2020 Blue Chip Stocks List | 260+ Safe High Quality Dividend Stocks Sure Dividend

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2020 Blue Chip Stocks List | 260+ Safe High Quality Dividend Stocks


Updated on May 12th, 2020 by Bob Ciura

Spreadsheet data updated daily

In poker, the blue chips have the highest value. We don’t like the idea of using poker analogies for investing. Investing should be far removed from gambling.

With that said, the term “blue chip” has stuck for a select group of stocks….

So what are blue chip stocks?

Blue chip stocks are established, safe, dividend payers. They are often market leaders and tend to have a long history of paying rising dividends. Blue chip stocks tend to remain profitable even during recessions.

At Sure Dividend, we define Blue Chip stocks as companies that are members of 1 or more of the following 3 lists:

You can download the complete list of all 260+ blue chip stocks (plus important financial metrics such as dividend yield, P/E ratios, and payout ratios) by clicking below:

 

Click here to download your Excel spreadsheet of all 260+ blue chip stocks, including metrics that matter like dividend yield and the price-to-earnings ratio.

In addition to the Excel spreadsheet above, this article covers our top 10 best blue chip stock buys today as ranked using expected total returns from the Sure Analysis Research Database.

Our top 10 best blue chip stock list excludes MLPs and REITs. We also cover the 10 highest-yielding blue chip stocks in this article, excluding MLPs.

The table of contents below allows for easy navigation.

Table of Contents

 

Looking for even more information and ideas for blue chip stocks? Watch the video below.

 

The spreadsheet and table above give the full list of blue chips. They are a good place to get ideas for your next high quality dividend growth stock investment…

Our top 10 favorite blue chip stocks are analyzed in detail below.

The 10 Best Blue Chip Buys Today

The 10 best blue chip stocks as ranked by expected total return from The Sure Analysis Research Database (excluding REITs and MLPs) are analyzed in detail below. In this section, stocks were further screened for satisfactory Dividend Risk score of ‘C’ or better.

#10: Ameriprise Financial (AMP)

Ameriprise Financial operates in the financial sector. It is an asset manager, with a market capitalization of approximately $13 billion, with nearly 10,000 employees and $921 billion in assets under management. Ameriprise Financial’s operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection (insurance products).

Ameriprise Financial released earnings results for the first quarter on 5/6/2020. The company’s adjusted earnings-per-share increased 44% to $5.41, which was $1.48 above estimates. Revenue decreased 3.8% to $3 billion, though this was $140 million above estimates. Adjusting for the sale of the Auto & Home insurance business in fourth quarter 2019, revenue increased 4%.

Source: Investor Presentation

Advice & Wealth Management had total client assets of $560 billion, a 5% decrease from the previous year. Adjusted operating earnings for this segment increased 8% due to strong client activity and higher average equity markets that were only partially offset by lower short-term interest rates.

Net revenue was up 9% to $1.7 billion for the quarter. Asset Management’s adjusted operating earnings improved 7.5% to $157 million due to higher average equity markets. Adjusted operating earnings for the Annuities & Protection decreased 2% to $93 million due to net outflows.

Ameriprise Financial raised its dividend by 7%, and the company retired 2.5 million shares of stock during the quarter. The company is now expected to earn $15.01 for the year, down from $17.90 previously.

Ameriprise Financial’s biggest competitive advantage is its brand strength within the asset management industry. Strong financial performance is critical to retaining and growing its assets under management. That said, Ameriprise Financial is not immune to recessions. Ameriprise’s earnings-per-share declined 13% from 2007-2009, during the Great Recession. Fortunately, the company snapped back in 2010 with 42% earnings growth.

Ameriprise’s future growth will be derived from rising AUM and share repurchases. We expect 8% annual EPS growth through 2025. The stock is also undervalued, with a 2020 P/E of 8.3 compared with our fair value estimate of 11.5. The combination of 6.7% annual return from an expanding P/E multiple, 8% expected EPS growth, and the 3.6% dividend yield fuels expected annual returns of approximately 18.3% through 2025.

#9: Leggett & Platt (LEG)

Leggett & Platt was founded all the way back in 1883. Today, it is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products. Consumer durables account for 55% of the company’s market exposure, followed by commercial/industrial at 25% and automotive at 20%.

Source: Investor Presentation

Bedding makes up approximately 46% of the company’s product mix, its largest market by far, which is a long-term opportunity for the company. According to Leggett & Platt, the U.S. bedding industry is a $10 billion (and growing) market.

