Uncertainty is the bane of Wall Street, and the one thing that most investors can agree on at the moment is that the future is far from clear right now. There's rampant inflation, geopolitical tensions, and valid concerns about whether we are already in a recession.
Individuals can't do much to control any of these macroeconomic issues, but they can focus on buying companies that have a track record of managing prior periods of tough economic times. If you've got $3,000 or more available to invest right now, you would do well to take a close look at long-term stalwarts like Franklin Resources (BEN -0.29%), Toronto Dominion Bank (TD -0.40%), and Realty Income (O -0.55%). These are three stocks worth considering for your long-term portfolio.
1. Franklin Resources: Four decades of dividend increases!
Asset manager Franklin Resources is getting hit hard today, but that makes complete sense. It basically charges fees on the financial assets it manages for others (known in the industry as assets under management (AUM)). When stock markets are weak, Franklin Resources and its peers get hit twice. First, asset depreciation reduces AUM. Second, scared investors often pull cash out of the market, further reducing AUM. The weak market has led to the stock price falling more than 20% so far in 2022.
That bad news may have opened up an opportunity for investors that think in decades, rather than days. The dividend yield is a generous 4.4% today, toward the high end of Franklin Resources' historical range. And perhaps more important, Franklin Resources has increased the dividend annually for more than four decades. That's a span that included the huge dot-com crash and the Great Recession, among many other hardships.
Franklin Resources managed through them all while generating enough free cash flow to keep rewarding investors with a regularly growing dividend payment. Note, too, that the company's payout ratio in the fiscal third quarter (ended June 30) was a very affordable 35% (using adjusted earnings), suggesting that there's ample room for additional adversity before the dividend would be put at risk.
2. TD Bank: Ready for a recession, if it comes
Toronto Dominion Bank, or TD Bank, which offers banking services in both its home country of Canada and in the United States, was forced to hold its dividend steady during the Great Recession. But that was a Canadian Government mandate driven by the country's highly conservative approach to banking regulation. The dividend is growing again and, more notably, has been paid for over 160 consecutive years. With an attractive dividend yield of 4.1%, income investors should probably consider this North American bank giant.
However, a recession could be a major problem for banks, with reduced demand for their products and services and the risk of an uptick in defaults. This is why TD Bank's share prices are off by around 15% so far in 2022. But business results fluctuate over time, so that's kind of par for the course. Here's the thing -- TD Bank has a history of using weak patches to expand via acquisition. Right now, it has deals lined up to buy First Horizon Bank and asset manager Cowen. So a headwind could actually turn out to be a long-term benefit here, especially if TD Bank can find more companies to buy. As for the risk of recession-driven defaults, TD Bank's Tier 1 Capital Ratio, a measure of a bank's ability to weather hard times, is one of the highest in North America. At 14.9% (higher numbers are better), it has ample room to deal with a recession and keep its incredible dividend streak alive.
3. Realty Income: A financial-ish stock
Realty Income is a net lease real estate investment trust (REIT), which is a type of company that often gets put into its own category. However, at the core, this REIT is a financial partner for its lessees. The net lease model often involves a company selling its property to a REIT like Realty Income and then instantly leasing it back. The end result is that the new lessee gets to retain access to its property while freeing up capital for other purposes, like growth spending. Realty Income, meanwhile, gets a new property and a long-term tenant. It's probably as close to a win-win as you can get. Evidence of the REIT's successful model can be seen in its 27 years of annual dividend increases.
What sets Realty Income apart from the pack today is its massive portfolio, which houses more than 11,000 properties. It has a size and scale that few (if any) can match in the net lease space. Even giant properties, like the casino property it just agreed to buy for $1.7 billion, easily fit into the portfolio without causing revenue or diversification disruption. Meanwhile, an investment-grade balance sheet and the premium investors usually award the REIT's stock mean it has relatively cheap access to capital. That makes it much easier for Realty Income to move deals across the finish line.
All in, during good times or bad, Realty Income stands out in a good way. And with a solid 4.4% dividend yield, this Dividend Aristocrat is a financial stock that conservative investors shouldn't overlook.
Three top dogs
Franklin Resources has an incredible dividend record in the market-sensitive asset management space. TD Bank is a conservatively run bank poised for growth and prepared for adversity. Realty Income is basically one of the biggest and best-run net lease REITs. All three have generous yields, and even though times are uncertain, they are each worth considering today if you have some money to put to work.