2018 Blue Chip Stocks List: 271 Best Safe Dividend Stocks Now Sure Dividend

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2018 Blue Chip Stocks List: 271 Best Safe Dividend Stocks Now


Updated weekly on Wednesdays
By Ben Reynolds, Josh Arnold, & Nick McCullum

In poker, the blue chips have the highest value.

I 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 271 blue chip stocks below:

Click here to download your Excel spreadsheet of all 271 blue chip stocks, including metrics that matter like dividend yield and the price-to-earnings ratio.

You can view a preview of our blue chip stocks spreadsheet below:

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.

We also cover the 10 highest yielding blue chip stocks in this article, and provide a sortable table of all blue chip stocks for quick reference.

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 Complete List of Blue Chip Stocks

The table below includes relevant data on all 271 blue chip stocks (as defined earlier in this article.

Additionally, you can download the data from this table as a detailed Excel spreadsheet below:

Click here to download your Excel spreadsheet of all 271 blue chip stocks, including metrics that matter like dividend yield and the price-to-earnings ratio.

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 (exluding REITs and MLPs) are analyzed in detail below.

#10: Altria Group (MO)

Altria Group has long been a source of high rates of dividends for shareholders and indeed, it has boosted its payout for 48 consecutive years. The company’s exposure to cigarettes has caused some angst among investors lately, however, as the share price has fallen significantly in 2018. However, new products, such as its heated tobacco and E-Vapor products are driving new growth.

The company’s earnings for the first half of 2018 have been strong, growing by 24% on an adjusted basis. However, revenues were down slightly and most of the gain in earnings-per-share was due to a lower tax rate and its equity stake in AB InBev (BUD). Volume declines in the core cigarette segment continue to be an issue but Altria is busy diversifying away in an attempt to mitigate the potential damage.

MO Total Shareholder Returns

Source: Annual Shareholder Meeting, page 20

Despite this, Altria’s total shareholder returns have been outstanding in the past five years, with the worst year being 2017 at 9.4%. The share price has continued to rise in addition to the company’s ample dividend yield, which today stands at 5.5%. Given that the yield has been increased for nearly 50 consecutive years and that the dividend is covered well by earnings, we see the dividend as a primary source of total returns moving forward.

Altria’s competitive advantage is in its Marlboro brand cigarettes, which are consistently at or near the top of global cigarette sales by brand. In addition, Altria is innovating each year to remain relevant in both its core markets as well as newer ones, like its heated tobacco products.

Altria will need to continue to adapt to a market where cigarette volume is declining over time. The IQOS and MarkTen products are producing strong growth but make up just a small fraction of total revenue. This is still very much a cigarette/tobacco-driven story. However, we are forecasting mid-teens total shareholder returns moving forward consisting of high single digit earnings-per-share growth and the mid-single digit dividend yield, combined with a small tailwind from a rising valuation; we rate Altria a buy.

#9: Vector Group (VGR)

Vector Group is a unique combination of a tobacco firm and a real estate company, offering investors exposure to both in one package. The company’s shares have had a rough 2018 as profitability has declined, leading to weak earnings despite higher revenue and a lower tax rate. Indeed, adjusted earnings-per-share have declined in the first half of 2018 from 36 cents to just 23 cents.

The tobacco segment continues to perform relatively well, however, as volumes have risen 2% this year and operating income has increased slightly. Weakness has come from the real estate business which, despite higher revenue, has continue to struggle with profitability. This has dragged the stock price lower and boosted the dividend yield thus far in 2018.

VGR Historical Financial Data

Source: Investor Presentation, page 16

The company’s profitability, as measured by adjusted EBITDA, has actually declined slightly recently. Higher revenue hasn’t led to higher profits as the company’s stated cost advantage over its competitors in the tobacco segment is being overshadowed by weak performances from the real estate business. Indeed, in the past two years, the slim amount of EBITDA produced by the real estate business has been cut in half from $28 million in 2016 to just $13 million in the last twelve months.