The company reported first-quarter financial results on May 4th. Revenue of $1.045 billion fell 9% year-over-year, as organic sales declined 12% consisting of 9% volume declines, a 3% negative impact from divestitures, and a negative 3% impact from selling price decreases and unfavorable currency fluctuations. These declines were partially offset by a 3% positive contribution from acquisitions. Adjusted earnings-per-share fell 16% to $0.41 from the same quarter last year.

Leggett & Platt is not immune from a recession. As a global manufacturer, the company’s financial results are closely tied to the health of the global economy. The company will see at least some impact if the economy enters a recession in 2020, which seems likely. That said, the company was barely impacted by the Great Recession of 2008-2009, as it registered continued growth and remained highly profitable thanks to its global scale and strong business model. Leggett & Platt’s earnings-per-share actually increased by 1% in 2009, and 55% in 2010.

Of course, no two recessions are exactly alike, and the company has seen a significant impact from the coronavirus. Leggett & Platt stated it will make a dividend decision at its May board meeting. Therefore, investors should consider the risk of a dividend cut.

If the company keeps the dividend intact, investors collect a 5.6% dividend yield at the current share price. In addition, we view the stock as undervalued. Based on expected EPS of $2.50 for 2020, shares trade for a P/E of 11.4. Our fair value estimate is a P/E of 16, meaning returns from an expanding P/E multiple could reach 7.0% per year. In addition to the 5.6% dividend yield and 6% expected EPS growth, total returns are expected to reach 18.6% per year over the next five years.

#8: Bank of Montreal (BMO)

Bank of Montreal was formed in 1817, becoming Canada’s first bank. The past two centuries have seen Bank of Montreal grow into a global powerhouse of financial services and today, it has about 1,500 branches in North America. Bank of Montreal produces about C$25 billion in revenue each year. At a high level, it generates about 60% of its earnings from Canada and about 32% from the U.S.

Note: As a Canadian stock, a 15% dividend tax will be imposed on US investors investing in the company outside of a retirement account. See our guide on Canadian taxes for US investors here.

The bank has exhibited strong growth in earnings and dividends over the past several years.

Source: Investor Presentation

Bank of Montreal posted fiscal Q1 2020 earnings results on 02/25/20. For the quarter, net revenue climbed 8% to C$6,031 million. Adjusted net income was C$1,617 million, up 5% year over year. Adjusted earnings-per-share also climbed 4% to C$2.41. BMO’s Canadian Personal & Commercial, Capital Markets, and Wealth Management businesses did well with year-over-year adjusted net income growth of 8% to C$700 million, 38% to C$362 million, and 21% to C$300 million, respectively.

The bank’s provision for credit losses ratio was 0.31%, up 18 basis points year over year but below the big Canadian banks’ average. We believe BMO continues to have a focus on prudent lending practices. The bank’s capital position remains quite strong with its common equity tier 1 ratio at 11.4%. Adjusted return on equity was decent at 13.5%.

Bank of Montreal’s earnings-per-share performance has been stable in the past decade. From 2010 to 2019, the bank increased its earnings-per-share by 4.5% per year, while its five-year earnings-per-share growth was 4.1%. We forecast earnings-per-share of roughly US$7.33 (a 3% growth) in fiscal 2020 and growth of 5% annually thereafter through 2025 given the expectation of an economic slowdown.

This rate of growth is fairly low partly also because BMO has been hitting records for earnings due to its high levels of profitability. However, we do see low single-digit revenue growth playing into our 5% forecast as well as a low-single digit tailwind from stronger margins, as well as buybacks. We expect ~5% annual EPS growth through 2025.

The company pays a current annual dividend of $4.24 in Canadian dollars, which equals $3.03 per share in U.S. dollars. This represents a 6.2% current dividend yield. The combination of expected EPS growth, dividends, and an expanding P/E multiple leads to expected total returns of 20.6% per year over the next five years.

#7: Prudential Financial (PRU)

Prudential Financial is a global financial institution with $1.5 trillion in assets under management. The company provides financial products including life insurance, annuities, retirement-related services, mutual funds and investment management.

On May 5th, 2020 Prudential released first quarter 2020 results. Prudential reported a net loss of $271 million, or $0.70 per share. After-tax adjusted operating income of $939 million or $2.32 per share, represented a year-over-year decline of 23%. Adjusted book value per share of $99.71 rose 3% year-over-year. Assets under management amounted to $1.481 trillion, up from $1.456 trillion at the same time last year.

You can see an image of Prudential’s core U.S. segment performance in the image below:

Source: Investor Presentation

From 2007 through 2019, Prudential grew earnings-per-share by approximately 4.0% per year. Moving forward we anticipate earnings growth to be in-line with the company’s historical average – coming in at 4% annually through 2025. Prudential has positive growth catalysts even if rates stay low. The majority of Prudential’s business is in the U.S. and Japan, both of which are mature markets with solid economic growth.

