Although it's an "all-weather" strategy, particularly during periods of rising inflation and slowing economic growth, many investors find dividend stocks provide the certainty and stability they're seeking for their portfolios -- and with good reason.
The asset managers at Hartford Funds found that the performance of the dividend-paying stocks in the benchmark S&P 500 going all the way back to 1930 contributed 41% to the total return of the index.
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Only dividend stocks generated positive returns in all decades studied, including the so-called "lost decade" of the 2000s when the bursting of the tech stock bubble, 9/11, and the housing market crash resulted in the S&P 500 producing negative returns. Dividend stocks, however, returned a positive 1.8% during that time.
The study also found that from 1970 on, dividends represented an astounding 84% of the index's total return.
Yet which dividend stocks to buy? You can't simply chase yield since a higher yield often implies higher risk. You still need to look at the business. The following three dividend stocks, however, happen to not only be solid income stocks, but also ones you will want to own for decades.
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ABM Industries
Boring is good, they say, so ABM Industries (ABM -0.27%) ought to be one of those at the top of every list. Most investors might not even be aware the company exists, even though it's been in business for over a century. But the janitorial services and facilities management company has a solidly growing business that is likely to be around for another 100 years or so.
Barring the government forcing businesses and offices to close again, ABM's growth seems assured. Revenue in 2021 rose 4% to $6.2 billion. While that was still 4% below 2019's level, it reported last month that fiscal first-quarter revenue was up 30% to $1.9 billion, suggesting that business is flooding back when virtually all restrictions have now been lifted in the U.S. That led ABM to raise its full-year earnings guidance as office occupancy rates continue to grow.
Equally important has been ABM's willingness to reward its shareholders by having them share in its long record of success. It recently declared its 224th consecutive quarterly dividend, which amounts to a payout record of 56 years. At the same time, it has raised the payout for 50 consecutive years, making it a Dividend King.
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AT&T
AT&T (T 1.88%) just completed the spinoff of its entertainment division. Warner Bros Discovery (WBD -0.71%) is now trading on the Nasdaq exchange as an independent company, and the telecom giant can once again focus its attention on its communications operations at a time when the adoption of 5G is set to expand greatly.
Shares of both stocks were rising sharply on their first day of trading, indicating the market believes both will be better off as narrowly targeted businesses. But ever since the proposal was first announced, AT&T shares have drifted lower. They are down about 25% from their 52-week high as many investors bemoaned what would be about a 50% haircut in the dividend the telecom paid.
AT&T has been a solid dividend stock, one of the original "widows and orphans" holdings many bought for the surety of its payout. Yet it was also clear AT&T couldn't go on as it had, diversifying itself in an attempt to parlay its telecom prowess with a growing media presence. In the process, though, it accumulated significant debt that was holding it back. But now that it has received $43 billion from the spinoff, it can pay down the debtload and finance its future growth.
Swedish telecom Ericsson estimates much of AT&T's growth will come from consumers spending more on enhanced video, augmented reality and virtual reality, and digital gaming over 5G networks -- for which it will receive an estimated $3.7 trillion of the $31 trillion the entire consumer 5G network market could be worth by 2030.
With a dividend yield still around 5% annually, it will still be one of the top dividend yields among Fortune 500 companies, but with a more financially stable future.
Image source: Lowe's.
Lowe's
Another strong, stable dividend payer is home improvement giant Lowe's (LOW -1.40%) It has benefited from the housing boom, but can expand just as well if the market crashes again as people commit to fixing and sprucing up their homes.
Compared to archrival Home Depot (HD -1.77%), which counts on professional contractors for 45% of its total sales and so would be much more affected by a downturn, Lowe's tends to cater more to homeowners, with pros representing just 20% to 25% of its revenue. Not that Lowe's hasn't been bolstering that segment of its operations, but it is able to better weather the storms because of its tilt toward homeowners.
That's what's also made Lowe's successful for so long, paying a dividend to shareholders every quarter since going public in 1961. And since it has raised the payout for 56 straight years, the retail stock is also a Dividend King.
