Three Dividend Stocks for Risky Times
Dangers loom large as wars rage on, tariffs are threatened and trade battles are likely. Here are a few names to find financial safety.
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The U.S. stock market has performed well over the past year, but plenty of risks remain. Ongoing wars around the world have resulted in elevated geopolitical dangers, while potential political pitfalls are also present amid threats of heavy tariffs and a likely looming trade war.
In times of elevated risk, it makes sense for income investors to pursue recession-proof names. One strategy is to invest in dividend stocks with the best chances of continuing to raise their payouts irrespective of market conditions.
We believe the following three dividend stocks will outperform during dangerous times:
Charge Ahead With Consolidated Edison
Consolidated Edison ED is a holding company that delivers electricity, natural gas, and steam to its customers in New York City and Westchester County. The company has annual revenues of nearly $16 billion. Consolidated Edison announced in January that it was raising its quarterly dividend 2.5% to $0.83. This is the company’s 50th annual increase, qualifying Consolidated Edison as a Dividend King.
Consolidated Edison reported earlier this month third-quarter results for the period ending Sept. 30. For the quarter, revenue improved 5.7% to $4.1 billion, which topped estimates by $26 million.
Adjusted earnings of $583 million, or $1.68 per share, compared to adjusted earnings of $561 million, or $1.62 per share, in the previous year. Adjusted earnings-per-share were $0.10 more than anticipated. As with prior periods, higher rate bases for gas and electric customers were the primary contributors to results in the CECONY business, which accounts for the vast majority of the company’s assets.
Once again, the denial of approval to capitalize costs related to the implementation of the new customer billing and information systems was a headwind to results. Average rate base balances are still expected to grow by 6.4% annually for the 2024 to 2028 period, up from 6% previously. Consolidated Edison continues to expect capital investments of nearly $28 billion for the 2024 to 2028 period.
We now expect that Consolidated Edison will earn $5.34 in 2024, up from $5.30 previously. The company expects 5% to 7% earnings growth from 2024 levels through 2028.
Thanks to rate hikes and population growth, the company has been able to raise its dividend for nearly five decades. Consolidated Edison initiated its biggest investment program in its history last year. It has completed its installation smart meters in its network.
This will help customers optimize energy use while the company will be able to realize lower peak demand and thus reduce its operating costs.
Safe Shopping: Walmart Inc.
Walmart WMT traces its roots back to 1945 when Sam Walton opened his first discount store. The company has since grown into the largest retailer in the world, serving more than 230 million customers each week. Revenue should be around $668 billion this year and the stock trades with a market capitalization of $701 billion.
Walmart posted third quarter earnings on Nov. 19, and results were better than expected on both the top and bottom lines. Adjusted earnings per share came to 58 cents, which was a nickel ahead of estimates, or almost 10%.
Revenue was up 5.5% to $170 billion, which beat estimates by almost $3 billion. Comparable sales in the U.S. were up 5.3%, 150 basis points better than expected. Transactions were 3.1% higher during the quarter, while average ticket was up 2.1%.
E-commerce sales rose 27% during the quarter and was responsible for more than half of the total comparable sales gain. Sam’s Club saw 7% higher comparable sales, far ahead of estimates and a departure from recent years where that chain trailed the core Walmart brand.
The advertising business also saw 28% higher revenue during the quarter. Operating income was up 8.2% year-over-year on higher gross margins and growth in membership income. Free cash flow was $6.2 billion, while inventory was down 1% year-over-year to $63.3 billion.
The largest concern for Walmart is operating margins, as gross margins have remained flat while operating expenses have risen in recent quarters. This is the product of Walmart’s focus on building out its online business as well as integrating its acquisitions.
Looking forward, we are forecasting 11% annual earnings growth for the next five years as Walmart continues to work through its margin issues and caution on consumer spending. The company continues to buy back stock as well. We see low single-digit sales growth each year, with its e-commerce business being the primary driver of top line growth.
Walmart has increased its dividend for 51 consecutive years, making it a new member of the prestigious Dividend Kings.
Iconic Investment: The Coca-Cola Company
Coca-Cola KO is the world’s largest beverage company, as it owns or licenses more than 500 unique non-alcoholic brands. Since the company’s founding in 1886, it has spread to more than 200 countries worldwide. Its brands account for about 2 billion servings of beverages worldwide every day, producing about $46 billion in annual revenue.
Coca-Cola posted third quarter earnings on Oct. 23, and results were better than expected on both revenue and profits. The company saw adjusted earnings-per-share of 77 cents, which was two cents better than estimates.
Revenue was off fractionally year-over-year to $11.9 billion, but did beat estimates by $290 million. Organic revenues were up an impressive 9%. That included 10% growth in price and mix, a 2% decline in concentrate sales, and a 1% gain in case volumes.
Organic revenue was 2.7% better than consensus estimates, led by gains in Latin America (+24%) and North America (+12%). Price and mix were the primary contributors to higher organic revenue, rather than volume. Consolidated operating margins were 30.7% of revenue, up 100 basis points a year ago.
Moving forward, we are forecasting 6% annual EPS growth. Volume had been improving and pricing is strong, which could mean low single-digit revenue growth as conditions normalize. In addition, job cuts and other productivity measures produced very strong margin growth in recent years, and we see this as a long-term tailwind.
The company also has an exceptional 62-year dividend increase streak, making it a Dividend King. The payout ratio has been in the mid-70% range for the past few years but is below that now with rising earnings. Dividend growth will remain a priority for management, and we see the payout as safe, with room to grow.
At the time of publication, Ciura had no position in any stock mentioned.