Earnings growth will also be aided by cost reductions and investment in growth initiatives. Last year, the company launched a process, talent, and technology transformation with expected $500 million of cost savings. Separately, in September 2019 Prudential acquired Assurance IQ for $2.35 billion, plus an additional payout of up to $1.15 billion if Assurance achieves multi-year growth targets.

Assurance is a high-growth direct-to-consumer platform that improves the consumer experience for those looking for health and financial wellness solutions. The acquisition gives Prudential exposure to digital solutions, a growing category within the health care and financial industries.

With expected EPS of $10.50 for 2020, Prudential stock trades for a P/E ratio of just 5.4. Our fair value estimate is a P/E of 8.0, meaning expansion of the P/E ratio could boost annual returns by 8.2% through 2025. Combined with 4% expected EPS growth and the 7.7% dividend yield, total returns could reach nearly 20% per year over the next five years.

#6: Canadian Natural Resources (CNQ)

Canadian Natural Resources is an energy company that operates in the acquisition, exploration, development, production, marketing, and sale of crude oil, natural gas liquids (NGLs), and natural gas. The company is headquartered in Calgary, Alberta, and the common stock is cross listed on the Toronto Stock Exchange and the New York Stock Exchange, where it trades with a market capitalization of US$16 billion.

On May 7th, Canadian Natural Resources reported first-quarter financial results. On a GAAP basis, Canadian Natural reported a C$1.28 billion net loss, or C$1.08 per share. The company swung to a loss compared with a C$961M profit, or C$0.80 per share, in the same quarter last year. Canadian Natural’s first-quarter average realized crude and natural gas liquids price fell by more than 50% to $25.90 per barrel. Production increased 14% year-over-year which helped partially offset lower prices.

As Canadian Natural Resources is an almost pure upstream company, its financial performance has been extremely volatile over the last decade. Given its high sensitivity to commodity prices, it is nearly impossible to make accurate forecasts. With that said, we believe the company’s performance is likely to improve considerably moving forward thanks to production growth and higher prices of oil and natural gas.

Canadian Natural Resources grew its proved reserves by 11% in 2019, to 10.99 billion barrels, and thus enhanced its reserve life index to 27.8 years. As this figure is more than twice as much as the average life of reserves of its peers (~11 years), it is impressive and certainly bodes well for the future growth prospects of the company. Canadian Natural Resources also has an investment-grade credit rating of BBB from Standard & Poor’s.

Management expects to grow production by 6% this year and by 7.5% per year on average until 2022. Thanks to the reliable production growth of the company and our expectations for higher oil prices in the upcoming years, we expect at least 5.0% average annual earnings-per-share growth over the next five years. For this year, we prefer to be somewhat conservative and have assumed earnings-per-share of $2.25 due to the suppressed commodity prices that have resulted from the outbreak of the coronavirus.

Including returns from a rising P/E multiple, EPS growth, and dividends, total returns could reach 20.6% per year, over the next five years.

#5: Bank of Nova Scotia (BNS)

Bank of Nova Scotia (often called Scotiabank) is the third-largest financial institution in Canada behind the Royal Bank of Canada (RY) and the Toronto-Dominion Bank (TD). Scotiabank reports in 5 segments – Canadian Banking, International Banking, Global Wealth Management, Global Banking & Markets, and Other.

Scotiabank reported fiscal Q1 2020 results on 02/25/20. Revenue increased 7% to C$8.1 billion over fiscal Q1 2019 thanks to a 2.8% gain in net interest income and 12.6% boost in non-interest income. This led to net income growth of 3.5% to C$2.3 billion year over year. On a diluted earnings-per-share basis, it was an increase of 7.6% to C$1.84. On an adjusted basis, earnings-per-share climbed 4.6%.

Source: Investor Presentation

Adjusted net income rose 5% supported by loan and deposit growth of 6% and 5%, respectively. On a constant dollar basis, International Banking segment saw adjusted net income falling 17% due to divested operations and tax benefits in Mexico in fiscal 2019.

Global Wealth Management saw adjusted net income growth of 11% to C$318 million due primarily to higher fee income, while adjusted net income climbed 35% to C$451 million for the Global Banking & Markets segment predominantly due to strong growth in trading-related revenue. The bank’s adjusted return on equity was 13.9%, an improvement from 13.7% year-over-year.

Despite slowing economic growth, we believe the bank is capable of growing EPS by 5% annually on average through 2025. The bank’s consistent organic and acquired revenue growth will likely drive the top and bottom lines higher in the long run. Scotiabank has a noticeably differentiated growth strategy when compared to its peers in the Canadian banking industry.

