Over the years, at 24/7 Wall St. we have stressed the importance for investors to own dividend-paying stocks, and with good reason. Dividends are crucial to total return, which over time has been a key ingredient for investment performance. They are also very important in a bear market scenario as they can tamp down losses when stocks sell off.
We like to remind our readers about the impact total return has on portfolios because it is one of the best ways to help improve the chances for overall investing success. Total return is the combined increase in a stock’s value plus dividends. For instance, if you buy a stock at $20 that pays a 3% dividend, and it goes up to $22 in a year, your total return is 13%: 10% for the increase in stock price and 3% for the dividends paid.
Incredibly, in this recent volatile market, which has made double-digit moves up and down, some of the top companies actually are raising their dividends. This is unusual in a time when many are cutting or even eliminating dividends to preserve cash flow and liquidity. We found four Buy-rated blue-chip large-cap leaders that have all recently raised the dividend payouts to investors.
Costco
This company has become the ultimate destination for the American consumer and has been besieged by shoppers since the coronavirus outbreak surfaced. Costco Wholesale Corp. (NASDAQ: COST) has a unique business model. It operates membership warehouses and it buys the majority of its merchandise directly from manufacturers, essentially cutting out the middleman. Costco sells in bulk but also at a lower price, thus fueling its rapid growth.
Costco remains one of the few conventional retailers where metrics like store traffic, market share gains and a validated model could bode well for international growth and expansion. The company is largely unharmed by e-commerce, and it continues to add stores in strategically mapped out locations. It is among America’s most popular stores for grocery shopping.
Wall Street loves the company’s pricing authority on key items and the leading merchandising offerings, and the relatively new Costco co-branded card with Visa is a real positive. Add in the company’s growing online presence and the future looks bright.
Costco shareholders recently were treated to an increase of the dividend to $0.70 a share from $0.65, which translates to a 0.85% yield. Merrill Lynch analysts have their price target set at $350. The Wall Street consensus price objective is $323.67, and Costco Wholesale stock closed trading on Thursday at $321.
Johnson & Johnson
With a diverse product base and very popular and solid brands, this is among the most conservative big pharmaceutical plays. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and will raise the dividend for shareholders this year for the 56th consecutive year.
With everything from medical devices to over-the-counter health items and prescription drugs, Johnson & Johnson remains one of the most diversified health care names on Wall Street. It is also among the top companies helping Americans to fight the COVID-19 pandemic.
The health care giant also has one of the most exciting pipelines of new drugs in the sector. That combined with the solid over-the-counter product business makes the stock an outstanding holding for conservative accounts with a long-term investment outlook. The company generates a little over half of its sales in international markets, which are expected to see higher spending on health care over the next 10 years and beyond.
The dividend jumped from $0.95 per share to $1.01, which equals a 2.74% yield. The Goldman Sachs price target of $173 is well above the consensus target of $160.06. Johnson & Johnson stock closed trading at $149.67 on Thursday.
McCormick
Those who spend time cooking in the kitchen use the products this company makes all the time. McCormick & Co. Inc. (NYSE: MKC) manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry.
The company’s Consumer segment offers spices, herbs and seasonings, as well as desserts. This segment markets its products under the McCormick, French, Frank’s RedHot, Lawry’s, Gourmet Garden, Club House, and OLD BAY brands in the Americas; Ducros, Schwartz, Kamis, Drogheria & Alimentari, and Vahiné brand names in Europe, the Middle East and Africa; McCormick and DaQiao brands in China; and McCormick, Aeroplane and Gourmet Garden brand names in Australia. It also markets regional and ethnic brands, such as Zatarain’s, Stubb’s, Thai Kitchen and Simply Asia.
The company also supplies its products under the private labels. This segment serves retailers, including grocery, mass merchandise, warehouse clubs, discount and drug stores and e-commerce retailers, directly and indirectly through distributors or wholesalers.
The company raised the dividend to $0.62 per share from $0.57. That now equals a 1.63% yield. The $155 CFRA price target compares with a much lower consensus target of $134.30. McCormick stock closed trading most recently at $155.42 per share.
Procter & Gamble
The company offers a very solid dividend, which was just raised to $0.79 from $0.75 a share. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies, and it operates in five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby & Family Care. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.
The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.
The increased dividend to shareholders translates to a 2.61% yield. The Merrill Lynch price objective is $135, and the posted consensus target price is $126. Procter & Gamble stock was last seen trading at $121.55 a share.
These four top companies are raising dividends into one of the most unpredictable and volatile markets we have seen in years. For investors looking for ideas, these are all incredible companies that should be able to maintain sales during this difficult time.
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