2021 Blue Chip Stocks List | 260+ Safe High Quality Dividend Stocks Sure Dividend

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2021 Blue Chip Stocks List | 260+ Safe High Quality Dividend Stocks

Updated on January 13th, 2021 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 4 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

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: First of Long Island (FLIC)

First of Long Island is a small-cap bank with a market capitalization just under $500 million. First of Long Island provides traditional banking services to consumers and small-to-midsize businesses. These include consumer loans, mortgages, savings accounts, and more. The company operates ~50 branches in New York.

Source: Investor Presentation

The company has posted steady growth in 2020, despite the difficult environment for banks due to the coronavirus pandemic, as well as extremely low interest rates which has widely suppressed net interest margins. In the most recent quarter, First of Long Island grew revenue by 13% year-over-year due to expanding net interest margins and a growing loan portfolio. Earnings-per-share rose 2% year over year.

First of Long Island has increased its dividend for 25 consecutive years, including a 5.5% increase in September 2020. It has achieved this dividend growth history by generating steady growth in good economies and bad, as it has continued to do in 2020. According to the company, in the past 5 years First of Long Island generated annual earnings-per-share growth of 8.7% and book value per share growth of 7.7% annually. We expect 5% annual EPS growth going forward.

In the meantime, the stock is reasonably valued with a P/E ratio just above 10, which is below our fair value estimate of 13. An expanding P/E will add to shareholder returns, as will future EPS growth. Including the 4.1% dividend yield, total returns are estimated at 12.1% per year over the next five years.

#9: ONEOK Inc. (OKE)

ONEOK is an energy company that engages in the gathering and processing of natural gas, as well as a natural gas liquids business and natural gas pipelines (interstate and intrastate). ONEOK also owns storage facilities for natural gas.

ONEOK reported its third-quarter earnings results on October 27. The company reported that it generated revenues of $1.85 billion during the quarter, which was 5% less than the revenues that ONEOK generated during the previous year’s quarter.

Despite a revenue decline compared to the prior year’s quarter,which can be explained by commodity price movements, ONEOK managed to remain quite profitable, which can be explained by the fact that its input costs declined as well. During the most recent quarter, ONEOK generated adjusted EBITDA of $750 million, which was up 15% versus the previous year’s quarter, therefore easily outperforming the top line number.

Recovery in its natural gas liquids business has fueled ONEOK’s steady performance over the course of 2020.

Source: Investor Presentation

Distributable cash flows, which is operating cash flow minus maintenance capital expenditures, totaled $540 million during the quarter, up 12% on a year-over-year basis. Distributable cash flows came in at $1.21 on a per-share basis.

ONEOK sees 2020’s distributable cash flows declining slightly versus 2019, to ~$1.95 billion, or roughly $4.65 per share. ONEOK forecasts improving results going forward on a sequential basis. Still, DCF-per-share of $4.65 would cover the current annualized dividend payout of $3.74 per share.

A key advantage for ONEOK is that a significant portion of its revenue, especially after the roll-up of its MLP, are fee-based or hedged, which makes the company less sensitive to commodity price swings. This is why ONEOK can operate with considerable leverage without being in dangerous territory, as its cash flows are not very cyclical.

The fee-based nature of ONEOK’s revenues and non-cyclical demand for natural gas, e.g. for heating, is what has made ONEOK recession-proof in the past. The combination of 3% projected DCF growth, dividends, and valuation changes lead to expected total returns of 12.5% per year through 2026.

#8: Sempra Energy (SRE)

Sempra Energy serves one of the largest utility customer bases in the U.S., as it distributes natural gas and electricity in Southern California (over 20 million customers)and owns a majority stake in Texas-based Oncor, a transmission and distribution business (over 10million customers). The company also owns and operates other utilities and merchant renewable energy projects, liquefied natural gas facilities, and gas pipes and storage in the U.S. and Latin America.

Sempra Energy benefits from two key trends, namely the transition towards cleaner energy resources and the advance of the U.S. as a global energy leader. In 2018, the company sold most of its non-core assets in order to better focus on its large core North American regulated utility, LNG export, and Mexican infrastructure assets as well as deleverage the balance sheet. Given the strong competitive advantages enjoyed by these core assets and the late stage in the economic cycle, we believe that these moves have made Sempra Energy more attractive.