While other banks have focused on expanding into the United States, Scotiabank’s future growth should come primarily from its rapidly-expanding International Banking segment, which provides banking services in emerging economies like Mexico, Peru, Chile, and Colombia. These markets are appealing because net interest margins there are significantly higher and their longer-term economic growth is also higher.

Bank of Nova Scotia pays an annual dividend of $3.60 in Canadian currency; in U.S. dollars, the annual payout of $2.57 per share yields 6.7% right now. In addition to EPS growth and the impact of a rising P/E multiple, we expect total annual returns of 20.7% through 2025.

#4: Foot Locker (FL)

Foot Locker was established in 1974 as part of the F.W. Woolworth Company, and became independent in 1988. Today, Foot Locker is a major athletic apparel retailer, operating over 3,100 stores in 27 countries. The company generates annual revenue of $8 billion, and the stock has a market capitalization of $2.7 billion.

Foot Locker reported fourth-quarter and full-year financial results in late February. For the fourth quarter, sales of $2.2 billion declined 2.2% year-over-year, as comparable sales (which measures sales at stores open at least one year) declined 1.6%. That said, adjusted earnings-per-share increased 4% for the quarter, boosted by share repurchases.

For 2019, net sales grew 0.8% to a record of $8 billion. Comparable sales increased 2.2% for the year, while adjusted earnings-per-share increased 4.7% to $4.93. The company exhibited strong inventory management, as merchandise inventories were $1.21 billion at the end of the year, down 4% in constant currencies from the 2018 fourth quarter.

Foot Locker’s competitive advantage is in its valuable brand and leading position in retail athletic apparel. Moreover, Foot Locker’s strong balance sheet affords the company financial stability and the ability to invest in growth initiatives. Foot Locker ended 2019 with cash and cash equivalents of $907 million, compared with $122 million in debt on the balance sheet. The company’s total cash position, net of debt, was $18 million higher than at the same point last year.

Such a strong financial condition is a significant competitive advantage, particularly during recessions. During the Great Recession, Foot Locker’s earnings-per-share declined by 74% at their lowest, but earnings more than doubled in 2010, and by 2011 had fully recovered and reached a new high.

The business environment remains challenged for brick-and-mortar retailers such as Foot Locker. In response, Foot Locker has invested in its own direct-to-consumer platform. As a percentage of total sales, the direct channel represented 18.7% of total sales. International markets continue to be a source of strength, with low double-digit comparable sales growth in 2019. In all, Foot Locker expects comparable sales and earnings-per-share to be up in the low-single digit range for 2020.

Share repurchases are a separate driver of EPS growth. Thanks to Foot Locker’s strong profitability and excellent balance sheet, the company can opportunistically repurchase its own shares. In 2019, the company repurchased 8.4 million shares for $335 million. As the stock has a total market cap just above $3 billion currently, Foot Locker’s share repurchases are quite significant.

We expect 4% adjusted EPS growth over the next five years. Based on 2020 expected EPS of approximately $5.00, Foot Locker shares trade for a price-to-earnings ratio of 5.1. The stock trades below our fair P/E ratio of 9.0, meaning valuation changes could add 12.0% to Foot Locker’s annual returns through 2025. With a 6.2% dividend yield, we expect total returns above 22% per year over the next five years.

#3: Truist Financial Corporation (TFC)

Truist Financial Corp is a financial holding company in the U.S. and is the result of a merger-of-equals between BB&T and SunTrust Banks, completed in December 2019. Truist offers a wide range of financial services including retail and commercial banking, investments, insurance, wealth management, asset management, mortgage, corporate banking, capital markets and specialized lending. The holdings company has a market capitalization of $48 billion and boasts $473.1 billion in assets.

Source: Investor Presentation

The original bank, BB&T was founded in 1872, and today Truist is the 6th-largest US. commercial bank. Truist is based in Charlotte, NC and serves 10 million households, most of which are in high-growth markets of the country. BB&T had paid a cash dividend every single year to shareholders since 1903, and Truist continues this tradition.

TFC released first-quarter results on April 20th. Adjusted earnings-per-share declined 17% to $0.87 per share. Truist reported return on average assets (ROA) of 0.90%, an annualized return on average common shareholders’ equity (ROCE) of 6.58%, and an annualized return on tangible common shareholders’ equity (ROTCE) of 13.23%. Separately, the company added $893 million to its credit reserves in anticipation of future losses.

Despite the coronavirus crisis and the negative impacts on the U.S. economy, we expect long-term growth for TFC. Organic growth is expected through commercial and retail loan growth and fee income from their insurance segment, as well as returns on their investments in their digital platform. In addition, the company expects 3.0% to 3.5% growth from strategic initiatives and share repurchases in the medium-term. We expect 7% total annual EPS growth through 2025.

