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3 Top Dividend Stocks to Buy Right Now

By Reuben Gregg Brewer – May 2, 2020 at 10:14AM

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Go with financially strong industry leaders, which you can find on sale right now in some sectors. Here are three with big yields.

Although the stock market has bounced off its lows, there are still a lot of uncertainties in the world today. That includes COVID-19 and the economic repercussions of the effort to slow its spread. It's a time for income investors to focus on large, financially strong, dividend-paying companies. Luckily, many are still on sale despite the market rebound. Here are three dividend stocks to look at right now.

1. Don't give up on oil

Oil prices are worryingly low and the pain isn't likely to let up for a while, given that there's a supply glut sitting in storage tanks around the world. That's the bad news, and it's already leading to bankruptcies throughout the energy sector and oil wells being shut down.

However, those are exactly the things that will help to alleviate the supply/demand imbalance in this historically cyclical commodity industry. In an sector that everyone loves to hate right now, there are actually some interesting investing options, including Chevron Corporation (CVX -2.63%).

The words safety first with a man giving a thumbs up sign in the background

Image source: Getty Images

One of the largest integrated energy companies in the world, Chevron offers investors a 5.7% yield backed by over three decades of annual dividend increases. That's an important record, because it shows that Chevron knows how to muddle through the bad times -- like today -- so it can benefit when oil markets are more stable. One key is the company's rock-solid balance sheet. Ending 2019 with financial debt to equity at around 0.12 times, it has plenty of leeway to use debt to fund its capital plans and keep paying a dividend. 

That said, it has been pulling back on the spending front to save cash. However, it went into this downturn with among the lowest spending plans, relative to cash flow, of its major peers. So it was already conservatively positioned -- and now it is even more so. Oil prices are the biggest determinant of the company's top and bottom lines, there's no way around that. But Chevron has the financial strength to handle material headwinds in an industry that still has an important role to play in supplying the world's long-term energy needs. And that makes it worth a closer look.

2. Steel yourself for a rough ride

Next up is U.S. steel giant Nucor Corporation (NUE -2.34%) and its roughly 4% yield. Like Chevron, it operates in a highly cyclical industry that tends to do poorly during recessions, as the customers it serves (like construction, automakers, and manufacturers) pull back on building things with steel. However, the company has increased its dividend for nearly 50 years. It has successfully navigated tough economic times before, and it's highly likely to do so again. 

Nucor's conservative approach is a core feature of its business. Its modest use of leverage, with financial debt to equity sitting at 0.25 times at the end of 2019, is one piece of that. But that approach also includes the company's pay structure, which incorporates a profit-sharing component. In good times it shares the wealth with its employees, but in bad times its employees share the pain with the company. The upshot is that Nucor gets a break on one of its biggest expenses right when it most needs it.

Then there's the fact that Nucor operates electric arc mini-mills, which are highly flexible and can be run profitably at lower volumes than the older technologies (blast furnaces) that underpin some of its competitors' businesses. All in all, Nucor tends to have relatively strong margins in good times and bad. 

CVX Dividend Yield Chart

CVX Dividend Yield data by YCharts

Moreover, it has a long history of using its financial strength to invest for the future during downturns. Although it has pulled back some on its current spending plans, it is still putting money to work so it can come out the other side of this downturn a stronger company. That may require taking on a little extra leverage, but its balance sheet has plenty of room for that. If you are looking for a reliable dividend payer and an industry leader, Nucor looks fairly attractive today.

3. A leader in two countries

The last name to look at here is Toronto-Dominion Bank (TD -0.39%), a Canadian financial firm with a sizable presence in the United States. The current yield is an attractive 5.4% and the dividend has been increased or maintained for more than 20 consecutive years, including through the deep 2007-to-2009 recession, a feat that many U.S. banks didn't manage. Like Nucor and Chevron, one of TD Bank's core goals is to be fiscally conservative. 

It has a sound foundation for that, since about half of its revenue come from its Canadian operation. Canada's banking market is highly regulated, giving the largest players (including TD) entrenched and protected positions. There is also a more stringent focus on safety, leading to a conservative financial profile for the bank. 

The other half of the business, meanwhile, is where it is focusing on for growth. That includes one of the largest U.S. banks (about a third of earnings) and wholesale banking and brokerage (the rest). The really interesting thing is that, despite the size of TD's U.S. banking business, it largely operates on the East Coast. So there's plenty of room for expansion ahead. 

There's no question that a recession would hurt TD, as it will most banks. However, this conservative industry player has a unique mix of businesses that should help it survive the next downturn like it did the last. Meanwhile, investors can collect a generous dividend while waiting for the company to get back to growth when the economy in North America inevitably picks up again. 

Nothing is perfect

Chevron, Nucor, and Toronto-Dominion Bank all have their problems, but every company comes with some warts. The real attraction for dividend-focused investors is that each has a conservative approach to its business and a history of deftly navigating difficult times. Add in generous yields today and it starts to sound like now is a good time for a deep dive. 

Reuben Gregg Brewer owns shares of Nucor and The Toronto-Dominion Bank. The Motley Fool recommends Nucor. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chevron Corporation Stock Quote
Chevron Corporation
CVX
$140.96 (-2.63%) $-3.81
Nucor Corporation Stock Quote
Nucor Corporation
NUE
$103.39 (-2.34%) $-2.48
The Toronto-Dominion Bank Stock Quote
The Toronto-Dominion Bank
TD
$61.84 (-0.39%) $0.24

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

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