Source: Investor Presentation

In early November, Sempra Energy reported (11/5/20) financial results for the third-quarter of fiscal 2020. Adjusted earnings-per-share decreased from $1.50in last year’s quarter to $1.31 due to asset sales and a lower tax benefit. In August, the Cameron LNG export facility in Louisiana reached full commercial operations, with 12-month earnings expected around $400 million-$450 million. As a utility, Sempra Energy is essentially immune to the severe recession that has resulted from the pandemic. Management expects earnings-per-share at the upper half of this year’s guidance of$7.20-$7.80and reaffirmed its guidance for earnings-per-share of $7.50-$8.10 in 2021.

As a regulated utility in possession of dominant businesses in their respective regions, Sempra Energy possesses a clear moat around a significant portion of its earnings. At the same time, however, the regulated nature of its pricing prevents it from earning surplus profits. These businesses, as well as the stable, mission-critical nature of its infrastructure business in Mexico make it quite recession resistant. As proof of this, Sempra’s earnings-per-share increased during the Great recession (2008 and 2009) and are expected to increase in the ongoing recession as well.

Sempra stock trades for a 2020 price-to-earnings ratio of ~15.9, below our fair value estimate of 19. In addition, we expect 6% annual EPS growth, and the stock has a 3.5% dividend yield. Taken together, Sempra stock has a projected rate of return of 12.6% per year over the next five years.

#7: Perrigo plc (PRGO)

Perrigo’s history goes all the way back to 1887 when Luther Perrigo, the proprietor of a general store and apple-drying business, had the idea to package and distribute patented medicines and household items for country stores. Today, Perrigo operates in the healthcare sector as a manufacturer of over-the-counter consumer and pharmaceutical products.

Its Consumer Self-Care Americas segment is comprised of the U.S., Mexico and Canada consumer healthcare businesses. The Consumer Self-Care International segment includes branded consumer healthcare business primarily in Europe, but also Australia and Israel. The Prescription Pharmaceuticals refers to the U.S. prescription pharmaceuticals business.The company generates over $5 billion in annual revenue.

Perrigo reported earnings results for the third quarter on 11/4/2020. The company’s revenue grew 1.3% to $1.21 billion, but was $17.4 million lower than expected. Adjusted earnings-per-share of $0.93 was a 10.6% decrease from the previous year, but $0.07 better than expected.

Source: Investor Presentation

The Worldwide Consumer segment was higher by 3.6% to $1 billion, with organic growth of 1.6%. The Consumer Self-Care Americas business improved 7.3% to a record $664 million. This segment had 4% organic growth due to higher consumer demand in U.S.

E-commerce, where Perrigo has a higher percentage of market share, had strong growth as consumers shifted towards online purchasing in wake of the pandemic. For the year, Perrigo continues to expect organic growth of at least 3% and adjusted earnings-per-share in a range of $3.95 to $4.15.

The company has scaled back its pharmaceutical operations. Consumer health products now represent approximately 80% of total revenue. And, the company will spin-off its pharmaceutical segment to further focus on consumer products. Focusing on consumer products will add stability to Perrigo, but these products typically grow at a lower rate than pharmaceuticals. We expect 5% annual EPS growth going forward.

Shares appear undervalued, with a P/E ratio of 11.4. This is below our fair value estimate of 15. The combination of valuation expansion, earnings growth, and the 2% dividend yield result in total expected returns of 12.7% per year.

#6: Telephone & Data Systems (TDS)

Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband, and voice services across 24 U.S. states. The company’s Cellular Division accounts for more than 75% of total operating revenue. TDS started in 1969 as a collection of 10 rural telephone companies.

On November 6th, TDS reported financial results for the third quarter. Revenue of $1.3 billion was up fractionally year-over-year. Earnings-per-share more than quadrupled to $0.66 for the quarter. Strong results at U.S. Cellular led the way for the third quarter.

