In a world where the typical savings account's interest rate is hovering close to zero and the yield on the 10-year U.S. Treasury is perpetually under 1%, it can be hard to find investments that both offer a secure income stream and allow their holders to sleep well at night.
Coca-Cola (KO 1.93%) has long been a blue chip stock and a company whose products people keep buying through good times and bad, making it a relatively safe way to invest, as well as earn a respectable dividend (currently yielding 3.09%). But times keep changing, and what was a strong investment in the past may not always be as strong going forward. Investing is about looking toward profits in the future, not the past.
Some stocks that offer both a higher dividend yield than Coca-Cola and brighter prospects for future growth are Verizon (VZ -3.19%), Pfizer (PFE 0.89%), and JPMorgan Chase (JPM 2.10%). Let's find out a bit more about these three dividend stocks.
For its millions of customers, much of daily life flows through one of Verizon's services. Its wireless network keeps them connected to family and friends through their smartphones; its high-speed internet service allows those who can to work remotely, learn remotely, and more; and its Fios cable service brings video entertainment into their homes. By providing these services, the telecom giant was able to generate more than $19 billion in free cash flow over the past 12 months.
Although Verizon's revenue grew at an annualized rate of only 2.4% per year in the 2010s, that was enough for it to keep investing in its own services and also continue raising its dividend each year. The company's payout has gone from $1.93 per share in 2010 to $2.44 a share last year -- good for a yield of 4.15% at current share prices. Verizon stock should find a place in the portfolios of investors looking for income and peace of mind.
Pfizer, which pays a dividend that yields 4.0% at current share prices, has spent the last two years transforming itself from a stodgy Johnson & Johnson look-alike into an innovative company developing treatments for some of mankind's most intractable diseases. Under a series of deals crafted after CEO Albert Bourla took over at the beginning of 2019, Pfizer shifted its consumer healthcare portfolio to a joint venture with GlaxoSmithKline, and is spinning off its Upjohn unit, which houses its generic and off-patent drugs. These changes will allow the slimmed-down company to focus on its patent-protected drugs and vaccines.
This transformation was validated by its recent announcement of positive results out of the phase 3 trial for its COVID-19 vaccine candidate. Although the spin-off of Upjohn (set to occur on Friday) and its immediate merger with Mylan (MYL) (scheduled to close Monday), will lower Pfizer's dividend, shareholders will receive shares in the new company, to be named Viatris. Added together, the overall size of their payouts should not be affected. Pfizer has undergone an exciting transformation, and looks like it will keep lining shareholders' pockets while narrowing its focus to cutting-edge research and development.
3. JPMorgan Chase
With benchmark interest rates so low, you may find it surprising that anyone would recommend investing in a bank. After all, those institutions earn a lot of their money from the interest they collect on the funds that they lend. Net interest margin -- the difference between the interest rates they earn and the interest rates they pay to depositors -- is a key factor in banks' profitability.
Of all the major U.S. banks, JPMorgan has demonstrated the clearest ability to profit in the face of uncertainty -- and low interest rates -- since the financial crisis. The company now boasts leading franchises in investment, commercial, and retail banking, credit cards, and wealth management. That broad leadership has translated into growth on a host of metrics. JPMorgan has grown its book value -- the difference between its assets and liabilities -- by 7% annually since 2010. Its dividend now sits at $3.60 per share, a 3.15% yield which is easily covered by net income. The company earned $10.72 per share in 2019, and its EPS has increased every year since 2013. Like Verizon and Pfizer, JPMorgan is large, stable, a leader in its field, and has made a practice of rewarding shareholders with an exceptional dividend. Investors with an eye for income would be wise to buy shares in it.