Finding a safe dividend stock in the COVID-19 era can be challenging. Businesses that looked like safe investments pre-pandemic could now be in jeopardy and at risk of going under, and that means cutting or suspending dividend payments may become unavoidable for many of them. But there are still companies out there that are in good shape, are able to adapt to the pandemic, and could still be great investments today.
Below are two Dividend Aristocrats that are safe income-producing investments that can be pillars for your portfolio for many years. With strong and adaptable businesses, above-average yields, and impressive track records for increasing their payouts over the years, it's hard not to love these two dividend stocks.
Walgreens (WBA 1.29%) is a top pharmacy retailer with nearly 19,000 stores and a presence in 25 countries. It sells pharmaceutical drugs in addition to a wide range of retail products in-store and on its website. Through its delivery options, the company has offered its customers who are sheltering at home a lifeline, and Walgreens continues to look for ways to assist people during COVID-19. On July 16, the Illinois-based company announced it was partnering with food delivery company DoorDash. Together, the companies will be able to provide customers with on-demand delivery in select cities. By focusing more on delivery services, the company puts itself in a great position to meet the needs of its customers, many of whom may be looking to minimize the number of shopping trips they make.
Walgreens is proving to be a pandemic-proof stock to invest in, even achieving revenue growth in its most recent quarter, during which lockdowns and restrictions affected its results. On July 9, the company released its third-quarter results for the period ending May 31, and despite COVID-19 weighing down its non-U.S. business by as much as $750 million in sales, the company's revenue of $34.6 billion was still up a modest 0.1% from the same period last year. And if not for a $2 billion impairment charge stemming from Boots UK that sent the company's bottom line to a net loss of $1.7 billion, Walgreens would've also turned a profit.
Overall, the quarter wasn't as it could have been for Walgreens, suggesting that it could be just fine even there's a spike in COVID-19 cases in the coming months. And that stability means the company is likely to continue paying -- and increasing -- its dividend for the foreseeable future.
A day earlier, July 8, the company's board declared another dividend increase for shareholders, raising its payouts for a 45th year in a row. The raise to $0.4675 marks a 2.2% increase, and investors who buy the stock today can earn a dividend yield of 4.6% -- well above the average of about 2% for companies on the S&P 500.
McDonald's (MCD -1.40%) is another company that looks to be in decent shape amid the pandemic. The popular fast-food chain and its golden arches are famous around the world. With pickup, curbside, and even delivery options available, its business is also able to adapt to changing conditions and as people practice social distancing.
On July 28, the company released its second-quarter results for the period ending June 30, and unlike Walgreens, the Illinois-based business took a much bigger hit due to COVID-19. Store closures weighed on McDonald's top line, which fell by 30% from $5.4 billion in sales a year ago to just $3.8 billion in this past quarter. Management also cited changes in customer behavior as among the reasons for the poorer results in Q2.
But despite the adversity, McDonald's still reported a profit of $483.8 million. Although this was down by more than two-thirds from $1.5 billion in Q2 last year, the important thing is that even during such a difficult quarter, the business was able to stay in the black. What's also encouraging is that as of June 30, 96% of the company's restaurants around the world were operating. The number includes those restaurants that aren't open for in-store dining.
With nearly all of McDonald's restaurants now open in some capacity, the worst may be behind it, and future quarters should look much better -- assuming, of course, no further shutdowns take place. And that's great news for investors because it means that the stock's dividend should remain safe and hikes are likely to keep on coming.
September 2019 was the last time McDonald's raised its dividend, doing so by 8% to $1.25. That was the 43rd year in a row the company had increased its payouts. Investors who buy the stock today can earn a dividend yield of 2.4%.
Which stock is the better buy?
Here's a quick look at how the two stocks are performing this year compared with the S&P 500:
McDonald's has been the better-performing stock in 2020, but Walgreens' steep decline could make it a more attractive buy today. It also provides investors with a much higher dividend yield. While both stocks are good to hold and build around, if you can only pick one, I'd go with Walgreens. Its business is less prone to shutdowns given how essential it is to patients during the pandemic, the last time the stock was trading this low before 2020 was back in 2013. The healthcare stock could be a steal of a deal.