Source: Investor Presentation

TDS has historically held up extremely well during recessions, as consumers are very reluctant to cut their telecommunications services like wireless, broadband, and cable, even during an economic downturn. For example, during the Great Recession, TDS’ earnings-per-share actually increased 69% from 2008-2010. The company has remained profitable during the current period of economic weakness caused by the coronavirus pandemic.

Much of TDS’ future growth potential depends on U.S. Cellular, as TDS has an 82% stake in U.S. Cellular. The company has a mixed track record when it comes to growth. During the last decade, its earnings-per-share have declined approximately 2.6% compounded per year on average.

While the earnings trend has been volatile, book value per share has grown by 2.0% per year over the last decade. We expect 1.5% annual earnings-per-share growth over the next five years.

Due to the volatility in the company’s earnings, we believe that the best way to assess the valuation of TDS is by looking at its price-to-book ratio. TDS is currently trading at a price-to-book ratio of 0.45. Our fair value estimate is a price-to-book ratio of 0.70. This indicates the stock is undervalued. Overall, total returns are expected to reach 12.7% per year over the next five years.

#5: 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 ~$68 billion. Enbridge was founded in 1949 and is headquartered in Calgary, Canada.

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.

Enbridge reported its third-quarter earnings results which showed resilience in the face of an extremely challenging operating environment. Adjusted EBITDA fell 3.6% for the quarter, while distributable cash flow declined just 0.8% year-over-year.

Enbridge has a recession-resistant business model, thanks in large part to its diversified and high-quality sources of cash flow.

Source: Investor Presentation

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% 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.

On December 8th, Enbridge raised its 2021 guidance, now expecting DCF-per-share in a range of C$4.70 to C$5.00 (equal to $3.67 to $3.90 in USD). The company also raised its dividend by ~3%. The combination of cash flow growth, dividends, and valuation changes results in expected annual returns of 12.8% per year over the next five years.

#4: 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.), AT&T Latin America (offering pay-TV and wireless service to 11 countries) and Xandr (providing advertising). The company generates $180+ billion in annual revenue.

In the 2020 third quarter, AT&T generated revenue of $42.3 billion, along with operating cash flow of $12.1 billion. Among the highlights, AT&T recorded more than 5 million total domestic wireless net adds along with over 1 million postpaid net additions. The company’s postpaid churn was an impressive 0.69% for the quarter.

AT&T expects free cash flow of at least $26 billion for 2021. This will help the company continue to invest in growth, pay dividends to shareholders, and also pay down debt. AT&T’s net debt-to-EBITDA ratio was ~2.66x at the end of the quarter.

Source: Investor Presentation

AT&T is a colossal business, but it is not a fast grower. From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per year. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, we are cognizant of both the premiums paid and the fact that the company’s legacy businesses are steady or declining.

Two individual growth catalysts for AT&T are 5G rollout and its recently-launched HBO Max service. AT&T continues to expand 5G to more cities around the country. AT&T’s 5G service now covers more than 120 million people.

On May 27th, AT&T launched streaming platform HBO Max, which currently has over 12 million subscribers. HBO Max is priced at $15 per month and offers subscribers approximately 10,000 hours of programming. AT&T recently announced that all Warner Bros. movies scheduled for 2021 will be released on streaming the same day they hit theaters. This could result in significant customer additions next year and beyond.

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. With a long history of increasing dividends each year (AT&T is a Dividend Aristocrat) we expect the company’s dividend payout to remain secure, even in a recession. The combination of 3% expected EPS growth, dividends, and changes in valuation result in expected total returns of 12.8% per year.

#3: Bristol-Myers Squibb (BMY)

Bristol-Myers Squibb was created when Bristol-Myers and Squibb merged in 1989, but Bristol-Myers can trace its corporate beginnings back to 1887. Today this leading drug maker of cardiovascular and anti-cancer therapeutics has annual revenues of about $42 billion.

The past year has seen the company transform itself, due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

The end result is that Bristol-Myers Squibb is now an industry goliath, which continues to generate strong results even during the coronavirus pandemic. In the 2020 third quarter, BMY’s adjusted earnings-per-share increased 39% from the same quarter a year ago. Revenue soared 76%, largely the result of the Celgene acquisition. Pro-forma revenue increased 6%, indicating organic growth as well.