Shares of Truist trade for a 2020 P/E ratio of 7.7, based on expected earnings-per-share of $4.46. Our fair value estimate is a P/E ratio of 14, slightly below the 10-year average of 14.9. Multiple expansion could fuel 12.7% annual returns through 2025. In addition, 7% annual EPS growth and the 5.2% dividend yield result in total expected returns of 24.9%.

#2: Telus Corp. (TU)

Telus Corporation is one of the ‘big three’ Canadian telecommunications companies along with BCE, Inc. (BCE) and Rogers Communications (RCI). Telus is focused in Western Canada and provides a full range of communication products and services through two business segments: Wireline and Wireless.

Telus has taken swift action to prepare for the coronavirus. As a result, the company believes it has sufficient liquidity to weather the crisis.

Source: Investor Presentation

On May 7th, Telus reported 2020 first-quarter financial results. Operating revenue of $3.7 billion increased 5.4% from the same quarter a year ago. EBITDA increased 2.2%, or 4.2% adjusting for restructuring and other one-time costs. Growth was due to margin expansion in wireline data services, as well as higher wireless revenue from subscriber additions. Net income of $353 million decreased by 19% year-over-year, while adjusted earnings-per-share of $0.32 was down 16% year-over-year.

The company grew its earnings-per-share by 3.6% per year over the last decade. Moreover, thanks to the strong momentum of the company in wireless and wireline additions, we expect annual earnings-per-share growth rate of 4% over the next five years. Future growth will be fueled by the company’s competitive advantages.

Telus’ main competitive advantage comes from being an entrenched player in a capital-intensive and highly regulated industry. Indeed, according to Canada’s telecommunications regulator – the Canadian Radio-television and Telecommunications Commissions (CRTC) – the Top 5 telecommunications providers gather 85% of the industry’s revenues. This discourages potential competitors from entering the market and is a competitive advantage for Telus.

Shares currently trade for a 2020 P/E of just 7.5, based on expected adjusted EPS of $2.20 for 2020. Excluding the outlier year 2016, Telus stock traded at an average price-to-earnings ratio of 16.3 over the last decade, which we believe represents an approximation of fair value. If the stock reverts to its average valuation level over the next five years, it will see a 16.8% annualized gain thanks to the expansion of its valuation multiple.

In addition, Telus pays a current quarterly dividend of $0.83 in U.S. dollars, which equals a yield of 5.0%. The combination of dividends, valuation changes, and % annual EPS growth results in total expected returns of 25.8% per year through 2025.

#1: Unum Group (UNM)

Unum Group is an insurance holding company providing a broad portfolio of financial protection benefits and services. The company operates through its Unum US, Unum UK, Unum Poland and Colonial Life businesses, providing disability, life, accident, critical illness, dental and vision benefits to millions of customers. Unum generated revenue of approximately $12 billion in 2019.

On May 5th, 2020 Unum reported first-quarter results for the current fiscal year. For the quarter Unum generated $2.9 billion in revenue, a 3.7% decrease year-over-year, which missed analyst estimates by $180 million. Net earnings-per-share (EPS) of $0.79 declined 40% from the same period last year, while adjusted earnings-per-share of $1.35 increased by 3% year-over-year. The large decline in net earnings-per-share was due primarily to a $113 million investment loss.

However, the core Unum US segment performed well, with 3.8% growth in adjusted operating income as premium income increased 1.7% for the quarter. In addition, company book value per share increased 13% to $48.21. Unum suspended its share repurchase program for the remainder of 2020 and withdrew its full-year guidance, but it intends to maintain the dividend at the current quarterly rate.

Competitive advantages are difficult to achieve in the financial services industry, as customers are often motivated by price when it comes to insurance. That said, Unum has developed a top position in its industry with a long track record of providing reliable service and establishing deep relationships with customers.

These qualities have served the company well during recessions. Unum performed surprisingly well in the Great Recession of 2008-2009. Unum posted earnings-per-share of $2.19, $2.51, $2.57 and $2.71 from 2007 through 2010. Furthermore, the dividend kept increasing during this time as well. Therefore, we expect Unum’s profits and dividend to hold up again, should another recession occur.

Over the past decade, Unum grew its earnings-per-share by approximately 8% per year on average. Results were helped by rising premium income, as well as aggressive share repurchases which retired 5% of the share count each year. The company suspending its share repurchases will be a negative headwind for future earnings-per-share growth. However, we believe Unum can continue to grow through reasonable improvement in premium and investment income, along with expense management. We believe 2% annual EPS growth is a reasonable expectation through 2025.

