With rampant inflation driving interest rates higher at the same time we're dealing with pandemic-prompted political uncertainty, plenty of investors are understandably worried. Not even the market's dividend-paying stalwarts are guaranteed protection from the storm brewing on the horizon.
The thing is, there are some income-oriented stocks that are built to last. Here's a closer look at one of the best of this breed, even if it is a bit off the beaten path.
Boring but profitable
Unum Group (UNM 0.35%) isn't a household name -- at least not in the United States. In fact, it's possible it's a name neither you nor anyone else in your household has even heard of. With a mere market cap of $5.7 billion, the insurance outfit just doesn't turn a lot of heads.
Image source: Getty Images.
Don't let its small size and funny name fool you though. This company is parent to a more familiar U.S. insurance brand Colonial Life, and in the U.K. and Poland, it's doing business using the corporate moniker. Life and disability insurance are its key product lines, although it has several related coverage offerings in its lineup. In fact, in addition to being the world's biggest long-term disability insurer, it's among the top providers for the accident, whole life, and short-term disability insurance markets.
It's a boring business, to be perfectly blunt. But, the insurance business is an incredibly lucrative business to be in.
Much of Unum's steady profitability stems from the nature of the business itself. The mathematics of determining insurance premiums is ultimately based on actual historical payouts: An insurers' actuaries calculate the probable cost of carrying all of its policies in any given year, add a markup to that cost, and then bill clients that amount. Every insurer must be price-conscious, but in that consumers and companies generally have to have insurance coverage, the business isn't exactly a cutthroat one fought with price wars. In this vein, while unexpectedly high payouts can crimp profits in any given year, Unum Group's profit margin rates consistently revert back to a mean of right around 10%.
This consistency is precisely what investors want to see from a dividend-paying company -- reliable profits that more than cover dividend payments.
And given long enough timeframes, Unum is doing just that -- very, very well. Last year's non-GAAP per-share bottom line of $4.02 was leaps and bounds more than the $1.17 worth of dividends the company dished out to shareholders during the same year. The prior year's per-share payout of $1.14 was again only a fraction of the $3.89 EPS the company generated in 2020. Indeed, Unum's operational bottom line has more than covered its dividend every year for the past several years, and the analyst community doesn't see that changing at any point in the foreseeable future. The 2020 and 2021 revenue and earnings lull, of course, is solely the result of logistical challenges linked to the pandemic itself.
Data source: Thomson Reuters. Chart by author.
You can step into this well-supported dividend stream while the yield's at an above-average 4.2%.
Unum's perfect for the task at hand
A perfect dividend investment? No, nothing is ever perfect; there are always trade-offs.
The trade-off here is limited capital appreciation. Shares of Unum are trading at about half of their value from five years ago, and while the circumstances behind that weakness -- low interest rates and worries regarding the entire long-term care insurance industry -- are considered temporary, some investors aren't yet completely convinced this headwind will abate. That's seemingly still working against the stock. The stock's dividend growth itself is fairly anemic as well.
That's not the chief concern right now, however, for every investor. If your primary goal at this point in time is stepping into a stock that only boasts a strong yield but is positioned to keep on making those payments for the indefinite future, this is one stock on a short list worth considering.
The kicker: While it's not a growth stock, priced at less than 6 times this year's projected profits and less than 5 times next year's earnings estimates, there's certainly also some room here for the stock's price to move higher.