Source: Investor Presentation

BMY has positive growth potential moving forward. Not only is the Celgene acquisition an immediate catalyst, the company’s strong pharmaceutical pipeline will fuel its future growth. Eliquis, which prevents blood clots, grew sales by 9% last quarter as demand remains high in the United States. Separately, revenue increased 8% for Orencia, which treats rheumatoid arthritis. We expect 4% annual earnings growth over the next five years for BMY.

The company raised its full-year forecast, further indicating an accelerating recovery. BMY now expects EPS for 2020 in a range of $6.25 to $6.35, up from $6.10 to $6.25 previously. It also guides towards adjusted EPS of $7.15 to $7.45 for 2021. The company’s recently announced $2 billion addition to its share repurchase is a positive catalyst for earnings-per-share growth.

Based on expected EPS of $6.30, shares of BMY trade for a forward P/E ratio of 10.3. Our fair value P/E estimate is a P/E of 13, which is more in-line with the pharmaceutical peer group. An expanding P/E from 10.3 to 13 would boost annual returns significantly over the next five years. Lastly, BMY has a 3% dividend yield, leading to total expected returns of 12.8% per year.

#2: Northrop Grumman (NOC)

Northrop Grumman is one of the five largest U.S. aerospace and defense contractors based on revenue. The company reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors and systems for surveillance and targeting), Defense Systems (information technology, sustainment and modernization, directed energy, tactical weapons),and Space Systems (missile defense, space systems, hypersonics and space launchers).

Northrop Grumman generated nearly $34 billion of revenue in 2019.

Source: Investor Presentation

The company reported strong third-quarter results on October 22,2020. Company-wide revenue increased 7% to $9.1 billion, while adjusted earnings per share increased 7% to $5.89 from $5.49 on a year-over-year basis. Revenue for Aeronautics Systems increased 5% due to higher volumes in restricted programs, E-2D, and F-35 offset by a reduction in A350. Revenue for Defense Systems declined 4% but increased 10% for Mission Systems and 17% for Space Systems.

Northrop Grumman’s total backlog increased to a record $81.3 billion, due to major contract wins of $20.3 billion in the quarter. The book-to-bill ratio is a very healthy 2.2X. Earnings-per-share guidance was increased to $22.25-$22.65.

Looking forward, the company will achieve both revenue and EPS growth through its involvement in the F-35, B-21, E2-D and other platforms. We expect average annual EPS growth of 10% over the next five years.

As a major U.S. defense contractor, Northrop Grumman has an entrenched position in many of its end markets. Of note are the B-2, B-21, E-2D, E-8C, Global Hawk and Triton platforms. These platforms have decades long life cycles and Northrop Grumman has the expertise and experience to perform sustainment and modernization. These characteristics lead to a good degree of recession resistance.

The stock has a P/E ratio of 14.0, below our fair value estimate of 15.0. The stock also has a 2% dividend yield. Including 10% expected EPS growth, total returns are expected to reach 14.6% per year over the next five years.

#1: Lockheed Martin (LMT)

Lockheed Martin is the world’s largest defense company. About 60% of the company’s revenue comes from the U.S. Department of Defense, with other U.S. government agencies (10%) and international clients (30%) making up the remainder.

The company consists of four business segments: Aeronautics (~40% of sales) which produces military aircraft like the F-35, F-22, F-16and C-130; Rotary and Mission Systems (~26% sales) which houses combat ships, naval electronics and helicopters; Missiles and Fire Control (~16% sales) which creates missile defense systems; and Space Systems (~17% sales) which produces satellites.

Lockheed Martin reported another excellent quarter for Q3 2020 on October 20th, 2020. Company-wide net sales increased 9% to $16.5 billion and diluted earnings per share increased 10% year-over-year. All four business segments increased net sales. The Aeronautics and Rotary & Mission Systems segments each increased net sales 8% while the Missiles and Fire Control segment increased sales 14% to lead the way. The Space segment added 6% sales growth for the quarter.

