There is a good reason investors turn to dividend stocks during times of economic uncertainty. Sharing profits with investors, in good times and bad, is a vote of confidence that its long-term growth story remains intact and helps to soften the blow a falling stock market can have on capital appreciation.
Yet some dividend stocks are not just safe harbors from market storms but also businesses you can reliably hold on to at all times. Investors should consider the following two companies in that group. They might not be the sexiest companies on the market, but they are dividend-paying stocks you can count on year in and year out.
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Clorox
The market still doesn't know what to make of Clorox (CLX 0.24%), which is odd, considering its long history of outperformance and ensuring its shareholders share in its prosperity. The bleach maker has paid a dividend every year since 1970 and has increased the payout each year since 1978.
Yet Clorox is more than just the household cleaner and sanitizer. It has a portfolio of global consumer and professional products, including Brita water filters, Formula 409 and Pine-Sol cleaners, and Kingsford charcoal. Many of its brands rank as the No. 1 or No. 2 product in terms of market share in their respective categories -- its main competitors are often private label brands -- and they generate more than 80% of Clorox's total revenue.
Yet since the lockdown phase of the pandemic ended, Clorox stock has been in freefall. Shares are down 41% from the all-time high hit in August 2020, with consumers no longer scrambling to disinfect every surface. The stock is down 20% this year alone, with investors becoming concerned about the business as inflation and supply chain disruptions continue to challenge its operations and have hurt profit margins. Some are even worried the dividend may be in jeopardy as its payout ratio soared above 100%, meaning it's paying out in dividends more than it's making in profits.
Clorox has been through these business cycles before. Inflation, high interest rates, and supply chain issues are not new, and the company has plans to address them. For example, in December, Clorox will be raising prices for a fourth time this year to help build back its margins. There's always risk in customers trading down, particularly to generic products, but it's not seeing that occur broadly.
The turnaround won't occur overnight, but it continues to grow even if there are periods, like the current one, when sales contract. Buying in when shares are discounted and holding for the long term -- particularly with a Dividend Aristocrat like Clorox, which has managed before to increase its payout even through difficult times -- will pay off handsomely for patient investors.
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Sysco
Food service distributor Sysco (SYY 1.44%) is another yawn-inducing stock for many investors. It supplies restaurants, hospitals, schools, and hotels with food products, building its operation into the biggest in the country in the process. Not surprisingly, supply chain concerns, inflation, and rising fuel costs (especially diesel supplies) are also big concerns for the company.
While the overall inflation rate may be just above 8%, food costs soared 11.2% in October, with cereals and bakery products up 16.2%, dairy 15.9% higher, and meats, poultry, fish, and eggs 9.8% more expensive.
Yet like Clorox, this is not new for Sysco. Despite missing analyst expectations this quarter, the food distributor still reported double-digit sales and profit growth. Travel and tourism have bounced back, helping elevate Sysco, and even if the country does plunge into recession, the sector will come back again. People need to eat, consumers still like going out for a meal, and establishments will continue needing to be supplied.
Sysco has an enviable long-term investment track record. A $10,000 investment in the food distributor 50 years ago would be worth over $2.9 million, compared to a $343,000 return for the S&P 500. Including dividends, Sysco would be worth more than $6 million today.
Sysco has paid a dividend to investors every year since going public in 1970 and began raising the payout immediately, meaning that with more than 50 years of dividend increases, it is in that rarified group of stocks called Dividend Kings.
Sysco has a 17% share of a highly diversified industry, giving it plenty of room to grow, either by stealing shares from smaller rivals or acquiring them. You may not want to back up the truck on its stock, but at a fraction of its sales and its projected earnings growth rate, having Sysco as part of your long-term portfolio holdings wouldn't be a bad bet.
