Dividend stocks can help augment your income stream in retirement, allowing you to live off your portfolio while not eating into your principal. It is, however, important that you have a diversified list of dividend-paying stocks so no one sector or security can upend the passive income you are generating. Aflac (AFL +0.16%), T. Rowe Price (TROW 1.63%), and Toronto-Dominion Bank (TD +0.62%) all hail from different niches of the financial sector, and each is worth a close look today despite economic and market volatility.
1. That silly duck
When most people think of Aflac, they probably think of the company's duck mascot, which says Aflac instead of quacking. However, the "supplemental" products the insurance company sells are pretty interesting. Simplifying things a bit, Aflac takes its customers' money and, if they get sick, it pays them a preset amount of money each month until they are, hopefully, well again. If a customer never needs the insurance, Aflac keeps the premiums it has collected. And, like other insurers, Aflac invests the premiums it collects while waiting for any claims it may have to pay. It's a pretty good model which has allowed the company to increase its dividend annually for four decades, making it a Dividend Aristocrat.
NYSE: AFL
Key Data Points
The yield is 2.6% right now, which may not seem very high but is actually at the high end of the company's historical yield range. That suggests the stock may be relatively cheap right now. The thing is, Aflac is facing some headwinds, with revenues down year over year in the second quarter and adjusted earnings off by 13%. That, however, isn't too shocking given the broader market (which impacts investment returns) and economic (which impacts sales) backdrop. Aflac has weathered weak periods before, and there's no reason to doubt it will do so again. If you are looking for a reliable dividend stock, this is a good name to dig into.
2. A direct hit
T. Rowe Price basically earns fees for providing investment advice. It gets paid based on the dollar value of the assets it has under management. That's a very good thing when markets are going up. But when the pendulum swings and markets are heading south, assets under management fall because of declining portfolio values and customer withdrawals.
That is the situation today, with assets under management declining from $1.55 trillion at the end of March to just 1.31 trillion at the end of June. Customers pulled nearly $15 billion from their accounts. And, as you might expect, T. Rowe Price's earnings fell, declining nearly 46% year over year. This helps explain why the stock is down nearly 45% from its recent highs. The dividend yield, meanwhile, is now a tempting 3.9%, toward the high end of the stock's historical yield range.
NASDAQ: TROW
Key Data Points
The key here is that Wall Street is volatile, so this swing in performance is not new or surprising. Over time, T. Rowe Price has managed to deal with the volatility and continued to grow its business. That is why the dividend has been increased annually for 36 consecutive years. While investors are worried about the typical market swings, you might want to consider picking up this historically successful asset management company.
3. Safety first
Last up is Canadian bank Toronto-Dominion. First, Canada has a highly regulated banking sector, with a small number of entrenched players like TD unlikely to see themselves unseated. Canadian banks also tend to be fairly conservatively operated, thanks to the regulations they face. That shows up in Toronto-Dominion's Tier 1 capital ratio, which sat at 14.7% at the end of the second quarter -- the second best Tier 1 ratio in North America. The Tier 1 Ratio provides an indication of how well a bank can withstand financial adversity (higher numbers are better), and, clearly, TD is ready for hard times.
NYSE: TD
Key Data Points
That's a good thing, given the very real fear of a recession as central banks hike interest rates. Indeed, investors need to be prepared that TD's financial results will be stressed over the next year or so. This is probably why the dividend yield, at 4.2%, is toward the high side of the stock's historical yield range. Here's the thing, Toronto-Dominion has been paying dividends for more than 160 years! (The dividend increase streak is only at seven years because the Canadian government mandated that banks not increase them during the Great Recession.) With a historically high yield and incredible dedication to the dividend, this financially strong bank could be a great addition to just about any portfolio.
Adding some financial exposure
It may sound like a bad idea to add financial stocks when economies and markets are in turmoil. But if you focus on long-term survivors like Aflac, T. Rowe Price, and Toronto-Dominion, this is the time when you're most likely to find durable and historically high yields. You just need to think in decades and not months.