Source: Investor Presentation

Lockheed Martin’s backlog is at a record of approximately $150.45 billion, driven by increases in Aeronautics, Missiles and Fire Control, and Rotary and Mission Systems offset by a decline in Space sales. Lockheed Martin’s earnings per share growth comes largely on the strength of F-35 production, tactical and strike missiles, satellite and missile defense programs, and the Sikorsky acquisition. We now expect earnings per share to grow on average at 10% per year.

Lockheed Martin is an entrenched military prime contractor. It produces aircraft and other platforms that serve as the backbone for the U.S. military and other militaries around the world. This leads to a competitive advantage as any new technologies would have to significantly outperform extant platforms. These platforms have decades-long life cycles and Lockheed Martin has expertise and experience to perform sustainment and modernization.

The combination of P/E expansion, 10% expected EPS growth and the 3.0% dividend yield to generate 15.0% annualized total returns over the next five years.

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: National Retail Properties (NNN)

National Retail Properties is a REIT that owns ~3,000 single-tenant, net-leased retail properties across the United States. It is focused on retail customers because they are much more likely to accept rent hikes in order to avoid switching locations and losing their customer base. Thanks to this strategy, National Retail has offered consistent growth with markedly low volatility. It is also characterized by very high occupancy rates; its 15-year low occupancy rate is 96%,while its current rate is 98.8%.

The company has a large and diversified portfolio of tenants.

Source: Investor Presentation

National Retail has increased its dividend for 30 consecutive years (a record matched by only three publicly-traded REITs), making it a member of the Dividend Champions.

National Retail reported Q3 earnings on 11/2/20. FFO-per-share came in at $0.62, missing the average analyst estimate of $0.66 per share and falling from $0.70 in the year-ago quarter. Revenue came in at $158.6 million, a decline from $168.2M in the year-ago quarter. Portfolio occupancy stood at 98.4% as of quarter end compared to 98.7% in June and 98.8% in March.

The trust reported that it had collected ~90% of rent due for the quarter and ~94% of rent originally due in October. It also entered rent deferral lease amendments with tenants representing ~6% of annual rent originally due for the year. On average, 2.7 months of rent was deferred, ~77% of the deferred rent originally due in Q2 and 23% originally due in Q3. Meanwhile, Q3 operating expenses of $70.9M fell from $74.5M in the same year-ago period.

National Retail Properties has a high dividend yield of 5.4%, and the company has increased its dividend for 30 consecutive years. National Retail’s payout ratio is being maintained under three-quarters of FFO, and we believe it will stay there for the foreseeable future. Given this, the dividend is fairly safe at this point with the trust’s rising earnings. With a projected dividend payout ratio of 79% for 2020, the dividend appears secure.

#9: Weyco Group (WEYS)

Weyco Group Inc. designs and distributes footwear. Weyco’s brand portfolio consists of Florsheim, Nunn Bush, Stacy Adams, BOGS, and Rafters. The company sells its products wholesale mainly through department stores and national shoe chains in the U.S. and Canada. It also operates Florsheim retail stores in the U.S. and sells directly through online sales. The company owns Florsheim Australia that operates in Australia, South Africa and Asia Pacific, and it also owns Florsheim Europe. Weyco also licenses its brands in the U.S. and Mexico.

In the 2020 third quarter, Weyco Group reported company-wide net sales fell to $16.7M from $60.5M in the same quarter a year ago. The company reported a loss of $0.91 per share, down from a profit of $0.15 per share on year-over-year basis. The decline in sales and earnings was due to the impact of COVID-19 and also partly to JCPenney’s bankruptcy. In the U.S. and other countries around the world, government mandated shutdowns and restrictions resulted in store closures.

Weyco Group’s earnings have been impacted by the rise of e-commerce, and internet sales in the past decade. Many department stores and national shoe chains have suffered from declining sales and some have declared bankruptcy. The company is building distribution in new sales channels and now runs its own e-commerce platforms. That said, the company is still dependent on the wholesale channel and department stores for the great majority of its revenue. 2020 will be a difficult year, and it is likely that recovery will be slow.