With the recent share price decline, the dividend yield is now in excess of 10%, putting Vector Group in rare company. We continue to think the dividend is covered by cash reserves, operating cash flow and a small amount of borrowing. Vector’s earnings do not cover the dividend so that increases risk, but given its reserves and cash production, we see the dividend as safe.

Vector’s competitive advantage is in its low-cost tobacco product model as well as its exposure to real estate. While the real estate business is cyclical, it can help Vector weather downturns in the tobacco business, which is something none of its competitors has.

Vector’s real estate segment continues to be a problem for shareholders but with a 10% yield and low single digit earnings growth forecast, we see total annual shareholder returns in the mid-teens and thus, we rate Vector a buy. In particular, investors looking for a high yield should consider Vector as it not only pays a 10% cash dividend, but also a 5% stock dividend annually.

#8: AbbVie (ABBV)

Since being spun off from Abbott Laboratories (ABT), AbbVie has been a very strong performer. The company’s Humira drug continues to be a huge success and it is also constantly developing the next generation of treatments for a variety of ailments.

Earnings for the first half of 2018 have been outstanding as revenue has grown 20% year-over-year and earnings-per-share have risen by 33%. AbbVie has been helped by a lower tax rate but its performance thus far in 2018 is merely a continuation of a very favorable trend.

ABBV Financial Execution

Source: Investor Presentation, page 5

Indeed, net revenue has risen by more than 10% annually on average while adjusted earnings-per-share has been increased by an average of more than 15%. AbbVie continues to boost operating margins, heading towards its stated goal of 50% by 2020, and it also makes capital returns a priority for shareholders.

The dividend yield is approaching 4% today, making AbbVie a very strong choice for income investors. The payout is well-covered by earnings and cash flow, so there is still a lot of upside potential for the dividend to be increased.

Investors would do well to monitor the company’s exposure to Humira as it is the world’s best-selling drug and accounts for the majority of AbbVie’s total revenue. However, the company has dozens of patents related to Humira that should make it very difficult for competitors to supplant, so we don’t see it as a material risk as of now. Indeed, Humira is a key competitive advantage for AbbVie given that it is the best-selling drug in the world. In addition, AbbVie is in a very steady industry that doesn’t typically suffer from recessions.

In total, we continue to see very strong earnings-per-share growth in the low double digits, combined with the ~4% yield to produce mid-teens total shareholder returns in the coming years. AbbVie’s exposure to a single drug is an unusual situation but Humira’s blockbuster success and patent protection means we should continue to see sizable growth moving forward; we rate AbbVie a buy.

#7: McKesson Corporation (MCK)

McKesson Corporation was founded in 1833 and in the nearly two centuries since then, it has grown into a pharmaceutical powerhouse. The company generates $215 billion in annual revenue and the stock currently possesses a $26 billion market capitalization.

McKesson reported first quarter earnings on 7/26/18 and results largely met expectations. Revenue was up 3% and adjusted earnings-per-share rose 18%, boosted by lower interest expense, a much lower tax rate, a lower share count and a bit of operating leverage. McKesson – along with its competitors – has been struggling to maintain margins in an industry where a tremendously competitive landscape generally leads to lower prices over time, and those efforts are bearing fruit. Management guided for $13.00 to $13.80 in earnings-per-share for this year as well.

MCK Growth Areas

Source: Investor presentation, page 13

McKesson’s competitive advantage is in its willingness to be nimble in what is an ever-changing operating environment. As mentioned, competition in the healthcare industry is rapidly evolving and that generally means lower pricing for suppliers. However, McKesson has shown it is able to make strategic acquisitions that afford it various benefits such as larger scale, that can help drive down unit costs and boost margins. The slide above shows an overview of how McKesson plans to win in the coming years and given its strong history of growing earnings, we believe it will succeed.

The dividend is good for only a 1.2% yield at present given that management has typically prioritized acquisitions and share repurchases instead of cash payouts to shareholders. The payout ratio is barely 10% of earnings so of course, the dividend is safe. It also means that McKesson could see enormous growth in its payout in the future without undue financial stress if it decides to alter is capital allocation strategy. However, there is no indication that is on the table as of now.

