Dividend stocks can offer investors a way to help offset inflation by bolstering their income. They can also make for stable investments to hang on to since their businesses need to have sound financials to be making regular payments in the first place.
Three stocks that check off those boxes and that pay sustainable dividend yields of 2% or more are Scotts Miracle-Gro (SMG 1.51%), Comcast (CMCSA 1.54%), and Kellogg (K 0.63%). Although they are all in the red in 2022, over the long term they're likely to generate positive returns for your portfolio.
Image source: Getty Images.
1. Scotts Miracle-Gro
Gardening and hydroponics company Scotts Miracle-Gro is a solid dividend stock because of how versatile and diverse it is. On the one hand, you have its conventional gardening business, which should provide lots of steady growth. On the other, there's its Hawthorne segment, which focuses on hydroponics and benefits greatly from a rise in cannabis producers, as it can help keep their costs low. Hydroponics is a more efficient growing system that doesn't require soil and can take up much less space than a typical greenhouse would.
The company's financials can be volatile due to seasonality, but overall the business has been going in the right direction; sales of $4.9 billion in fiscal 2021 (its period ends Sept. 30) rose 19% from the previous year, and on a two-year basis, the top line has jumped by 56%.
Most recently, however, the company has faced headwinds due to oversupply in the cannabis market, and that's led to Hawthorne's sales declining by a whopping 38% in the three-month period ending Jan. 1. Overall, the company's net revenue was down 24%. However, one of the reasons investors shouldn't panic is because of the long-term potential Scotts has and the opportunities that exist in the cannabis sector in the years ahead. The industry isn't legal at the federal level yet (although support for legalization is at record highs with more than two-thirds of Americans in favor of it), and it will get bigger as more states legalize marijuana for recreational or medicinal use.
The stock is a good contrarian play, and with its shares down 22% year to date, the yield is higher than it would normally be. At 2.1%, this is better than the S&P 500 average of 1.3%. And when the company has done well, it has graciously shared the wealth; twice in the past eight years it has paid a special dividend, the most recent being a $5-per-share payment in 2020.
With the stock at 16 times its earnings, investors aren't paying much of a premium for it (rival hydroponics business GrowGeneration trades at 44 times its profits). Scotts' payout ratio of 33% is easily sustainable, and this can make for an excellent dividend stock investors can just buy and forget about.
2. Comcast
A stock that pays a slightly higher payout than Scotts is Comcast, yielding around 2.3% per year. And like Scotts, its payout ratio is modest at around one-third of its profits. What's particularly attractive about Comcast as an investment is the diversity of its business, which can provide investors with long-term stability.
Comcast generates roughly half of its revenue from its cable business. In addition to that, there's NBCUniversal, which includes media, studio, and theme park sales. At $34.3 billion in revenue last year, that segment was a bit less than one-third of all sales. There's also Sky, a European-based entertainment company that Comcast acquired in 2018. It brought in $20 billion in sales in 2021 and accounted for another 17% of Comcast's top line.
Overall, the company's business isn't overly diverse and complements itself well as the segments are all related to communications and entertainment as a whole. But by being more than just a regular telecom play, Comcast can make for a more stable investment. That can explain why it's down a relatively modest 6% year to date, which is only slightly worse than the S&P 500's 4% decline. However, the stock is only a few dollars away from its 52-week low and can be worth buying on weakness. At 16 times earnings, this too is another attractive value buy today -- the S&P 500 P/E ratio is currently above 26.
3. Kellogg
The highest yield on this list of safe dividend stocks belongs to Kellogg. At 3.7%, it's nearly three times the S&P 500 average payout. Despite that, the company's payout ratio is still sustainable at just over 50%.
Kellogg's is known for its popular cereals, including Special K, Frosted Flakes, and Froot Loops, among other household brands. At a time when inflation is rampant and problematic, the company's products can still be an affordable alternative to eating out for breakfast, even if Kellogg has to raise prices. And the resiliency in the business is evident in its results. In the period ending Jan. 1, Kellogg reported that net sales of $3.4 billion were down just 1.3% from the prior-year period. And although its operating profit was down 15% year over year, it still represented just under 10% of revenue. If maintained, that can ensure the business remains profitable.
For the current fiscal year, Kellogg anticipates its organic net sales to rise by 3% and its adjusted operating profit to increase between 1% and 2%. The company notes, however, that its forecast doesn't factor in a scenario involving "significant supply chain or other prolonged market disruptions related to the pandemic or global economy."
Although there's risk that the pandemic can trigger worse results, Kellogg is still one of the safer income investments to be holding today. Down a modest 2% since the start of the year, the stock, which trades at less than 15 times its earnings, has outperformed the markets and can be a great place to park your money for the long term.