Weyco’s main competitive advantage is the strength of its brands. With that said, footwear is a highly competitive business, and as a relatively small player, Weyco does not possess economies of scale over its larger competitors. Furthermore, the wholesale shoe industry is in general decline due to the broader challenges facing bricks-and-mortar department stores and national shoe chains.

Unless Weyco can enter the e-commerce channel more aggressively, it will likely continue to struggle in generating significant sales and earnings growth. The company is not recession resistant and earnings per share decline dduring the last recession and took several years to recover.

The best aspect of Weyco Group stock is the high dividend payout, currently yielding above 5%. However, with a 2020 dividend payout ratio estimated to exceed 90%, there is some danger that the dividend payout could be reduced if the company’s fundamentals do not recover in 2021.

#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.

Source: Investor Presentation

Universal recently increased its dividend for the 50th consecutive year, meaning it now qualifies for the exclusive list of Dividend Kings.

Universal Corporation recently reported its fiscal 2021 second-quarter results. Net income of $0.30 per diluted share, were a significant decline from $1.11 per share in the year-ago quarter.

In fiscal 2020, profits were down due to the impact of lower sales, coupled with some margin pressures on Universal’s operations. However, the company generated adjusted earnings-per-share of $3.49 during fiscal 2020, which allowed it to raise its dividend for the 50th consecutive year.

Still, Universal needs to find avenues for future growth. The company believes it has found an avenue for future growth in the form of acquisitions to diversify its business model.

Last year, Universal acquired FruitSmart, an independent specialty fruit and vegetable ingredient processor. FruitSmart supplies a juices, concentrates, blends, purees, fibers, seed and seed powders, and other products to food, beverage and flavor companies around the world.

More recently, on October 1st Universal announced the acquisition of Silva International, a privately-held dehydrated vegetable, fruit, and herb processing company. Silva procures over 60 types of dehydrated vegetables, fruits, and herbs from over 20 countries around the world.

Universal’s profits generated in fiscal 2020 sufficiently covered the forward dividend payout of $3.08 per share. The company also recently declared a $100 million share buyback (equal to roughly 8% of the current market cap) which will help ease the financial burden of the dividend by reducing the number of shares outstanding.

Investors will need to continue monitoring the company’s results to make sure its financial results do not deteriorate further, but for the time being the dividend appears covered.

#7: Philip Morris International (PM)

Philip Morris International is a tobacco company that came into being when its parent company Altria (MO) spun off its international operations. Philip Morris sells cigarettes under the Marlboro brand, among others, internationally. Its sister company Altria sells the Marlboro brand (among others) in the U.S.

On October 20th, 2020 Philip Morris reported Q3 2020 results for the period ending September 30th, 2020. For the quarter the company generated net revenue of $7.45 billion, which was down -2.6% as reported and down -1.5% on an organic basis. Shipment volume was down -7.6% collectively, with cigarette shipment volume down -9.8% and heated tobacco, a much smaller portion of the business, up 18.7%. Adjusted earnings-per-share equaled $1.42, down from $1.43 in the year ago period.

Last quarter the company reinstated full-year guidance of $4.92 to $5.07. This has since been updated to $5.05 to $5.10 in adjusted EPS for this year.

Philip Morris’ weak profit growth over the last couple of years was partially due to the company’s investments into the iQOS/Heatsticks technology. Heated units have generated strong growth for the company in recent periods.

Source: Investor Presentation

The investment in the development of this device and the manufacturing equipment needed to produce this reduced-risk product on a massive scale were costly, but Philip Morris is hoping that those investments will pay off in the long run. Ramp-up of iQOS in international markets has taken hold and the product is one of the reasons why Philip Morris has been able to stabilize its business.

Philip Morris’ dividend payout ratio has never been especially low, and the ratio increased further during the last decade. At the peak, Philip Morris has paid out more than 90% of its net profits to its owners and this year could approach 100% depending on business conditions. Due to strong cash generation, low capex requirements and the stability of Philip Morris’ business model during recessions the dividend still appears to be relatively well-covered. Philip Morris has one of the most valuable cigarette brands in the world (Marlboro) and is a leader in the reduced-risk product segment with iQOS.