In total, we see McKesson as a strong buy that should produce mid-teens total shareholder returns in the coming years. We see earnings-per-share growth in the high single digits, a high single digit tailwind from a valuation that should rise back towards normalized levels, and the current 1% yield. McKesson is a buy for those seeking deep value or growth, but it is not an income stock at this stage.

#6: Cummins (CMI)

Cummins Inc. designs, manufactures, distributes and services engines for commercial and passenger trucks. The company’s products have recently expanded from core diesel engines to include hybrids and natural gas platforms. Cummins will celebrate its centennial next year and produces $24 billion in revenue annual; the stock currently has a market capitalization of $23 billion.

The company reported second quarter earnings on 7/31/18 and results were very strong. Earnings-per-share rose 30% against the comparable quarter last year while revenue grew 20%. Strength was broad-based but was seen most in the Components and Power Systems segments. The second quarter marked the fourth consecutive quarter of at least 20% revenue growth for Cummins.

CMI Sales - EBITDA

Source: Second quarter earnings presentation, page 12

Sales have grown markedly since 2016 and profits have as well. However, margins haven’t quite kept pace and that was evident in the second quarter, as EBITDA fell as a percentage of sales 40bps to 14.6%. Guidance for the rest of the year was better than that, so management doesn’t see any sort of longer-term impairment.

Cummins has boosted its dividend each year for the past decade and today, the stock yields a very respectable 3.2%. Cummins pays only about one-third of its earnings out to shareholders, so the dividend is extremely safe, and we expect to continue to see sizable raises in the years to come.

Cummins’ competitive advantage is in its entrenched position in the heavy-duty engine market. Cummins has experienced tremendous sales growth because its engines are known as the standard in what is a bit of a niche industry. In addition, its engines are in some lighter duty trucks sold for public roads, offering another way to build brand recognition. Cummins will almost certainly suffer during a recession, however, as truck sales are highly cyclical.

In total, we see Cummins producing mid-teens total returns moving forward as it grows earnings in the high single digits and produces a strong yield. We rate Cummins a buy as the stock is priced nicely and offers both strong growth and a 3%+ yield.

#5: Walgreens Boots Alliance (WBA)

Walgreens is the largest retail pharmacy in the United States and Europe. The company has a presence in 25 countries around the globe, employing almost 400,000 people. Walgreens boasts a wide and deep customer base, servicing more than 200,000 pharmacies, doctors and other healthcare centers annually, along with its 13,000+ retail stores.

The company reported third quarter earnings on 6/28/18 and results were strong. Revenue rose 14% and adjusted earnings-per-share increased 15% as a lower tax rate helped. However, operating income rose just 5.5% as margins were pressured due to relative weakness from the core Retail Pharmacy USA business. Walgreens did announce a new $10 billion share repurchase program and boosted its dividend by 10%.

WBA Slogan

Source: Third quarter earnings presentation, page 16

The vast scale Walgreens operates on, as seen above, is a core competitive advantage. The company is already in a dominant position in the United States and Europe, and the Rite Aid acquisition should only serve to bolster that position. In addition, Walgreens has terrific exposure to the pharmacy business that continues to grow by leaps and bounds in the developed world, so it should hold up well during economic downturns.

The dividend was raised at the time of the third quarter report, as mentioned above, and the yield is now 2.6%. The payout currently makes up less than one-third of total earnings, so we expect to see continued growth in the dividend for many years to come. Indeed, Walgreens is less than a decade away from becoming a Dividend King, an ultra-exclusive club of dividend stocks that have at least 50 years of consecutive dividend increases.

In total, we forecast very strong total shareholder returns for Walgreens in the coming years approaching 20% annually. We see the stock as highly undervalued as well as high single digit earnings-per-share growth. Given this and the tremendously strong dividend increase history, we rate Walgreens a buy for its combination of growth, value, current yield and dividend growth.

