There is a balance in the dividend space between high yield and sustainability of dividends. Ultimately, it is more important to find stocks that can continue to pay – and hopefully increase – their dividends than to seek high yields that are ephemeral because they are backed by dividends that may shorten. If you want to add a few good dividend names to your portfolio, these three Motley Fool contributors think you'll want to check out the biotech Gilead Sciences (NASDAQ: GILD) telecom giant Verizon 19659003] (NYSE: VZ) and Consumer Product Specialist Procter & Gamble (NYSE: PG) .
Stellar Income Opportunity
George Budwell (Gilead Sciences): The sciences in Gilead may no longer be the high-growth game that was earlier this decade, but biotechnology has become the highest income and value stocks in recent years. The stock currently offers a yield of 3.9% and trades at the bottom of the scale 9.2 times for next year's earnings. This is a pretty attractive package for any biotech blue chip.
The best part, though, is that Gilead needs to be able to continue growing its dividend at a healthy pace for the foreseeable future. In addition to the fact that it reported a monstrous $ 30.2 billion in cash, cash equivalents and traded debt securities at the end of the most recent quarter, the mega blockbuster against HIV drug Biktarvy, and the experimental anti-inflammatory drug filgotinib, are also expected. big winners for the company over the next decade.
For example, Biktarvy is expected to reach as much as $ 7 billion in sales immediately after 2024, according to a report by EvaluatePharma. Filgotinib succeeded in producing $ 6.5 billion in sales early next decade, depending on how the anti-inflammatory drug market is eventually consumed. Taken together, these two high value medicines should be able to provide the kind of free cash flow needed to maintain and increase Gilead's dividend for years to come.
Huge entry barriers protect this dividend
Brian Stoffle (Verizon): I own exactly zero shares because of their dividend. This makes sense since investing income does not fit my approach for more than three decades until it hits its golden years. That said, if I were to retire tomorrow, I would definitely put some of my portfolio in Verizon.
There are several big reasons for this. First, dividend has been a constant source of income for a long time. The company has not missed a dividend payment since its first payment on March 20, 1984 – back when it was known as Bell Atlantic. It also raises its dividend for 14 consecutive years.
Equally important, even if the company does not increase its dividend, it already yields 4.3%. This is a huge payoff for the investment world, which sees negative interest rates spread across Europe.
He can afford that payout because he raised $ 17 billion in free cash flow over the last year. Of these, about 59% were used to pay the dividend. This is a very healthy ratio: This means that Verizon still has the potential for sustainable dividend growth if the business is going well and should be able to continue its current payout if the business stagnates.
Perhaps most important, however, is Verizon's competitive position. There are major barriers to entry into telecoms. Billions of dollars are needed to build mass connectivity infrastructure and this is a highly regulated industry. With the largest market share of mobile subscribers and its status as the first to market 5G technology, I think Verizon is a great bet for dividend investors.
Ruben Greg Brewer (Procter & Gamble): You know the names that the consumer products giant is selling to Procter & Gamble, including the iconic Bounty, Tide and Crest brands (among many others) ). Most of its products are daily necessities, so they are bought in good times and bad. This provides P&G with a solid revenue base from which to pay dividends. And with long-term debt at a reasonable 30% of the capital structure, there's no reason to worry about the company's balance sheet.
This is the foundation on which P&G has built over six decades a series of annual dividend increases. There is no reason to doubt that this may continue to pay investors year after year. But what this big picture lacks is probably the most important piece of the puzzle: P&G is a brand manager. This means that it buys and sells brands over time to ensure that the best portfolio of investor-friendly assets is available.
That doesn't always make the mixture right, but it has done quite well over time. The most recent change is a great example. In 2016, she sold more than 40 beauty brands to Coty (NYSE: COTY) . This has allowed P&G to focus on its best beauty brands, which have a solid track record of success. Meanwhile, Coty is struggling to make the acquisition worthwhile.
P&G is performing quite well today and the stock has come together strongly this year. It is not cheap, but 2.5% yield is higher than what you would get from the S&P 500 index. And you should be able to count on paying out and increasing your dividend for years to come. For conservative investors who want to add a little diversification to their portfolios, it's still worth the plunge.