#6: PPL Corporation (PPL)

Pennsylvania Power & Light Company, or PPL, was started in 1920 and can trace its roots back to Thomas Edison. PPL Corporation distributes power to more than 10 million people in the U.S and the U.K. The company 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.

Source: Investor Presentation

PPL announced third quarter earnings results on 11/5/2020. Adjusted earnings-per-share of $0.58 was 4.9% lower than the previous year. Revenue decreased 2.1% to $1.9 billion, which was $130 million lower than expected. Earnings from ongoing operations for the Pennsylvania regulated segment improved 6.3% due to returns on additional capital investments.

PPL stated that it remains on track to sell its U.K. segment, with a goal of announcing a transaction in the first half of 2021. PPL now expects earnings-per-share of $2.40 to $2.50 for 2020, compared with $2.40 to $2.60 previously.

We maintain our earnings-per-share forecast of 2% for PPL. This accounts for the company’s historical growth, as well as likely substantial share dilution. One reason that PPL shares have lost value while many utility companies have grown is the uncertainty about operations in the United Kingdom. Investors have feared that regulators would reduce the allowed return on equity for electric companies starting in 2023.

After announcing a 0.6% increase for the 4/1/2020 payment, PPL has now increased its dividend for the past 20 years. The stock has a high dividend yield of 5.9% right now. With an estimated payout ratio of 68%, the dividend appears secure.

#5: W.P. Carey (WPC)

W.P. Carey is a commercial real estate focused REIT that operates two segments: real estate ownership and investment management. The REIT operates more than 1,200 single tenant properties on a net lease basis, across the US and Northern and Western Europe.

W.P. Carey has a highly diversified real estate property portfolio across multiple various industry groups.

Source: Investor Presentation

W. P. Carey reported its third-quarter earnings results on October 30th. Revenues totaled $300 million, down 2% year-over-year. Funds-from-operation, or FFO, increased 3% on a per-share basis to $1.15 for the quarter. W.P. Carey benefited from 99% rent collection in October, fueling hopes that the worst is behind it.

W. P. Carey also reinstated its guidance for 2020, now forecasting FFO-per-share in a range of $4.65 to $4.75. Importantly, this should be sufficient to fully cover the annualized dividend payout of $4.18 per share.

W. P. Carey generated FFO-per-share growth of 6% annually between 2009 and 2019, which is a very solid growth rate for a real estate investment trust, as these usually are low-growth vehicles. W. P. Carey invests additional money into new properties continuously. Since 2012 the REIT invested more than $10 billion into new assets by either purchasing entire REITs or through single-asset/portfolio purchases. W.P. Carey can access debt markets at favorable rates, which lowers the trust’s cost of capital, which then allows for improved investment spreads.

W. P. Carey has grown its dividend very regularly during the last decade. There has not been a dividend cut or dividend freeze during that time frame. The dividend payout ratio is high, as the REIT is paying out more than 80% of its funds from operations via dividends right now. We still believe that the dividend is sustainable, especially as W. P. Carey did not have any problems financing its dividend during the previous recessions.

#4: AT&T Inc. (T)

AT&T is already analyzed in the first section of this article.

#3: Enbridge Inc. (ENB)

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

#2: 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 6 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 51 consecutive years, placing it on the very exclusive list of Dividend Kings.

On October 30th, Altria reported financial results for the 2020 third quarter. Revenue (net of excise taxes) of $5.7 billion increased 5% year-over-year, and beat analyst estimates by $140 million. Smokeable volumes declined 0.2% for the quarter, much better than the 4% predicted drop. On a GAAP basis, Altria reported a loss of -$0.51 per share, as the company took a non-cash pre-tax impairment charge of $2.6 billion related to its investment in JUUL.

However, adjusted earnings-per-share came to $1.19 per share, beating estimates by $0.03 per share. Better-than-expected declines in smokeable volumes helped Altria’s third-quarter performance.

Source: Investor Presentation

Altria also raised the low end of its full-year guidance for adjusted earnings-per-share, now expecting a range of $4.30 to $4.38, from prior guidance of $4.21 to $4.38.

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.

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 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.

#1: ONEOK Inc. (OKE)

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

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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