#4: AT&T (T)

AT&T is a global provider of communications and digital entertainment services, offering internet access, wireless cellular and TV services. The company was born in its current form via a spin-off in 1984 and today, it creates $173 billion in annual revenue, driving a market capitalization of $234 billion.

AT&T reported second quarter earnings on 7/25/18 and investors were disappointed. Revenue was down 3% to the comparable quarter last year but adjusted earnings-per-share increased 15%. The company boosted its subscriber base by nearly 4 million, driven primarily by strength in prepaid customers in the United States. DirecTV NOW also continued to grow its subscriber base, increasing 342,000 to a total of 1.8 million.

T Warner Media

Source: Second quarter earnings presentation, page 7

WarnerMedia’s growth was strong as well as revenue expanded from $7.3 billion to $7.8 billion year-over-year. All of its segments continue to grow subscriber revenue with particular strength coming from HBO. Indeed, we see WarnerMedia as a significant growth catalyst for AT&T as the merger is integrated in the next few quarters. Second quarter results showed that WarnerMedia is growing much more quickly than the rest of AT&T and thus, we see the acquisition as a bullish development.

AT&T’s competitive advantage is in its enormous scale in the United States and parts of Latin America. The company uses that scale to push wireless, TV, and internet services to millions of consumers in a bid to expand relationships already in place. This diversification of AT&T’s legacy businesses and the content library of WarnerMedia is a core advantage AT&T possesses over its rivals, namely Verizon (VZ).

The company’s dividend is obviously a significant draw for investors as the yield is in excess of 6%. The payout is well-covered by earnings and cash flow, so we anticipate the ample yield will be safe for many years to come, and should continue to grow as well.

 

In total, we are forecasting annual shareholder returns around 20%, consisting of the company’s 6% yield, mid-single digit earnings-per-share growth and a significant tailwind from a rising valuation. We rate the shares a buy given these factors, as AT&T looks attractive from a value and yield perspective.

#3: Invesco Ltd (IVZ)

Invesco is an investment management company with nearly a trillion dollars of assets under management. It serves retail and institutional investors alike, producing almost $4 billion in annual revenue. It was founded in 1935 and today, trades with a market capitalization of just over $10 billion.

The company reported second quarter earnings on 7/26/18 and results were fairly strong. Revenue was up almost 8% and earnings-per-share grew 3%, reflecting slightly lower margins. Assets under management grew 15% against the comparable period last year but lower fees caused revenue and profit to grow less quickly than AUM.

IVZ Flows

Source: Second quarter earnings presentation, page 9

Indeed, the entire industry has been under pressure since the mass market acceptance of exchange-traded funds, or ETFs, and given this is Invesco’s core business, it has suffered along with the rest of the industry. This chart shows how long-term flows have tended to be fairly weak in the past several quarters, something which investors will want to keep a keen eye on moving forward. Lower relative fees were a problem once again in the second quarter and if assets begin to flow out on a regular basis, we could see not only lost revenue, but further margin compression as well.

Invesco’s competitive advantage is in its wide variety of both broad and specific investment vehicles whereby investors can express varying positions in asset classes that may not have been otherwise accessible. Invesco continues to focus only on providing investors with access to funds on varying asset classes for reasonable costs to fill what used to be a void in the retail and institutional markets for investing.

The dividend is a big draw for investors given the recent fall in the share price as it is approaching 5%. The payout is still just a fraction of total earnings, so we see continued payout growth in the future in addition to the sizable current yield.

Overall, we forecast high-teens total returns, consisting of the current yield, mid-single digit earnings-per-share growth and a high-single digit tailwind from a higher valuation. The recent share price decline in Invesco has caused the yield to rise and the valuation to fall to trough levels, so we rate the shares a buy for value, growth and income investors alike.

#2: Cardinal Health (CAH)

Cardinal Health is one of the three largest drug distribution companies in the United States. The company services more than 24,000 pharmacies across the country and nearly all of its hospitals. In addition, Cardinal has a global presence in more than 60 countries, employing a total of 50,000 people. It produces $140 billion in annual revenue and has a market capitalization of $16 billion.

