The past 14 months have been a bit of a roller-coaster ride for both new and tenured investors. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all tumbled into respective bear markets last year, with growth stocks getting hit hardest.
Although volatility is a normal part of investing, it's not something all investors can tolerate equally. The good news in this respect is that there are investment opportunities to fit all strategies. If you want to take advantage of perceived discounts during a bear market and reduce the risk to your principal investment, buying safe stocks can be a smart move.
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One of the easiest ways to reduce risk during periods of volatility and uncertainty is to buy dividend stocks. Dividend-paying companies tend to be particularly safe investments, given that most are profitable on a recurring basis and time-tested. It also doesn't hurt that income stocks have substantially outperformed publicly traded companies that don't offer a payout over the long run.
If safe dividend-paying stocks are what you're after, the following three exceptionally safe income plays can turn a $400,000 initial investment into $1 million, including dividends, by 2030.
Visa
The first exceptionally safe dividend stock that can help you deliver a 150% total return from an initial investment of $400,000 by 2030 is payment-processor Visa (V 0.65%).
Since Visa is a financial stock and financials are cyclical, the company can be prone to weakness during economic contractions. However, it's worth noting that every recession since the end of World War II has lasted between just two and 18 months. By comparison, virtually all periods of expansion have gone on for years. Visa is a company that allows patient investors to benefit from the natural expansion of the U.S. and global economy over time.
Visa also offers three clear-cut competitive advantages. To begin with, it's the big fish in the largest consumer pond in the world. Based on filings with the Securities and Exchange Commission, Visa accounted for almost 53% of credit card network purchase volume in the U.S. in 2021 among the four major payment networks.
Secondly, Visa has ample opportunity to expand its reach into international markets. Well over half of global transactions are still being conducted with cash. This provides a sustained double-digit organic growth opportunity in a number of underbanked regions, such as the Middle East, Africa, and Southeastern Asia.
The third catalyst for Visa is what it's not doing. While some of its payment-processing peers have chosen to lend, Visa has avoided the temptation. Although double-dipping with interest income and payment-processing fees probably sounds fantastic, it can become problematic when recessions arise.
Whereas lenders are coerced to set aside capital to cover loan losses when the U.S. or global economy weakens, Visa doesn't have to worry about setting aside cash since it doesn't lend. This de-risked profile is what allows the company to sustain a profit margin above 50%.
York Water
To be crystal clear, you don't have to buy a megacap dividend stock to minimize your investment risk. Small-cap water utility stock York Water (YORW 0.37%) is the perfect example of an exceptionally safe dividend stock that can deliver a 150% total return by 2030.
Whereas Visa is cyclical, York Water provides a basic necessity: water and wastewater utility services to 51 municipalities in South-Central Pennsylvania. If you own or rent a home, water and wastewater services are pretty much a necessity. In other words, demand doesn't change much from year to year, which leads to highly predictable cash flow for the company.
To build on this point, water utilities are normally monopolies or duopolies. Homeowners often don't have a choice about which company handles their water and wastewater services. This reinforces the idea that York can accurately forecast its cash flow each year. Accurate forecasting is important since it allows the company to set aside capital for infrastructure improvements, new projects, acquisitions, and its distribution without adversely impacting profitability.
Another reason investors can trust York Water is that it's a regulated utility. "Regulated" utilities require permission from state utility commissions -- in this case, the Pennsylvania Public Utility Commission (PPUC) -- before they can increase their rates. This oversight ensures that York isn't being exposed to potentially volatile or uncertain rates.
I'll also add that York Water received approval from the PPUC in January 2023 to increase rates on many of its customers following $176 million in infrastructure investments. The expectation is that this rate hike will increase its annual revenue by $13.5 million. For context, York generated $60 million in sales last year.
Lastly, York Water is, arguably, the greatest dividend stock on the planet that virtually no one knows about. While its 1.8% yield isn't much to write home about, it holds the longest streak of consecutive payouts to investors among publicly traded companies. In 2023, York is paying a dividend for the 207th consecutive year.
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AstraZeneca
The third exceptionally safe dividend stock that can turn a $400,000 investment into $1 million, including dividends, by 2030, is pharmaceutical-giant AstraZeneca (AZN 1.03%).
Healthcare stocks aren't quite on par with utility stocks as basic necessities -- but they're pretty darn close. As much as we'd like to avoid getting sick when it's not financially convenient, we don't get to make that decision. No matter how well or poorly the U.S. and global economy perform, demand for prescription drugs doesn't change much. This is one reason Big Pharma stocks can produce such consistent profits and operating cash flow.
Following two decades of rather ho-hum growth, AstraZeneca's well-diversified brand-name drug portfolio is knocking it out of the park. In particular, oncology and cardiovascular are two areas of focus growing by double digits, excluding currency movements.
Growth in oncology can be attributed to four blockbusters (Tagrisso, Imfinzi, Lynparza, and Calquence), while the strong performance in cardiovascular is due mostly to a 56% constant-currency year-over-year increase in sales for next-gen type 2 diabetes drug Farxiga. Though Tagrisso is AstraZeneca's top-selling drug ($5.44 billion in 2022), Farxiga's growth rate may soon change that (it generated $4.38 billion in sales last year).
In addition to internal development, AstraZeneca made a wise decision to acquire ultra-rare-disease drug developer Alexion Pharmaceuticals in July 2021. While it can be costly and time-consuming to develop treatments for small pools of patients, approved rare-disease drugs rarely have any competition and typically face no pushback from health insurers on list pricing.
What makes this acquisition even smarter for AstraZeneca is that Alexion had developed a next-generation treatment to replace its blockbuster drug Soliris. This next-gen treatment, known as Ultomiris, can slowly but steadily gain new label indications over time and secure more than $5 billion in annual product sales. Thanks to Ultomiris, Soliris' eventual loss of sales exclusivity won't cripple AstraZeneca's rare-disease cash flow.
AstraZeneca has every opportunity to outpace its Big Pharma peers on the growth front through the remainder of the decade. With a market-topping 3% dividend yield to boot, it looks like it has all the tools and intangibles needed to deliver for long-term investors.
