When it comes to income investing, we think investors should look for blue-chip stocks that have a few key features that go beyond the ordinary dividend stock. In particular, we prefer dividend stocks that have the ability to grow their payouts over time, as well as those that have very safe and reliable payouts, even during recessions.
Dividend safety is especially important when stock prices are falling. Many companies cut their dividend payouts in 2020 during the coronavirus pandemic, particularly in the retail and energy sectors. In this article, we’ll take a look at three blue-chip stocks we think offer investors the best combination of dividend growth potential and dividend safety.
The three blue-chip stocks on this list all provide investors with world-beating dividend increase streaks. Their long histories of annual dividend growth are the result of resilient profits during recessions, diversified business models, and management teams that are willing and able to return cash to shareholders.
For these reasons, these blue-chip stocks that offer very strong dividend safety, and consistent dividend growth for many years to come:
Blue-Chip Stocks: The Colgate-Palmolive Company (CL)
Colgate-Palmolive was founded more than 200 years ago, so it certainly has stood the test of time. When evaluating a buy-and-hold dividend stock, this characteristic is quite attractive.
Colgate operates in a number of consumer staple markets, which are segmented into Oral Care, Personal Care, Home Care, and Pet Nutrition. Colgate has carefully curated a portfolio of products that are used every day by consumers all over the world, including its famous toothpaste.
Colgate generates more than $16 billion in annual revenue, and trades with a $66 billion market capitalization. Colgate is a strong dividend pick because it offers investors recession resilience, a reasonable payout ratio, a world-class dividend increase streak, and the ability to grow the dividend for many years to come.
Colgate sells consumer staples, which are recession-resilient. Staples by their very nature are things consumers buy irrespective of economic conditions. This affords Colgate steady and growing profits over time. It also has afforded Colgate a dividend increase streak of 57 years, making it a Dividend King, a group of stocks with 50+ consecutive annual dividend increases.
Despite this streak of increases, Colgate’s payout ratio is just over 50% of earnings. As a result, the payout is not only very safe, but the company also has a long runway to continue raising the dividend for many years to come.
Colgate has raised its payout at an average rate of ~4.4% per year in the past decade, so it is providing meaningful growth for dividend investors. Colgate should have little trouble raising its dividend each year going forward, even in a deep recession.
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