The company reported its fourth quarter earnings on 8/6/18 and results were mixed. Revenue rose 7%, as did gross profit, but adjusted earnings-per-share fell 23% against the comparable period in 2017. Weakness in the pharmaceutical segment’s margins were the primary reason profitability fell in the fourth quarter as Cardinal grapples with some negative margin impacts. It previously announced the expiration of a large, mail-order customer’s contract, it is investing in its IT platform and margins in the company’s generic business continue to fall.

CAH Future Growth

Source: Fourth quarter earnings presentation, page 12

Management isn’t sitting idly by, however, as this slide shows some of the initiatives it is undertaking to combat these headwinds. Among them, Cardinal is working on controlling costs as well as successfully integrating the Cordis business. In addition, Cardinal remains committed to returning capital to shareholders via share repurchases and dividends. Indeed, the dividend yield is 3.7% today, making Cardinal a strong choice for income investors.

Cardinal’s competitive advantage is in its entrenched position in the pharmaceutical business, serving the vast majority of the United States’ hospitals in what is a very lucrative segment. Price competition is heating up, however, with the entrance of new players like Amazon (AMZN), so investors will need to keep an eye on margins.

In total, we are expecting total annual shareholder returns in excess of 20% moving forward. Cardinal should grow earnings-per-share in the high single digits, helped by its ample buyback program, in addition to the nearly-4% yield and a cheap valuation. We rate Cardinal a buy due to these factors and see the stock as one that is at a very favorable entry price for long-term investors.

#1: Owens & Minor (OMI)

Owens & Minor is a healthcare logistics company that provides packaged products for medical centers, primarily in the United states. The company produces $10 billion in annual revenue from more than 200,000 unique customers. In addition, the stock has a current market capitalization of just over $1 billion after shares fell precipitously in 2017.

The company reported second quarter earnings on 8/7/18 and results disappointed investors once again. Revenue grew 8.5% year-over-year as the Byram Healthcare and Halyard Health acquisitions boosted the top line. Adjusted operating income rose 13% but adjusted earnings-per-share fell by 25%, and management significantly reduced guidance for the rest of the year.

OMI Strategy

Source: Investor presentation, page 14

However, the company is addressing its well-known issues in a variety of ways, including cost rationalization programs and acquisitions. In addition, as the slide above depicts, the acute care setting provides an enormous market Owens & Minor can grow into in the coming years. Not only should this enable the company to continue to grow revenue, but it should improve its margin profile over time as well, which is something Owens & Minor certainly needs.

Owens & Minor’s competitive advantages include its enormous scale in a high-volume business, its entrenched position with hospitals and other customers, as well as its recession-resistance. Owens & Minor should weather economic downturns well as it sells necessities that are used in high volumes regardless of economic conditions.

The stock is yielding in excess of 6% today thanks to the sizable decline in the share price. We continue to see modest dividend growth moving forward and the payout is reasonably well-covered by earnings. Thus, Owens & Minor should be attractive to income investors for the foreseeable future.

Overall, we see Owens & Minor as producing mid-20% total annual shareholder returns, consisting of the high current yield, high single digit earnings-per-share growth and a double-digit tailwind from a rising valuation. We therefore rate Owens & Minor a strong buy for investors seeking growth, value or a high current yield.

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, with high yields. MLPs are excluded from the list below, but REITs are included.

#10: National Health Investors, Inc. (NHI)

National Health Investors is a REIT that was founded in 1991 and specializes in sale-leaseback, joint venture, mortgage and mezzanine financing of senior care facilities. The trust has a portfolio of more than 200 properties that generate almost $300 million in annual revenue. The stock currently has a market capitalization of $3.3 billion.

The trust reported second quarter earnings on 8/7/18 and results were mixed. Revenue rose 4.5% on stronger rental income but funds-from-operations were down fractionally to $1.33 per share from $1.34 in the comparable quarter last year. Lower interest and investment income as well as higher interest costs were among the factors that weighed on results.

