Investing in reliable dividend stocks is arguably a great way to withstand market downturns. This is because the best ones tend to raise their payouts each year. As a dividend growth investor, I can attest to the fact that growing income through a market downturn or recession helps me to sleep well at night.
Not all dividend stocks are created equal. But here are three companies that I own and consider to be some of the most secure dividend stocks in the world.
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1. PepsiCo
The S&P 500 index is down 21% so far this year, but some of the best stocks in the world have fared much better. For instance, PepsiCo (PEP -0.19%) has only declined 4% year to date.
With 50 consecutive years of payout hikes under its belt, PepsiCo has earned the rare distinction of being a Dividend King. And it's likely that this dividend growth streak can continue for many more years, which is why investors have flocked to the stock this year. And there is every reason to be optimistic that it can keep growing its dividend in the future.
This is because, for one, the stock's dividend payout ratio is currently 66.8%. This gives PepsiCo enough capital to expand its business, repay debt, and complete share buybacks. The company also has a sufficient buffer to keep its dividend intact in the event that profits temporarily sag. Topping it off, the stock's dividend yield of 2.8% is much higher than the S&P 500 index's 1.7% yield.
And thanks to PepsiCo's unparalleled brand portfolio that includes Lay's snacks, Gatorade, Pepsi, and Quaker, analysts anticipate the company will deliver 7.5% annual earnings growth over the next five years.
At a forward price-to-earnings (P/E) ratio of 25, the stock's valuation isn't a bargain. But it's essentially in line with the soft drink industry's average forward P/E ratio of 23.8. This makes PepsiCo a solid buy for investors seeking both immediate and future income.
2. Air Products & Chemicals
With more than 750 production facilities in over 50 countries, Air Products & Chemicals (APD 0.70%) is one of the world's biggest suppliers of industrial gases.
Industrial gases are vital inputs in many industries like electronics, clean energy, pharmaceuticals, and food and beverages. Global economic and population growth bode well for the industrial gases market. This is why Grand View Research projects that the market will grow at 6% annually from $95.7 billion in 2021 to $147.1 billion by 2028.
Air Products' size and scale along with the promising industry outlook explain how analysts are projecting 12.1% annual earnings growth for the next five years.
The company's 20% drop in its share price year to date has pushed its dividend yield up to an attractive 2.7%. The stock's payout ratio will be a manageable 61.7% in 2022, so Air Products should have no difficulty in extending the 40-year dividend growth streak that makes it a Dividend Aristocrat.
Air Products & Chemicals' valuation also looks reasonable enough to make it a buy in this uncertain market. That's because the stock's forward P/E ratio of 23 is equal to the industry's average multiple of 23.1.
3. General Dynamics
With operations in more than 45 countries, General Dynamics (GD 1.12%) is one of the largest defense contractors and aerospace companies anywhere.
Steadily rising global defense spending played a large part in General Dynamics' ability to produce 6.8% annual earnings growth over the past five years. Given geopolitical uncertainty in Eastern Europe and a recovering aviation business, analysts believe the company will generate 11.8% annual earnings growth over the next five years.
The company's payout ratio stands at about 40, positioning the Dividend Aristocrat to build on its dividend growth streak.
General Dynamics stock is up 2% year to date. Yet income investors can still snag its 2.4% dividend yield at a forward P/E ratio of just 17.4. This is slightly lower than the average multiple of 18.6 for the aerospace and defense industry.