We expect Unum to generate adjusted earnings-per-share of $4.90 for 2020. Based on this, the stock has a price-to-earnings ratio (P/E) of just 3.0. During the past decade shares of Unum have traded with an average P/E multiple of 8-9. Our fair value estimate is a P/E ratio of 8.0, which implies the potential for a significant valuation tailwind. Expansion of the P/E multiple could boost annual returns by 21.7% per year over the next five years. Unum is one of the most undervalued stocks in our coverage universe.

In addition, shareholder returns will be driven by expected EPS growth of 2% per year, and the 7.7% dividend yield. Overall, we expect total annual returns above 31% per year over the next five years for Unum stock.

The 10 Blue Chip Stocks With The Highest Dividend Yields

The 10 blue chip stocks with the highest dividend yields are analyzed in detail below. These stocks combine the safety that comes with being a blue chip (Dividend Risk Score of C or better), with high yields. MLPs are excluded from the list below, but REITs are included if they meet the criteria. Stocks are ranked by dividend yield.

#10: PPL Corporation (PPL)

Pennsylvania Power & Light Company was started in 1920 and can trace its roots back to Thomas Edison. PPL Corporation, as it is known today, owns and distributes power to more than 10 million people in the U.S and the U.K. PPL is the parent company of seven regulated utility companies and provides electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee. PPL also delivers natural gas to customers in Kentucky. About 7.8 million of the company’s customers live in the U.K.

Source: Investor Presentation

PPL reported earnings results for the first quarter on 5/8/2020. The company’s adjusted earnings-per-share decreased 4.3% to $0.67, which was $0.05 below estimates. Revenue declined 1.2%to $2.1 billion, which was $125 million lower than expected. Earnings from ongoing operations in the U.K. regulated business declined 7.1% due to share dilution, lower pension income and an increase in operation and maintenance expense. This was partially offset by improved pricing.

Earnings for the Kentucky regulated business were flat as higher retail prices were offset by share dilution and lower sales volumes due to weather. The Pennsylvania regulated business was down nearly 6% as returns on additional capital investments weren’t enough to overcome share dilution and lower sales volumes. PPL reaffirmed its guidance of adjusted earnings-per-share of $2.40 to $2.60 for 2020. At the midpoint, this would be a 2% increase from 2019.

Investors often hold utility stocks due to their defensive nature, but PPL showed in the last recession that is susceptible to steep earnings declines. PPL’s payout ratio has climbed higher in recent years as earnings-per-share have declined. There is also a possibility that the company could cut its dividend if earnings were to suffer significant setbacks.

Still, PPL’s key competitive advantage is its business diversity. While there have been concerns in the past about achieving rate increases in the U.K, the company was granted a rate increase last April. PPL also offers a very high dividend yield that has room to continue to grow. The company has a projected dividend payout ratio of approximately 66% for 2020, which indicates the dividend is secure.

#9: Bank of Nova Scotia (BNS)

Bank of Nova Scotia is already analyzed in the first section of this article.

#8: Universal Corporation (UVV)

Universal Corporation is the world’s largest leaf tobacco exporter and importer. The company is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars. Universal Corporation was founded in 1886, is headquartered in Richmond, Virginia, and trades with a market capitalization of $1.1 billion.

With 49 years of dividend increases, Universal Corporation is a Dividend Champion.

Source: Investor Presentation

Universal Corporation reported its third quarter (fiscal 2020) earnings results on February 4. The company generated revenues of $505 million during the quarter, which was 20.6% less than the revenues that Universal Corporation generated during the previous year’s quarter. Management explains that revenues were mainly down due to large carryover crop volumes, which had boosted results for the previous year’s quarter. Management also believes that this headwind will cease to exist during the fourth quarter of the current fiscal year.

Universal’s earnings-per-share totaled $1.04 during the third quarter, which was down about 6% from the earnings-per-share that the company generated during the previous year’s quarter. Profits were down mainly due to the impact of lower sales during the quarter, partially offset by higher margins.

As the leader in a declining industry, we do not expect the company to deliver strong growth for the foreseeable future. The company’s earnings-per-share growth could be a different story, thanks to share repurchases. Universal Corporation’s shares trade at a rather inexpensive valuation, and that has been true for the majority of the last decade. Universal Corporation also does not need to invest meaningful amounts of money into its business, as the industry is not experiencing any meaningful growth.

This gives Universal Corporation the ability to utilize a substantial amount of its free cash flows for share repurchases. Through a declining share count, Universal Corporation should be able to deliver some earnings-per-share growth during the coming years. We believe that an annual earnings-per-share growth rate in the low-single-digits is possible for this tobacco corporation, largely due to the possibility of buybacks.

