The Timely Ten represents our top ten recommendations from the Undervalued category each month, asse...
Dividend Expert's Three Safe Investments
11/28/2018 5:00 am EST
It may feel like the sky is falling. But not everything is going down. Here are three great safe investments that have actually gone up over the past month, asserts Chloe Lutts Jensen, editor of Cabot Dividend Investor.
Founded in 1889, McCormick (MCK) sells grocery products including spices, condiments, oils, broth, recipe mixes, salad dressings, baking ingredients and more. The company’s brands include McCormick, Old Bay, Zatarain’s, Thai Kitchen, Club House and Lawry’s. Last year, McCormick acquired the French’s and Frank’s RedHot brands from Reckitt Benckiser.
Consumer products make up about 62% of sales. The rest are to foodservice and food and beverage companies. In addition to commercial versions of the above products, McCormick makes “custom flavor solutions” for food companies, like “mushroom flavor” or the powder that can make potato chips taste like bacon.
Groceries and ingredients are stable, counter-cyclical businesses. Economic slowdowns and stock market corrections don’t have much of an impact on how much pepper or hot sauce people buy. That means McCormick’s income stream is very stable, and revenues have risen steadily in each of the past ten years.
EPS declined slightly in 2013 and 2015, but grew in every other year, often by double-digits. Analysts expect McCormick’s earnings to grow another 17% this year and 8% next year, supported by 13% and 3% revenue growth. Longer-term, analysts expect EPS growth to average 11% per year over the next five years.
McCormick’s steady revenue stream translates into equally steady dividend payments: the company has paid dividends since 1925, and has increased the dividend every year for 31 straight years (making it Dividend Aristocrat. Over the past decade, McCormick has increased the dividend by an average of 9% per year. The stock currently yields 1.4%. That makes MKC a great safe investment to own when the market environment is uncertain.
Ecolab (ECL) is a Dividend Aristocrat, with a 32-year history of dividend growth. The company currently pays a dividend of 41 cents per share each quarter, for a yield of 1.0%. Ecolab’s stable little market niche is selling cleaning products and other chemicals to the industrial, food service, hospitality and health care industries.
Ecolab products are used to clean everything from oranges to operating rooms, although wastewater treatment—at factories, power plants, laundries and more — is probably the company’s biggest market. Ecolab also provides services, like training hospital workers how to prevent infections. Ecolab’s technologies are indispensable to those who use them, and the company is the undisputed leader in the space, so revenues are very stable.
The vast majority of revenues are recurring, and cash flow is rock solid. Over the past five years, EPS have increased by an average of 10% per year. Analysts expect EPS to rise another 12% this year, followed by 13% growth next year. That makes the stock a reliable choice in challenging markets; ECL is up 5% over the past month and close to all-time highs.
And in addition to capital gains, ECL investors can count on a reliable stream of dividend income. Ecolab came public in 1957 and began paying a dividend in 1986. The company increased the dividend by 7% the next year, and has continued to increase the dividend every year since then.
Utilities have a reputation as “widow and orphan stocks” because of their low volatility and unparalleled record of long-term dividend payments.
In addition to steady cash flow and reliable dividends, NextEra Energy (NEE) also offers exposure to one of the fastest-growing industries in the U.S.—renewable energy. The company is one of the largest producers of renewable energy in the world, with wind and solar installations in 35 states and Canada.
The company also operates sites where energy is stored in batteries, and a few natural gas pipelines and nuclear plants.That makes NextEra unusually fast-growing for a utility: the company is expected to deliver 2019 revenue and EPS growth of 9% and 8%, respectively. And the company’s debt load is reasonable.
The stock is in a steady, long-lived uptrend, and is trading near 52-week highs. During the past month’s correction, NEE has gained 3%. The stock currently yields 2.5%, and NextEra has a track record of annual dividend increases going back eight years and a reasonable payout ratio of 57%.
Related Articles on DIVIDEND
An investor recently asked us if we could help him get a solid dividend portfolio set up to kick off...
Investors looking for high dividend yields should consider the telecommunications sector. Telecoms b...
Convertible bonds, which have been ignored by investors and Wall Street for years, may be worth a fr...