NHI Diversification

Source: Investor presentation, page 10

This slide shows the composition of National Health’s portfolio, which is a key competitive advantage. Not only does the trust have exposure to the lucrative and growing senior care market, but it is also highly diversified, with no single operating partner making up more than 18% of revenue.

The dividend yield is currently just over 5%, making National Health a good choice for income investors. In addition, the yield is well-covered by funds-from-operations, which was guided to ~$5.50 per share this year by the management team, compared to a dividend payment of just $4 per share. The dividend is therefore quite safe and should have additional room to grow in the coming years, extending the trust’s impressive record of dividend increases.

National Health’s valuation has risen rather sharply of late as shares are near their highs. Thus, we are forecasting a mid-single digit headwind for total shareholder returns moving forward, roughly offsetting the ample dividend yield. Funds-from-operations growth should provide high single digit growth, congruent with historical trends, so we’re still forecasting high single digit returns. We rate National Health as a hold today based upon the valuation in excess of fair value, and would recommend investors wait for a better entry price before initiating a new position.

#9: Welltower (WELL)

Welltower is REIT that operates in three segments: triple-net, senior housing, and outpatient. The trust controls post-acute care facilities, assisted living and care homes, senior housing communities and outpatient medical facilities. It was founded in 1970, produces $4.5 billion in annual revenue and the stock has a market capitalization of $25 billion.

The trust reported second quarter earnings on 7/27/18 and results were mixed. Revenue rose 7% but funds-from-operations fell from $1.06 to $1.00. Looking forward, Welltower expects comparable sales to rise 1% to 2% this year and it also expects roughly $2 billion from dispositions. Finally, the forecast for funds-from-operations was raised slightly to about $4 per share.

Welltower Portfolio Transformation

Source: Second quarter presentation, page 17

This slide shows a key competitive advantage for Welltower as it has transformed its business into one that has more exposure to the lucrative senior housing market, and away from post-acute care. Welltower believes senior housing, capitalizing on long-term demographic trends, will be the most profitable market when it comes to senior care, and has positioned itself as such. In addition, demand for Welltower’s services is recession-resistant, so it should hold up well during downturns.

The dividend is worth 5.2% and the payout of $3.48 is covered by funds-from-operations of $4 per share. However, growth may be limited moving forward if funds-from-operations growth slows given that the payout ratio is nearly 90% today.

Overall, we are expecting modest returns for shareholders in the coming years. We are forecasting mid-single digit total returns as the high valuation causes a headwind that is roughly offset by low single digit funds-from-operations growth. That leaves the mid-single digit dividend yield to create essentially all of the trust’s shareholder returns. As a result, we rate the stock a hold given its low growth outlook and valuation that is in excess of fair value, offset by a strong yield.

#8: Altria Group (MO)

Altria appears in both our list of best blue chips, and list of highest yielding blue chips. Click here to see our analysis of Altria from earlier in this article.

#7: The Southern Company (SO)

Southern Company is major energy utility, serving 9 million customers in the United States. The company generates revenue from electric power via a mix of gas, coal, nuclear and renewables as fuel. The company was founded in 1945 and since that time, it has grown to $23 billion in annual revenue and a market capitalization of $44 billion.

Southern reported second quarter earnings and results were decent. Revenue rose nearly 4% and adjusted earnings-per-share increased 10%. Higher depreciation and operating costs were more than offset by favorable weather, as well as positive regulatory outcomes. In addition, management raised their earnings-per-share forecast to $2.97 for this year. However, the overhang from the Vogtle nuclear units is still weighing on the stock given that project is tremendously over budget and past its original timeline for completion.

Southern Company System

Source: Investor factsheet

Southern’s core competitive advantage is its tremendous diversification. That goes not only for the geographic reach shown in the image above, but also for its power sources. Southern has a very unique mix of legacy and newer fuels, utilizing gas, coal, nuclear and renewables in varying capacities. Southern, therefore, is quite different from most of its competitors and this diversification should help it weather unfavorable operating environments for one or more of its fuel sources. In addition, this makes Southern more flexible to changing regulatory or consumer demands.

