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3 Dividend Stocks That Pay Better Than Coca-Cola

By Brent Nyitray, CFA – May 24, 2020 at 12:27PM

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Coke has suffered from restaurant closures. What stocks might be better bets?

Coca-Cola (KO -0.72%) is a classic defensive stock with a 3.6% dividend yield. Even in recessions, people will still purchase soft drinks.

But while Coca-Cola is one of the most powerful and recognizable brands in the world, COVID-19 has shut down restaurants, which are a major source of revenue for the company and threatening the company's earnings performance.

If you are looking for dividend-producing stocks that pay better than Coke but are a little less affected by the pandemic, what companies should you consider? Here are three options.

Picture of money, a calculator and the word dividends

Image source: Getty Images.

1. AGNC Investment: A company that has overcome the disease

AGNC Investment (AGNC -4.62%) is a mortgage real estate investment trust (REIT) that specializes in government-guaranteed mortgages. The last couple of months have been downright awful for the REIT sector, and pretty much every company in the sector has reported a drop in book value and many have had to cut their dividend. AGNC Investment was no exception.

The company cut its risk and its dividend and is now trading at a 10% discount to book value with an 11.3% yield. The worst impact from the economic slowdown looks to be over for the company, and book value is growing again. While the easy money has already been made with this stock, it still pays a healthy yield and should earn a serious look from any income investor. 

2. Equity Residential: Saved by working from home

Equity Residential (EQR -1.72%) is an apartment REIT that caters to upscale urban renters. The average income of Equity Residential tenants is $164,000. They typically work in the knowledge industries, which are least likely to be directly affected by the COVID-19 crisis since their employees can work from home.

Equity Residential reported that delinquencies were 5.4% as of the end of April, which is much better than what we are seeing in other REIT reports. On its latest earnings call, the company said that traffic and applications were roughly flat on a year-over-year basis, which means things are pretty much back to normal, with the exception of ground-floor retail. So, while COVID-19 has the potential to cause issues if the pandemic drags on, Equity Residential is one of the few REITs with a decent yield (4.1%) and more-limited exposure to the coronavirus. 

3. Duke Energy: A plan to offset lower revenues

Duke Energy (DUK -4.53%) is a regulated utility that provides electricity to the Southeastern and Midwestern United States. Notwithstanding the Enron fiasco, utility stocks are some of the most bulletproof income stocks out there. Regulated utilities have a guaranteed return on assets courtesy of state regulators. The requisite state public utility commissions negotiate with the company on how much it can charge customers for electricity service. While the commissions aren't going to let the company engage in price gouging, they also aren't going to limit pricing so much that the company is at risk of falling afoul of its debt covenants. The net result is a happy medium: The utility makes enough to pay a decent dividend without taking a lot of risk.

While Duke's revenue is expected to fall due to COVID-19 stay-at-home policies, the company has identified some cost-cutting measures it can pursue and has reaffirmed its 2020 guidance. At 4.5%, the dividend yield should be relatively safe with a 72% payout ratio based on guidance.

Better than Coke, with lower risk

While the length of the COVID-19 crisis is anyone's guess, it appears that things are rebounding, at least for some sectors. Equity Residential management discussed the bounce back on its last conference call, and AGNC management reported that market conditions are returning to normal.

Some of the dividend stocks out there will struggle, but these pay better than Coke with some lower risk. People may eschew restaurants even after things reopen, but they will still make every effort to pay their rent, their mortgage, and their electric bill. 

Brent Nyitray, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AGNC Investment Corp. Stock Quote
AGNC Investment Corp.
AGNC
$8.68 (-4.62%) $0.42
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$95.10 (-4.53%) $-4.51
Equity Residential Stock Quote
Equity Residential
EQR
$66.22 (-1.72%) $-1.16
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$56.57 (-0.72%) $0.41

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

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