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3 Safe and Cheap Dividend Stocks to Buy

By Mark Prvulovic – Jul 29, 2020 at 8:06AM

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You'll be surprised at just how much some of these companies pay out in dividends.

For those looking to find safe places in the stock market to invest their money, 2020 certainly has been a challenging year so far. Many companies that were previously considered reliable and stable investments (such as the aviation industry at large) have floundered during the coronavirus pandemic.

The good news, however, is that there are still plenty of safe companies out there -- businesses that have high dividend yields and have proven resilient during these turbulent times. Here are three examples that would make great additions to any low-risk investment portfolio.

A growing stack of coins underneath wooden cubes that spell out "2020."

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1. Johnson & Johnson

Johnson & Johnson (JNJ -0.56%) has always been regarded as the blue-chip dividend stock in the healthcare sector. With a market cap of about $390 billion, J&J is easily the largest healthcare company in the world, something that can certainly indicate a safe investment.

The company offers a reliable 2.7% dividend, and although that's far from the highest yield you can find in the healthcare sector, J&J's stock price has made it through some ups and downs -- the stock price is now about where it was at the beginning of the year.

The one major concern for the company, however, comes from the many lawsuits it's facing. J&J has been on the receiving end of an increasing number of major legal actions, including opioid-related cases, over the past few years. Each one of these major legal losses can end up costing the company billions of dollars.

Opioid-related lawsuits remain the largest legal risk. Some pharmaceutical companies, like the now-defunct Purdue Pharma, have gone bankrupt over their opioid-related legal fines. The question for J&J is whether it can endure against a potentially growing pile of legal fees.

So far, J&J has managed to do so just fine. The company reported $20.7 billion in sales for Q1 2020, with management saying that its business over the long term will remain largely unaffected by COVID-19. Even if the company ends up racking up tens of billions of dollars' worth of legal fees (a worst-case scenario for shareholders), that won't be enough to put J&J out of business given its immense size.

When you look at J&J's massive line of products, it's not surprising why the company has proven to be so financially resilient. From household products like Band-Aids, Tylenol, and baby shampoo to its various blockbuster drugs (like Stelara, for psoriasis), J&J has a lot going for it.

Close-up of a bank building.

Image source: Getty Images.

2. Bank of Nova Scotia

The Canadian banking sector might not be the first thing on most investors' minds, but there are definitely some great deals to be found here. The Bank of Nova Scotia (BNS -0.71%) -- also known as Scotiabank -- offers a tremendous 6.3% dividend payout. Even in a sector with traditionally high yields, that's impressive.

Canadian banks have garnered a reputation as being safer and more well-run than their American counterparts since the financial crash of 2008. Bank of Nova Scotia is no different; despite a bit of a hit to revenue because of this pandemic, all of the bank's business segments are still profitable. During the second-quarter conference call, management noted that although it might take a while for revenue figures to return to their previous highs, they see no reason why the bank won't stay profitable for the rest of the year.

While Bank of Nova Scotia is down a fair bit since the start of the year, that's more or less the case with most major bank stocks, both in Canada and the U.S. For instance, Bank of America (BAC 0.83%) is down 31.6% since the start of 2020, whereas Bank of Nova Scotia is down just 27%. In comparison, Bank of America has a dividend rate of 3%, less than half of its Canadian peer.

Bank of Nova Scotia is also fairly cheap as far as bank stocks go. The company trades at a price-to-earnings (P/E) ratio of 9.1. That's quite a bit lower than the 11.8 P/E ratio of Bank of America. Overall, this Canadian bank is a compelling candidate for dividend-hungry investors looking for a safe stock to buy.

Person holding a product in an aisle of a pharmacy store.

Image source: Getty Images.

3. Walgreens

Walgreens Boots Alliance (WBA -1.64%) might not seem all that safe for investors at first glance. After all, its stock is down around one-third since the start of the year. However, I'd make the case that Walgreens is now a much better buy at its discounted price, and here's why.

In its Q3 2020 financial report, Walgreens said that the coronavirus ended up reducing total revenue by up to $750 million, resulting in what was a pretty poor quarter overall. Of course, physical retail chains are going to be adversely impacted by this pandemic, more so than online retailers, like Amazon.

What this means is that as business returns back to normal (many retail stores have already opened up again in some capacity), it's expected that Walgreens' revenue figures will return to normal in due time.

Even though the company has been adversely affected, its retail pharmacy sales have continued to grow. Pharmacy sales in the U.S. are up 3.2% this quarter, with specialty drug sales rising by 15.9%. While Walgreens technically didn't post a profit this quarter, that's mainly due to a one-time impairment charge on its U.K.-based assets. Without this one-time expense, Walgreens' net income would be in the positive.

Walgreens' dividend yield comes in at 4.5%. That's pretty attractive even in the healthcare sector, where high dividends aren't uncommon. Not only that, but Walgreens has an 87-year history of paying out dividends, alongside an impressive 44-year track record of consistently increasing dividend payouts for shareholders.

While Walgreens has taken a bit of a hit so far this year, things should be getting better for the company from here. So it may be a good time to stock up on shares while they're cheap.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Mark Prvulovic has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Johnson & Johnson and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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