Investors who find themselves awake at night thinking about their portfolios, fear not. I am too.
The reality is that there are many red flags that have popped up in recent years that have now become too hard to ignore. Yes, inflation has come down from its 2022 peak, but it remains markedly above the Federal Reserves (notably arbitrary) 2% target. But it’s still elevated, at the same time that the jobs market has markedly weakened.
Accordingly, the path forward for interest has grown increasingly uncertain of late, and the gyrations I’ve seen in the bond market make me shiver.
But I still take the view that over the medium-term interest rates will more likely be lower than higher from here.
Coca-Cola (KO)
Any stock Warren Buffett has held for decades is one I’d think is about as stable as they come. As it turns out, Coca-Cola (NYSE:KO | KO Price Prediction) remains a staple of his portfolio, with the Oracle of Omaha originally purchasing his position way back in 1988. That’s a long time to hold a given stock, but that’s Warren Buffett’s investing style (and it’s one I’d certainly like to emulate).
As is the case with many of Buffett’s picks, Coca-Cola has traditionally paid a rather hefty dividend yield, and that’s still true today. The company pays investors an annualized yield of approximately 3.1%, and this yield has spiked a bit higher of late thanks to a stock price dip over the course of the past few months.
Now, KO stock is still higher than where it was during the April-driven market selloff, and there are reasons why long-term investors may be enticed to buy this dip and the relatively higher yield the carbonated beverage giant provides investors right now.
I think the sheer amount of brand value Coca-Cola provides, as well as one of the most ardent and loyal customer bases, ensures revenue and earnings stability over time. Coca-Cola’s impressive balance sheet stability and its scale and size provide a defensive option for dividend investors looking to pull in a yield of more than 3% in this current environment.
Johnson & Johnson (JNJ)
In the healthcare sector, Johnson & Johnson (NYSE:JNJ) is one of the largest U.S. giants, well-positioned for long-term growth and stability. Again, in this market environment, that’s something many investors are going to want to look for – truly defensive dividend stocks.
With a 2.9% dividend yield, investors have the potential to not only create the kind of long-term passive income stream they’re looking for, but do so holding one of the most stable and consistent blue-chip growers in the S&P 500.
Of note, and one of the things I think many other analysts and market participants continue to gravitate toward when it comes to JNJ, is the company’s rock solid balance sheet and credit rating. I’ve actually seen a number of articles recently discussing how the yields on Johnson & Johnson’s corporate debt are lower than the U.S. government. In other words, investors would rather own this company’s debt than that of Uncle Sam. Says something about the stability of this company relative to the current macro backdrop we find ourselves in.
That said, given the yield investors can get on JNJ stock right now, the clear choice appears to be this company’s equity. Those thinking long-term can’t go wrong with this pick in my view, at least over a sufficiently long time frame.
Fortis (FTS)
One of my more unique dividend picks I continue to pound the table on is a lesser-known utility company in Fortis (NYSE:FTS). That’s partly because this utility company is based in Canada, where it generates the vast majority of its revenue and earnings.
However, in a world that is likely to be significantly reshaped by the rise of AI, one thing most investors can agree on is that we’re going to need a lot more energy. Fortis’ business model in providing electricity and natural gas utilities to millions of commercial and residential customers is one that’s about as steady as they come.
And with a more than five-decade-long track record of hiking its dividend, Fortis is among the best options for investors seeking not only a robust and consistent passive income stream, but one that can grow and (hopefully) keep up with inflation over time.
That’s the trick isn’t it – finding such companies that provide stable passive income, but also some level of inflation protection (with capital appreciation upside if this spending cycle continues). Fortis offers the best mix of all three, in my view.
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