The 5.5% dividend yield is impressive and certainly attractive for income investors. The payout ratio is up to 80%, however, so growth in the payout is likely quite limited. Still, for those seeking income, the high current yield is safe.

Overall, we are expecting Southern to produce roughly 10% annual returns moving forward. We see low single digit earnings-per-share growth, a low single digit tailwind from a higher valuation, and the mid-single digit yield combining to produce respectable returns. The near-term outlook for Southern is a bit murky given the unpleasant situation with the Vogtle units. Given this, we rate Southern as a buy for income investors, although for those seeking growth, it would not be appropriate.

#6: PPL Corporation (PPL)

PPL Corporation was formed in 1920 and today, it distributes power to more than 10 million customers in the United States and United Kingdom. The company produces $7.7 billion in annual revenue and the stock has a market capitalization of almost $21 billion.

PPL reported second quarter earnings on 8/7/18 and results were strong. Revenue was up 7% against the comparable quarter last year and earnings-per-share increased 6%. The company’s UK segment was the driver behind higher revenue and earnings as the US business was roughly flat. The quarter was good enough for the company to boost its earnings-per-share guidance for this year slightly to a midpoint of $2.33 against the prior midpoint of $2.30.

PPL Projected Rate base Growth

Source: Second quarter investor presentation, page 18

This slide depicts PPL’s projected rate base growth in the 5% range, which it believes will drive 5% to 6% annual earnings-per-share growth. The company’s main competitive advantage over other utilities is that its UK business is a unique growth driver. The US business isn’t growing as quickly but the UK segment is helping to drive top and bottom line expansion, as it did in the second quarter.

The dividend yield is 5.5% today, which is quite high by historical standards for PPL. The payout is very safe and has ample room to continue growing along with earnings-per-share, as the payout ratio is right around two-thirds of earnings; PPL will be a strong income stock for a long time to come.

In total, however, annual shareholder returns look weak given that the stock is trading well in excess of fair value. We are forecasting total shareholder returns in the mid-single digits, comprised of the current 5.5% yield, a mid-single digit rate of earnings expansion and an offsetting headwind from a lower valuation. Indeed, PPL is trading well in excess of fair value today and therefore, we rate it a sell.

#5: Tanger Factory Outlet Centers (SKT)

Tanger Factory Outlet Centers is a REIT that specializes in outlet shopping centers. The trust has interests in 44 different properties in 22 states, totaling more than 15 million square feet. It was founded in 1981 and today, produces nearly $500 million of revenue annually and has a $2.4 billion market capitalization.

The trust reported second quarter earnings on 7/31/18 and results were somewhat mixed. Tanger’s occupancy rate fell fractionally, and comparable sales fell nearly 2%. However, funds-from-operations rose on a per-share basis against the comparable quarter last year thanks to a slightly lower share count. Tanger guided for $2.43 in funds-from-operations for this year while also stating it expects occupancy rates and comparable sales to fall slightly.

Tanger Historical Occupancy

Source: Investor presentation, page 14

This chart shows a key competitive advantage for Tanger as it has maintained an extraordinarily high occupancy rate through all sorts of operating environments. Since it came public in the early 1990s, Tanger has never seen a full-year occupancy rate lower than 96%. The trust’s focus on premium brands in outlet format has resonated well with consumers and we expect that will continue indefinitely. We’ll caution, however, that occupancy has dipped slightly in recent years and the second quarter saw it fall slightly below 96%, so it is something worth watching longer-term.

The dividend is currently $1.40 per share, which compares very favorably to updated funds-from-operations guidance of $2.43 for this year. That makes the dividend very safe and leaves ample room for further growth moving forward. In addition, the 5.8% current yield is well in excess of historical norms, thanks to the flagging share price.

Overall, we see Tanger as producing high single digit total shareholder returns in the coming years, consisting of low single digit funds-from-operations growth, a low single digit tailwind from a rising valuation, and the current yield of nearly 6%. We rate Tanger a hold today given the murky near-term outlook, but see the dividend as attractive. Tanger’s stellar operating history is coming under threat at present as a result of lower comparable sales and occupancy rates and we suspect near-term funds-from-operations growth will suffer as a result.