Shares trade for a 2020 P/E ratio of 10.9, virtually on par with our fair value estimate of 11. Expected EPS growth of 2%-3% per year plus the 7% dividend yield lead to expected returns of approximately 9.5% per year over the next five years.

#7: Enbridge Inc. (ENB)

Enbridge is an oil & gas company that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission. Enbridge made a major acquisition in 2016 (Spectra Energy, $28 billion) and currently trades with a market capitalization of $67 billion. Enbridge was founded in 1949 and is headquartered in Calgary, Canada.

Source: Investor Presentation

In the 2020 first quarter, Enbridge reported a GAAP loss of $1.4 billion, compared with a GAAP profit of $1.9 billion in the same quarter last year. The loss was driven by non-recurring charges such as a non-cash impairment of the company’s investment in DCP Midstream of $1.7 billion, and non-cash unrealized derivative fair value losses of $1.9 billion.

Adjusting for non-recurring charges, adjusted earnings-per-share actually increased 2.5% to $0.83 for the 2020 first quarter. Distributable cash flow of $2.7 billion declined fractionally from the same quarter last year. The company also reaffirmed its full-year outlook, expecting distributable cash flow of $4.50 to $4.80 per share. This should keep the company’s current annual dividend of $2.30 per share intact.

Enbridge produced extremely consistent cash-flow-per-share growth from 2009 to 2016, reporting positive growth every year, at a compelling growth rate of 10% annually. Cash flows declined during 2017, primarily due to the takeover of Spectra Energy, which increased Enbridge’s cash flows, but which was dilutive in the first year due to the high number of new shares being issued.

We expect 5%-6% annual cash flow per share growth for Enbridge over the next five years, due primarily to new projects. Enbridge put more than $10 billion worth of projects into service during the last two years, and more growth projects are under construction. Enbridge’s strong results during 2019 in EBITDA, net earnings, and distributable cash flows, bode well for the future, although 2020 will be a lower-growth year according to management.

Enbridge is one of the largest pipeline operators in North America. Its vast asset footprint serves as a tremendous competitive advantage, as it would take many billions of dollars of investments from new market entrants if they wanted to be able to compete with Enbridge.

Due to its fee-based nature Enbridge’s business is not cyclical, and not dependent on commodity prices. During the last financial crisis the company was able to grow its cash flows as well as its earnings. Since the infrastructure that Enbridge provides is needed whether the economy is doing well or not, it is likely that future recessions will not have a large impact on Enbridge.

#6: AT&T Inc. (T)

AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses), WarnerMedia (including Turner, HBO and Warner Bros.), and AT&T Latin America (offering pay-TV and wireless service to 11 countries). The company generates $180+ billion in annual revenue.

On April 22nd, 2020 AT&T reported Q1 2020 results for the period ending March 31st, 2020. For the quarter the company generated $42.8 billion in revenue, down from $44.8 billion in Q1 2019, as growth in domestic wireless services and business services partially offset declines in domestic video, legacy wireline services and WarnerMedia.

Source: Investor Presentation

Net income equaled $4.6 billion or $0.63 per share compared to $4.1 billion or $0.56 per share in the year ago quarter. On an adjusted basis earnings-per-share equaled $0.84 compared to $0.86 previously, which does not include a -$0.05 impact from the COVID-19 crisis. AT&T’s net debt-to-EBITDA ratio was ~2.6x at the end of the quarter.

From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per annum. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, the company has a large debt load after the acquisitions, while its legacy businesses are steady or declining.

AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt. Moreover, after the debt is under control, management has indicated the potential for share repurchases down the line.

The dividend appears secure, as AT&T has an expected payout ratio below 70% for 2020. And, the company is fairly resistant to recessions, having maintained profitability and dividend growth through the Great Recession. With an attractive 7.1% yield, we view AT&T as an attractive blue-chip dividend stock.

#5: Canadian Imperial Bank of Commerce (CM)

Canadian Imperial Bank of Commerce is a global financial institution that provides banking and other financial services to individuals, small businesses, corporations and institutional clients. CIBC is focused on the Canadian market. The bank was founded in 1961 and is headquartered in Toronto, Canada.

CIBC reported its fiscal Q1 2020 earnings results on 02/26/20. For the quarter, adjusted net income increased 9% to C$1,483 million against fiscal Q1 2019. On a per-share basis, adjusted earnings rose 8% to C$3.24. Adjusted net income fell 2% to C$619 million for its Canadian Personal and Small Business Banking segment, while it rose 6% to C$185 million for its U.S. Commercial Banking and Wealth Management segment.

