Dividend Aristocrat, which at its current price means a yield of about 2.9%. With earnings per share of $5.20 during the most recent fiscal year, that puts PepsiCo's payout ratio at 73%. Although it's notably higher than CVS's payout, it's still a manageable amount that's nowhere near 100%.

3. Rogers

Rogers Communications (RCI 1.57%) is a large telecom provider in Canada that normally doesn't see a lot of volatility in its share price. Although the company didn't generate any sales growth in 2019, its top line has increased by 17% over the past five years. And its profit margin has only fallen below 10% once in the past decade.

As an industry leader, Rogers has a secure position atop its industry in Canada, and the stock offers investors a lot of diversification. In 2019, just 61% of its revenue originated from its wireless business. Another 26% came from cable, while its media segment, which includes the company's television channels and radio broadcasting, accounted for approximately 14% of its top line.

Currently, the stock pays investors a quarterly dividend of 0.50 Canadian dollars, which yields about 3.4% on an annual basis. Although the company has raised its payouts over the years, the increases haven't been consistent and investors shouldn't budget for regular hikes. But with a payout ratio of about 50%, this is another stock that dividend investors won't have to worry about.

Which stock is the best buy today?

Here's a quick look at how each of these three stocks has done over the past year:

CVS Chart

CVS data by YCharts

Rogers is the only stock that's underperformed the S&P 500, with both PepsiCo and CVS showing much stronger performances.

For investors looking for the best combination of dividends and growth, CVS looks like a good bet moving forward. With its hiring spree and strong demand for health services and products for the foreseeable future, it could stand to see the most growth in the next one to two years, as the coronavirus pandemic is still far from over.

That said, for investors who just want a dividend stock they can buy and forget about for the long term, it's hard to go wrong with PepsiCo and its strong track record for growing its payouts over the years. And if you already have some good blue-chip dividend stocks in your portfolio, then investing in Rogers may be appealing for the sake of not just dividend income but diversification, as well to gain exposure outside the U.S. market.

All three of these stocks have sustainable payout ratios higher than what you can earn from the average S&P 500 stock. That means investors looking for recurring income have three solid stocks here that they can put in their portfolios today.

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Stocks Mentioned

CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$93.94 (1.38%) $1.28
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$169.39 (1.64%) $2.73
Rogers Communications Inc. Stock Quote
Rogers Communications Inc.
RCI
$48.65 (1.57%) $0.75

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

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