#4: Owens & Minor (OMI)

Owens & Minor appears in both our list of best blue chips, and list of highest yielding blue chips. Click here to see our analysis of Owens & Minor from earlier in this article.

#3: W.P. Carey (WPC)

W.P. Carey is a REIT that is focused primarily on commercial real estate ownership; it also obtains a relatively small percentage of revenue from advisory fees. The trust was founded in 1973 and generates about $775 million in annual revenue. The stock currently has a $7.1 billion market capitalization.

W.P. Carey reported second quarter earnings on 8/3/18 and results were mixed. Adjusted-funds-from-operations rose 17% against the comparable quarter last year, but the advisory segment saw its revenue fall markedly. Strength in its core business was enough, however, for management to boost the lower end of its adjusted-funds-from-operations forecast for this year, as the trust now expects ~$5.45 per share.

WPC Property Overview

Source: Investor presentation, page 11

This slide gives an idea of how well diversified W.P. Carey is in terms of its owned properties. The company has just 31% of its total properties in its top 10 customers, meaning concentration is low. Similar structures are present by property type and industry, providing W.P. Carey with a key competitive advantage. Along the same lines, the company’s occupancy rate is consistently in the high-90% range and today, stands just below 100%. W.P. Carey’s model certainly works well and we expect this success to continue.

The dividend yield is in excess of 6% today following several years of strong payout growth. Indeed, W.P. Carey’s yield today is higher than it has been since 2010. The payout likely won’t be able to grow as quickly moving forward because the payout ratio is approaching 80% of adjusted-funds-from-operations. However, the dividend is safe and already offers investors a sizable yield.

In total, we expect W.P. Carey to produce double digit annual shareholder returns in the coming years as investors see a little bit of growth and the impressive current yield. More specifically, we are forecasting low single digit funds-from-operations growth, low single digit tailwind from the valuation, and the ~6% yield. Therefore, we rate W.P. Carey a buy today for those seeking income as its yield is very strong. However, it would not be suitable for investors looking for growth or value, as it is fairly priced.

#2: AT&T (T)

AT&T appears in both our list of best blue chips, and list of highest yielding blue chips. Click here to see our analysis of AT&T from earlier in this article.

#1: Omega Healthcare Investors (OHI)

Omega Healthcare Investors is a REIT that generates the vast majority of its revenue from skilled nursing facilities. The trust also operates senior housing developments, helping it to produce nearly $900 million in revenue each year. The stock currently has a market capitalization of $7 billion.

Omega announced second quarter earnings on 8/3/18 and results were weak. Revenue fell 7% as direct financing leases revenue nearly dried up entirely. The company is being impacted by Orianna and Preferred Care bankruptcies, and operating costs rose slightly in the second quarter as well. In total, adjusted-funds-from-operations declined 9% year-over-year to 79 cents. Omega did boost its guidance for this year to a midpoint of $3.04 in adjusted-funds-from-operations, a slight increase over prior guidance.

OHI Aging Population

Source: Investor presentation, page 14

This slide shows the long-term demographics of Omega’s customer base. The company specializes in nursing facilities, which receive incrementally higher amounts of revenue per person as age increases. In other words, in the coming years, when the population of 75+ citizens increases meaningfully, Omega stands to benefit as those that are 75 and older use nursing facilities at much higher rates than those under 75. Omega’s strong position in this market is a core competitive advantage.

The dividend is yielding 8% today as the share price has fallen meaningfully in recent months. The dividend of $2.64 per share compares somewhat favorably to updated funds-from-operations guidance of $3.04, but the payout ratio is still approaching 90%, which will limit how much the distribution can grow in the coming years.

In total, we expect Omega to produce annual shareholder returns in the mid-teens, consisting of a low-single digit tailwind from a rising valuation, the high single digit dividend yield, and mid-single digit growth in funds-from-operations. We therefore rate Omega a buy as it offers growth, a high yield and a reasonable valuation.

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