When stock market volatility drives me nuts, I find solace in dividend stocks. Or rather, I take comfort in top dividend stocks that I know will pay me a decent amount no matter what the market does. And there's nothing like bagging some of these top-class dividend-paying stocks while they're still sporting high yields and lagging the broader market despite visible growth catalysts ahead. Here are three such stocks that have caught my attention of late.
Not all retail's down in the dumps
Realty Income (O -4.80%) stock is down about 12% year to date. With a dividend yield of 4.3%, I find this an attractive entry point.
With retail businesses shuttering after coronavirus disease (COVID-19) lockdowns, Realty Income's business was bound to take a hit. Most of its tenants, after all, operate retail stores.
Yet the nature of these tenants, their vast number, and Realty Income's style of business have saved the company from nasty shocks. Where's the proof? In August, Realty Income collected 93.5% rent, up from 87.8% in June.
You see, most of Realty Income's tenants are in nondiscretionary businesses that enjoy resilient demand. Think dollar stores, convenience stores, and drugstores. Its five largest tenants today are Walgreens, 7-Eleven, Dollar General, FedEx, and Dollar Tree. Realty Income has around 600 tenants in total, making it a high-quality diversified portfolio.
A more important reason why Realty Income has been able to weather the storm is that it's a real estate investment trust, meaning it purchases commercial properties and leases them. These are long-term leases, typically lasting 10 to 20 years. They're also all triple-net leases, which means that tenants cover costs like maintenance and insurance while Realty Income simply collects rent. They also have built-in annual rent escalators. Historically, Realty Income's same-store rental revenue has increased by 1% to 1.5% every year.
That's a surefire business model to generate stable revenues, and Realty Income also bolsters growth through new property acquisitions. For 2020, management is targeting acquisitions worth $1.25 billion to $1.75 billion.
Here's what I like most: The fact that the predictable monthly lease payments Realty Income collects can easily support monthly dividends. Yes, Realty Income cuts you a monthly check and has increased its dividend every year since going public in 1984. With the economy reopening, I like where Realty Income is placed today.
A 10%-yielding energy stock? Yes, please
With the oil market rout hammering oil and gas stocks this year, it's no surprise that Enterprise Product Partners (EPD -1.21%) shares have shed almost 39% year to date as of this writing, driving its dividend yield to a whopping 10.2%.
I might typically keep my distance from an oil stock with a sky-high yield today, but Enterprise Product Partners dividend looks safe, especially after the midstream energy company's decision to cancel its M2E4 pipeline project given present circumstances that do not warrant additional pipeline capacity.
With the project now canceled, Enterprise expects its projected growth capital expenditures to drop by $800 million through 2022. The company will use that money instead to pare down debt and reward shareholders in the form of share repurchases. The timing couldn't be better. While management didn't mention dividends, it's highly likely to offer shareholders a dividend increase this year, even if only a small one, to maintain its annual dividend growth track record of more than 20 years.
Potential dividend growth, a 10%-plus yield, strong financials, and a mostly fee-based business that largely insulates the company from oil price volatility have all really drawn my attention to this energy dividend stock.
I see an underappreciated coronavirus stock here
Would you consider buying a healthcare stock that's already pushing its COVID-19 vaccine candidate to phase 3 trials, but is barely in the green so far this year? What if I also tell you this isn't a run-of-the-mill company, but one with a rich 130-year history and top-notch brands in consumer health, pharmaceuticals, and medical devices under its belt? Oh, and this stock's also a Dividend King, having increased its dividend every year for more than 50 consecutive years?
Sounds enticing, right? That's Johnson & Johnson (JNJ 0.05%) for you -- one dividend stock I'd pile on now for years to come.
In present circumstances, the pace at which Johnson & Johnson is running in the race to produce a coronavirus vaccine would be enough reason for many to buy the stock. It's all set to start phase 3 trial by the end of September. But there are many other compelling catalysts that make the company hard to ignore.
A hugely diversified portfolio with 26 products or brands that bring in at least $1 billion in annual sales, a formidable biotech pipeline, and an impeccable track record of free cash flow and dividend growth over the decades all make Johnson & Johnson a top pick for income investors. And don't forget the aggression with which the company's growing: It's about to acquire Momenta Pharmaceuticals (MNTA) for $6.5 billion to make a big headway into immunology.
With 58 straight years of dividend increases and a 2.7% yield to boot, I think Johnson & Johnson stock will go places if bought today.