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3 Sustainable Dividend Stocks That Pay More Than 3%

By David Jagielski – Jun 15, 2020 at 6:16AM

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These Dividend Aristocrats have incredible track records of not just paying but increasing their dividend payments.

After a brief period of stability, the markets are back to volatility. Now could be an opportune time to take a closer look at your portfolio.

If you're a dividend investor, you'll want to evaluate any income-generating stocks you hold to make sure they're still safe given the current market conditions. And if you're looking to add dividend stocks to your portfolio, then the three listed below are great options. In addition to stability, they also pay better than the 2% you can expect to get from the average S&P 500 stock.

1. Cardinal Health

Cardinal Health (CAH) is a safe dividend stock to hold given both its track record and strong financial performance. As a Dividend Aristocrat, Cardinal has increased its dividend payments for more than 30 consecutive years. It raised its payouts this year by 1%, from $0.4811 to $0.4859. At its current rate, investors will earn a dividend yield of 3.7%.

Dividends written above a piggy bank.

Image source: Getty Images.

It's an attractive payout for a healthcare stock that has recorded an operating profit for the past 10 quarters.

Thus far, the company's been doing well amid the COVID-19 pandemic. In its third-quarter results, which Cardinal released on May 11, sales were up 11% from the prior-year period. It saw strong demand in its pharmaceutical segment, where sales were up 12% from a year ago, and Cardinal believes this was due to the COVID-19 pandemic as customers were stockpiling supplies. In the second quarter, Cardinal's top line grew by 5.3% from the prior-year period, and the pharmaceutical segment saw growth of 5.9%.

Cardinal has kept its guidance intact for fiscal 2020, although it expects an adverse effect from COVID-19 as a result of people having to cancel or defer elective medical procedures. But with positive free cash flow in nine of its 10 most recent quarters and it normally coming in well above what the company pays out in dividends, investors don't have to worry about the safety of Cardinal's payouts.

2. Unilever

Unilever (UL) is another stock that's increased its payouts for over three decades. The Dutch consumer goods company's dividend payments are in euros, and so investors will see some fluctuations based on the exchange rate. Currently, the stock's dividend yields about 3.4% annually.

What makes Unilever a strong and stable dividend stock is that it has a great deal of stability through its diversification and vast product portfolio which boasts more than 400 brands that 2.5 billion people use every day. And that diversification's evident in Unilever's stable and consistent results.

On April 28, the company released its first-quarter results of 2020. Although the company's food and refreshment segment saw sales fall by 1.7%, home care revenue rose by 2.4% while beauty and personal care sales were up 0.3%. Overall, the effect was a flat sales performance from a year ago, but it helps to demonstrate how versatile and adaptable the company is even during a pandemic. Its sales in developed markets were up 2.8% while sales from emerging markets declined by 1.8%.

Typically, Unilever doesn't generate much sales growth from one year to the next. In 2019, its top line grew by 2%, but the year before that it was down by 5%. Over the past five years, Unilever's sales have been fairly stable, coming in no lower than 50 million euros. And in each of those years, the company's profit margin has been at least 9%.

3. IBM

International Business Machines (IBM) is a household name in tech and one of the few in the tech sector that pays dividends. It's a great way to diversify your portfolio while adding dividends into the mix. 

And it's not just any dividend stock, as it too has recently become a Dividend Aristocrat. On April 28, the company announced it would be increasing its dividends for the 25th year in a row. The $0.01 increase means that investors will be earning $1.63 per share every quarter. At a price of around $118, that means the dividend's yielding 5.5% per year, making it the highest payout on this list.

IBM has recorded a profit in each of its last nine quarters and has plenty of cash to support the dividend. It released its first-quarter results on April 20; IBM's sales were down 3.4%. But the company's cloud business continues to be strong, as its cloud and data platform segment saw year-over-year growth of 32%, largely due to its acquisition of Red Hat.

Even though sales were down, the company still managed to post a solid profit of $1.2 billion. IBM's service revenue makes up 65% of its top line and helps add a lot of stability to its financials. 

However, in light of the uncertainty surrounding COVID-19, the company opted to withdraw its full-year guidance for 2020. But CEO Arvind Krishna believes that the Q1 performance "is a reflection of the trust clients place in IBM's technology and expertise today." And as more people work from home, there may continue to be strong demand for IBM's cloud business.

Which stock should you buy?

Here's a quick look at how all three stocks have done so far in 2020:

UL Chart

UL data by YCharts

IBM is the only stock that's underperformed the S&P 500 thus far. However, that may also be a great reason to buy the stock. With a top dividend yield, lots of growth coming from its cloud business, and the company consistently generating profits, it's hard not to like owning the stock over the long haul.

Unilever and Cardinal may offer a bit more stability and consistency, but there may not be as much upside there. IBM's $34 billion acquisition of Red Hat last year opened up more growth opportunities for the company to grow, as the two brands can work together to deliver even better cloud solutions for their customers. And that growth potential helps tip the scales in the tech stock's favor even further.


David Jagielski 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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