Source: Investor Presentation

Its Canadian Commercial Banking and Wealth Management segment reported net income growth of 7% to C$336 million. CIBC maintains a strong Common Equity Tier 1 ratio of 11.3% and reported a decent return on equity of 13.1%. The bank increased its quarterly dividend from C$1.44 to C$1.46 per share.

From fiscal 2010 to 2019, CIBC increased its earnings-per-share by 3.9% per year on average. Going forward, we expect 3%-4% annual EPS growth. For the bank, one key area of growth is its loans and deposits portfolio. Rising loans lead to higher net interest income, which is a key source of CIBC’s revenues. In fiscal 2019, CIBC’s total assets increased by 9% to C$652 billion and deposits rose by 5% to C$486 billion.

As a bank, CIBC is not immune from recessions. It reported net losses during 2008, which is not surprising, as the last financial crisis was especially painful for banks and other financial corporations. But unlike many other banks, including most major U.S. banks, CIBC was able to keep its dividend intact. It returned to dividend growth after the recession, and 2020 will represent the 10th consecutive year of higher annual dividends paid to shareholders.

Unless there is another financial crisis, this dividend growth track record will, in all likelihood, remain in place. Due to a focus on consumer banking, and especially mortgages, which usually are insured in Canada, CIBC has a relatively low-risk portfolio relative to other banks. Generally, CIBC maintains a payout ratio of about 50%.

#4: Canadian Natural Resources (CNQ)

Canadian Natural Resources is already analyzed in the first section of this article.

#3: Prudential Financial (PRU)

Prudential is already analyzed in the first section of this article.

#2: Unum Group (UNM)

Unum Group is already analyzed in the first section of this article.

#1: Altria Group (MO)

Altria Group is a consumer products giant. Its core tobacco business holds the flagship Marlboro cigarette brand. Altria also has non-smokable brands Skoal and Copenhagen chewing tobacco, Ste. Michelle wine, and owns a 10% investment stake in global beer giant Anheuser Busch Inbev (BUD).

Related: The Best Tobacco Stocks Now, Ranked In Order

Altria is a legendary dividend stock, because of its impressive history of steady increases. Altria has raised its dividend for 50 consecutive years, placing it on the very exclusive list of Dividend Kings.

Altria has performed very well to start 2020. In the first quarter, revenue increased 15% to over $5 billion, due to over 6% growth in smokeable products volumes. Consumers loaded up on cigarettes in the first quarter, in anticipation of lockdowns that have taken place in multiple cities across the country. Altria’s adjusted EPS increased 18% last quarter. The rest of the year is not likely to be as strong for Altria, as the benefits of cabinet-stocking fade.

However, Altria has a strong balance sheet and sufficient liquidity to get through the coronavirus crisis. It recently drew $3 billion on its revolving credit facility and suspended its share buybacks. However, it continues to target a competitive dividend payout ratio of 80% in terms of adjusted EPS. Therefore, it would take a significant decline in EPS for Altria’s dividend to be in danger.

Altria’s key challenge going forward will be to generate growth in an era of falling smoking rates. Consumers are increasingly giving up traditional cigarettes, which on the surface poses an existential threat to tobacco manufacturers. Altria expects cigarette volumes will continue to decline at a 4% to 6% annual rate through 2023.

For this reason, Altria has made significant investments in new categories, highlighted by the $13 billion purchase of a 35% stake in e-vapor giant JUUL. This acquisition gives Altria exposure to a high-growth category that is actively contributing to the decline in traditional cigarettes.

Source: Investor Presentation

Altria also recently announced a $1.8 billion investment in Canadian marijuana producer Cronos Group. Altria purchased a 45% equity stake in the company, as well as a warrant to acquire an additional 10% ownership interest in Cronos Group at a price of C$19.00 per share, exercisable over four years from the closing date.

Altria expects 4% to 7% annual adjusted EPS growth from 2020-2022. Altria is also highly resistant to recessions. Cigarette and alcohol sales fare very well during recessions, which keeps Altria’s strong profitability and dividend growth intact. With a target dividend payout of 80% of annual adjusted EPS, Altria’s dividend appears secure.

Final Thoughts

Stocks with long histories of increasing dividends are often the best stocks to buy for long-term dividend growth and high total returns. But just because a company has maintained a long track record of dividend increases, does not necessarily mean it will continue to do so in the future. Investors need to individually assess a company’s fundamentals, particularly in times of economic distress.

While we view these stocks’ dividends as sustainable for now, based on guidance from management, conditions could continue to worsen. The coronavirus crisis that has caused the market meltdown over the past several weeks threatens to send the U.S. economy into a recession. With this in mind, investors should exercise caution when it comes to extreme high-yielders.

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