The market stumbled right out of the gate this year, and continues to head down despite a couple of bounces higher. Even though the S&P 500 has bounced 10% off its year-to-date low, many expect it could revisit it and possibly get even worse.
The Federal Reserve has raised interest rates by the highest rate since 1994, inflation is at 40-year highs, gas prices remain well above $4 per gallon, and the potential for a recession is high.
That's a problem for income-seeking investors, especially those nearing or in retirement, as they need their investments to at a minimum not lose value, and preferably grow. With possibly little time to make up for big swoons, finding battle-tested stocks that can withstand the storm is all the more important for them.
Fortunately, the following two dividend stocks have the scars to show they've been there and not only survived, but thrived over the years. If you've got $1,000 to put to work today, they are ones to buy and hold forever.
AT&T (T 0.89%) remains one of the safest dividend stocks to own, even though it slashed its payout by 50% earlier this year. The reason behind the kneecapping, of course, was the telecom's shedding of its media business into a newly reconstituted entertainment and streaming service stock, Warner Bros Discovery.
AT&T investors got shares of Warner Bros in exchange, and though some might consider that a poor substitute for the dividend, especially since shares of the spinoff have lost two-thirds of their value since becoming a stand-alone company, it's actually a smart move.
First, Warner Media was never a good fit for AT&T and it loaded the telecom down with debt that also diverted resources and attention away from the primary telecom business. Getting rid of it gave AT&T some $43 billion that it can use to pay down the debt as well as invest in its 5G networks that will provide the next leg up for growth.
Also, AT&T's dividend still yields some of the highest percentages of similarly situated corporations of its size. At 6% annually, the yield ranks ninth-highest of all stocks in the S&P 500 and it's very safe to boot. With a payout ratio of 43%, AT&T has plenty of room to still cover the payment and grow the dividend. It might have lost its status as a Dividend Aristocrat due to the cut, but AT&T and its investors are now better off for it.
Walgreens Boots Alliance
A healthcare stock losing over a quarter of its value during a continuing pandemic might seem strange, yet here we are with Walgreens Boots Alliance (WBA 7.16%). The company is still struggling to recover from having its retail operations hampered by reduced foot traffic during the lockdown phase of the pandemic while today it's reeling from rising labor costs and inflation.
Walgreens, though, is in cost control mode and doing quite well at it. Its containment program is now expected to deliver $3.5 billion in annual savings by fiscal 2024, an increase from the $3.3 billion in savings it previously projected.
One thing investors did not like, however, was Walgreens' decision to hang on to its U.K.-based pharmacy chain Boots and its beauty products business No7 Beauty Company. It had considered selling off both units to focus more narrowly on its U.S. healthcare operations (a decision that investors did like), but after completing the strategic review it decided to keep them.
That's not so bad really, since both businesses are growing. But the market is penalizing Walgreens for not being more of a domestic pure-play pharmacy stock, which is why shares are trading so low.
Still, Walgreens possesses a sound financial foundation and its recent earnings report exceeded analyst expectations, even if it's down year over year. At less than seven times trailing earnings, eight times next year's estimates, and a fraction of its sales, Walgreens is deeply discounted compared to the market and to rivals like CVS Health.
Unlike AT&T, Walgreens retains its Dividend Aristocrat ranking and has paid a dividend for 89 consecutive years, the last 47 of which it has raised the payout. It seems an excellent candidate to continue this track record that income investors have come to rely upon.