This is no longer our grandparents’ or even parents’ stock market. High valuations have become the norm in an investing world dominated by retail traders. But when market volatility is high and economic uncertainty is on the rise, your best bet is to invest in mega-cap stocks.
Why? Well, although there are no guarantees in the stock market, you can rest easy when you have invested in a large enterprise. That’s because they offer strong price momentum, excellent dividends and a stable long-term outlook.
So, with that in mind, this list will provide seven mega-cap stocks that offer all these things and more. During times like these, it cannot hurt to fireproof your portfolio with these kinds of mature companies.
Yes, these investments might not result in triple-digit gains. But you will rarely have headaches or sleepless nights when investing in mega-cap stocks.
- Fifth Third Bancorp (NASDAQ:FITB)
- Realty Income (NYSE:O)
- McDonald’s (NYSE:MCD)
- Automatic Data Processing (NASDAQ:ADP)
- Goldman Sachs (NYSE:GS)
- Disney (NYSE:DIS)
- Lowe’s (NYSE:LOW)
Fifth Third Bancorp (FITB)
Trailing 12-month (TTM) dividend yield: 2.84%
A $26 billion midwestern and mid-Atlantic bank, Fifth Third Bancorp is one of the best dividend-paying mega-cap stocks out there. Headquartered in Cincinnati, this company has over $200 billion in assets and is one of the largest locally based banks in the United States.
Due to its impressive scale, the bank managed quite well during the novel coronavirus pandemic. According to CNBC data, Fifth Third has beat earnings estimates for the last four quarters.
Most recently, Fifth Third Bancorp’s second-quarter earnings more than quadrupled from the year-ago period, which was smack dab during the middle of the pandemic. That handily outpaced analysts’ estimates. Moreover, the company earned 94 cents per share, up significantly from just 23 cents in Q2 2020. FITB also forecasts full-year fee income to jump from 2020 while net interest income should dip slightly. Commenting on the results, CEO Greg Carmichael said the following:
“We are well-positioned to benefit when interest rates rise and well-hedged if rates remain at low levels for several more years.”
Fifth Third plans to hike its quarterly distribution by 3 cents per share in September. For more than ten years, the company has lifted the FITB stock dividend consistently as well.
Realty Income (O)
TTM dividend yield: 3.96%
Next up on this list of mega-cap stocks is Realty Income. Real estate investment trusts (REITs) are always a favorite of income investors due to the 90% rule. According to the U.S. Securities and Exchange Commission (SEC), “To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.”
However, every REIT is different due to the property type in which they invest. The sole exceptions are diversified and specialty REITs, which may hold different types of properties in their portfolios. That said, Realty Income “focuses on acquiring freestanding, single-client properties under long-term, net lease agreements.”
Due to its diversified strategy, the company was able to weather the novel coronavirus pandemic quite well. In fact, this company’s top tenants include health clubs like LA Fitness and Lifestyle Fitness and movie-theater chains like AMC Entertainment (NYSE:AMC). That’s a testament to Realty Income’s resilience — it maintained dividend hikes while surviving a particularly awful time in its history.
As of this writing, Realty Income has made 614 consecutive monthly dividend payments. Now, with the economy whirring back to life, the chances of O stock’s streak being broken are close to zero.
TTM dividend yield: 2.14%
Nevertheless, taking McDonald’s lightly would be a huge folly. Over the last year, the fast-food giant did reasonably well due to its existing drive-thru capability and enhanced delivery options. Revenue at MCD dropped about 9% last year and earnings slipped over 20%.
Considering the impact of the pandemic, these statistics are very respectable. Plus, most recently, the fast-food giant topped Wall Street’s estimates in reporting its Q2 earnings and revenue. According to CNBC, “U.S. same-store sales climbed 25.9% in the quarter and 14.9% on a two-year basis.”
According to the company, these strong sales are because of its new chicken sandwich and promotional campaign with a K-pop group called BTS. The fast-food giant reported a net income of $2.22 billion, or $2.95 per share, up from $483.8 million or 65 cents per share in the prior year. MCD also raised its full-year forecast, now expecting “systemwide sales growth in the mid-to-high teens.” For Q3, the company predicts same-store sales growth in its five largest global markets to beat 2019 levels as well.
For more than ten years, this company has also hiked its dividend consecutively. True, at 57.13%, the payout ratio might seem high. But this is McDonald’s we are talking about. It’s not like this pick of the mega-cap stocks will run out of cash anytime soon.
Automatic Data Processing (ADP)
TTM dividend yield: 1.75%
Next up on this list of mega-cap stocks, Automatic Data Processing is a payroll processor that also offers other human resources services. The company was founded in 1949 and is headquartered in New Jersey.
This company is one of the best large-cap dividend stocks out there; ADP has a five-year dividend growth rate of 12.89%. It also has an enviable record of increasing its annual distribution consecutively over the last ten years.
Despite a tough year, ADP managed quite well during the pandemic. In fiscal 2020, net earnings rose by about 8% and revenue increased by 3%. However, these numbers are muted compared to the year-ago period. The wild swings in employment rates undoubtedly impacted how many payrolls and other programs the company could offer its customers.
That said, the last four quarters highlight how the recovery has greatly aided ADP stock. This company has beat expectations every time and, although the year-over-year (YOY) comparisons aren’t flattering due to Covid-19, the numbers are still impressive.
This name’s payout ratio is a bit high at 56.12%. But that should not be a problem, considering a stronger job market in 2021. That should help ADP expand its distribution once more.
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