An effective way to battle inflation and rising costs is to collect dividend income from your investments. The boost in cash could make it easier for you to pay bills or save up for large purchases. Although the markets are struggling this year with the S&P 500 down 7% in 2022, buying dividend stocks can pay off in the long run as their underlying businesses normally have sound financials.
If you're worried about the safety of dividend payments, you can also focus on Dividend Aristocrats that have strong track records and that have been making regular payments for more than two decades. A couple of Aristocrats that are not just stable, but also yielding more than 3%, are Cardinal Health (CAH 0.48%) and Clorox (CLX 0.85%). Both stocks could be great places to invest $5,000 into right now.
1. Cardinal Health
Cardinal Health distributes pharmaceutical products and offers investors a great way to gain exposure to the healthcare industry. The company doesn't have a high-margin business, normally netting just a few percentage points (or less) of revenue as net income. And inflation and supply-chain issues have put even more strain on its bottom line. In Cardinal's most recent earnings, for the period ended Dec. 31, it reported an operating loss of $950 million -- largely the result of a non-cash impairment charge of $1.3 billion due to its medical segment.
A positive takeaway for investors is that even amid challenges, the company's sales rose by 9% year over year to $45.5 billion. And that number could climb higher as the economy returns to normal and physicians are issuing more prescriptions. Plus, despite the drop in profitability, Cardinal's cash from operating activities remained fairly stable at $1.2 billion during the quarter and was largely unchanged from where it was in the same period last year.
Cardinal is a safe dividend stock to hold as its free cash flow over the past 12 months has totaled $1.1 billion -- easily enough to cover the $573 million it has paid out in dividends during that time. Although the company's dividend hikes these days are modest -- the most recent being an increase of just 1%, -- the yield is still a respectable 3.2%, more than twice the S&P 500 average of around 1.4%.
Clorox pays an identical yield to Cardinal, and it too is a Dividend Aristocrat. Last year, the company raised its quarterly payments by 4.5%, and now investors receive $1.16 per share every three months.
Like Cardinal, this consumer goods stalwart has a global presence with its products sold in over 100 countries worldwide. Known for its cleaning and wellness products, the stock was a hot buy during the early stages of the pandemic; in 2020, its shares rose by 32% and eclipsed the S&P 500's gains of 16%. This year, as concerns have begun to subside around COVID-19, the stock is down 15%.
Clorox projects that its net sales will fall by as much as 4% in 2022. But toward the end of the year, it expects its sales to be grow between 3% and 5%, which is the company's long-term growth target. An 8% decline in revenue for the last three months of 2021 seemed to confirm some challenges for the business ahead. However, at $1.7 billion, the top line was still 19% higher than where it was two years ago, before the pandemic.
On a cash flow basis, the dividend looks to be safe with Clorox generating $580 million in free cash over the past four quarters. That's slightly higher than the $563 million in dividends it paid out during that time. Although that's not a huge buffer, the company is facing inflationary pressures and is working on bringing its costs down while also driving price changes to offset some of the current headwinds, which should lead to better results in future periods.
Although it's in a much more challenging environment with inflation posing a problem, the company's track record should give investors confidence that Clorox will be successful in strengthening its financials. Over the past five years, its profit margin has normally been 10% or higher of revenue.