In periods of rising inflation and slowing economic growth, such as what we're currently experiencing, there is one constant that investors can count on, and that is the reliability of dividend stocks to bolster their portfolios.
The asset managers at Hartford Funds looked at the performance of the benchmark S&P 500 going all the way back to 1930 and found that dividends contributed 40% to the total return of the index over that 91-year period.
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Through decades that featured depressions and world wars, recessions, and pandemics, dividends have always generated positive returns. Even during the so-called "lost decade" of the 2000s, when the S&P 500 generated a loss of 0.4%, dividend stocks still managed to gain 1.8% for shareholders.
That's why today when we're seeing the highest inflation in 40 years, record-high gas prices, and an economy on the precipice of another recession, investors should seriously consider the wisdom of having income-generating stocks in their portfolios. In particular, the three stocks below are handily outperforming the broad market index, which is sitting at a 19% loss for 2022 so far, just above official bear market territory.
NYSE: T
Key Data Points
1. AT&T (up 13.2%)
Things weren't supposed to be so good for Ma Bell. The market beat up AT&T (T 0.41%) stock last year after the telecom giant announced it would be spinning off its Warner Media division and slashing its dividend in half.
While the loss of the entertainment business wouldn't be bemoaned as it had saddled AT&T with an enormous amount of debt and led to a management team distracted by how it would turn the unit around, the dividend cut was grievous as the telecom was long one of the original widow-and-orphan stocks that could be counted on to pay out over the years.
What seemed to be lost in the analysis is that AT&T would use the proceeds of the spinoff to pay down a good portion of its debt load, and while a 50% haircut to the payout stung, the dividend that's currently yielding 5.3% annually is still well above what other similarly sized corporations are paying.
Now AT&T has more resources to direct to its primary telecom business, and the rollout of its 5G network is expected to create massive growth opportunities for it and other carriers in the years to come. It seems the market finally has woken up to the potential because after hitting a low of $16 per share in mid-December, AT&T stock has climbed almost 33%.
NYSE: CVX
Key Data Points
2. Chevron (up 20%)
It's no surprise that Chevron (CVX 0.95%) is doing so well. Oil prices remain at elevated levels even if they are significantly below where they were trading back in March. Even so, the oil giant's stock is down 20% over the past month as fears that gas prices averaging $5 a gallon at the pump will impede demand just as the country is tiptoeing its way into a recession.
Chevron, though, is looking out over the long term and sees not just the U.S. but the rest of the world, too, will require fossil fuels to thrive. We're just nowhere near surviving on a so-called green energy grid, meaning the oil giant's downstream, midstream, and upstream assets will have sufficient demand for years to come.
As a result, Chevron has committed to buying back between $5 billion and $10 billion worth of stock every year through 2026, and as one of the world's biggest vertically integrated energy leaders, it will continue to pay out its dividend to shareholders without trouble. And because Chevron has been able to raise its payout for 35 consecutive years, it is a proper Dividend Aristocrat.
