The environment has changed dramatically in just the past few months. A year ago, stocks could do no wrong; buying anything on the dip usually worked out well. Now, just when it feels like the market can't move any lower, it does. It's understandable that investors are now broadly seeking out safe havens -- and reliable dividends in particular.
With that as the backdrop, here's a closer look at three safe dividend stocks you may want to buy now, just in case the current turbulence is warning of a recession and bear market that will likely drag most stocks lower.
NextEra Energy
Dividend yield: 2.4%
NextEra Energy (NEE 3.39%) may not be the market's best-known utility name, but it is quietly one of the world's biggest power providers. Its Florida Power & Light Company subsidiary delivers electricity to 5.7 million homes and businesses in Florida. It's also the world's largest renewable energy generator, wholesaling electricity largely produced by wind and the Sun via a business called NextEra Energy Resources.
It's remained relatively unfamiliar largely because the company only started using the moniker in 2010 (and was still piecing itself together at the time) while other utility outfits like Southern Company and Duke Energy enjoy a decades-old pedigree. NextEra Energy's young age, however, is also the reason it's such a compelling dividend prospect.
It's been built from the ground up with the future of energy in mind -- and without as much fossil-fuel baggage as aforementioned names like Duke and Southern Company. Not only is it already ahead of its competition in this regard, but NextEra's Real Zero plan also lays out a credible path to becoming a true zero-carbon power producer by 2045.
While it remains to be seen what the green-energy regulatory environment will look like 20 years from now, NextEra looks more ready for this evolution than any other name in the business. It has 9,500 megawatts' worth of solar power installations alone planned for the next 10 years, for instance.
In the meantime, the company that would eventually become NextEra hasn't failed to pay a dividend in any quarter since 1995 and hasn't failed to raise its annual payout in each of the past 26 years. NextEra Energy even told investors it believes it will be able to raise its full-year payout by 10% per year at least through 2024. That makes it one of the best dividend-growers out there.
Advance Auto Parts
Dividend yield: 3.6%
Stepping into a retailer's stock right now doesn't just sound a tad questionable. In light of last month's consumer-spending slowdown and red flags of a looming recession, it seems downright crazy. Advance Auto Parts (AAP 3.41%), however, defies that obvious logic for a less-than-obvious reason: auto repairs and car maintenance never really slow down, regardless of the economic environment.
As of its latest tally, Advance Auto Parts operates nearly 5,000 retail stores all across North America, generating a little over $11 billion worth of sales over the course of the past four reported quarters.Incredibly, though it's facing the same supply chain problems automobile manufacturers are, that figure is better than pre-COVID 2019's top line of $9.7 billion, which somehow grew to $10.1 billion in COVID-crimped 2020.
This year's projected top line of more than $3.5 billion will improve on last year's figure and should grow another 4% in 2023 to reach $11.8 billion. Earnings are growing at an even faster clip, with profit margins improving as the company scales up.
Some investors are surprised to see this sort of resiliency. Those people who understand the automotive business well, however, understand that as cars become more expensive and less disposable, repairing them and keeping them in good running order is an investment rather than expense. This dynamic isn't apt to change anytime soon either.
The company isn't a Dividend Aristocrat. It's not even close, in fact. Despite years of growth, Advance Auto Parts didn't get serious about paying or raising its dividends until 2020, in the midst of the pandemic.
Now that the ball's rolling though, it's not likely to stop. The auto parts retailer upped its quarterly per-share payout by 50% earlier this year; yet, that payout is still only about 40% of its typical per-share earnings.
Verizon
Dividend yield: 5.2%
Finally, add Verizon Communications (VZ 0.03%) to your list of extremely safe dividend stocks to buy now.
It's not a company that needs much in the way of an introduction. Verizon, of course, is one of the U.S.'s top wireless service providers, handling 115 million consumer accounts as of the end of the first quarter and nearly 28 million more business accounts. It also manages a cable television and broadband business, though these clearly aren't its core profit engine.
Although the company is forever innovating new products and services, Verizon's never going to deliver high growth again. Pew Research estimates that 97% of Americans now own a cellphone and 85% of the population owns a smartphone (and, therefore, already have a mobile data plan). The market itself is pretty well saturated, and while population growth and winning more market share could help expand the top line, it can't help enough to drive double-digit growth. Innovations like private 5G wireless networks and emergency responder solutions are mostly natural extensions of its existing offerings.
For investors seeking out safe, reliable dividend income, though, it doesn't matter. Consumers are practically addicted to their mobile phones and willingly pay their monthly bill to keep them connected. Verizon just needs to make sure its service is strong enough to keep its existing customers in the fold while winning its fair share of any market growth.
And it does this just fine. Last quarter's postpaid churn rate was just a hair over 1%, meaning 99% of the customers it ended the quarter with were customers at the beginning of the quarter. Oh, and with 15 consecutive years of dividend increases under its belt, it's safe to say Verizon is en route to becoming a Dividend Aristocrat.
