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 October 13th, 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

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: People’s United Financial (PBCT)

People’s United Financial is a diversified financial services company that provides commercial and retail banking and wealth management services via its network of over 400 branches in the Northeast. It has total assets of $59 billion and trades with a market capitalization of approximately $4.6 billion.

The company has more than doubled its total assets during the last decade thanks to organic growth, geographic expansion, and a series of acquisitions. In the last six years, it has grown its loans and its deposits at a 9% average annual rate. In 2019, People’s United Financial acquired United Financial, which enhanced the presence of the company in central Connecticut and western Massachusetts.

Source: Investor Presentation

Just like all the other banks, People’s United Financial is now facing a strong headwind, namely the outbreak of the coronavirus. As a result, virtually all banks will increase their provisions for loan losses. In late July, People’s United Financial reported (7/23/20) financial results for the second quarter of fiscal 2020. Net interest margin slipped from 3.12% to 3.05% sequentially but the amount of loans grew 3% and thus net interest income grew 2% sequentially.

On the other hand, non-interest income slumped -28%, from $123.8 million to $89.6 million, due to the decreased customer activity caused by the pandemic and the numerous fee waivers related to the pandemic.

As a result, operating earnings-per-share fell -27% sequentially, from $0.33 to $0.24. It is also remarkable that the provision for credit losses increased from $8.5 million to $80.8 million due to the pandemic.

People’s United Financial has grown its earnings-per-share for 9 consecutive years. In the last five years, the company has grown its earnings-per-share at a 10.6% average annual rate. However, this period includes a steep decrease in the tax rate, from 28% to 19%. While the pandemic will take its toll on the earnings this year, and it is likely the company’s earnings-per-share growth streak will end, we still expect 4% earnings-per-share growth over the next five years, primarily thanks to the recent acquisitions.

People’s United Financial has raised its dividend for 27 consecutive years, albeit with small increases for the past several years. Due to the dip in the earnings expected this year, the payout ratio has risen to nearly 70%. Given the economic damage caused by the coronavirus, investors should note that People’s United Financial is vulnerable to recessions. In the Great Recession, its earnings-per-share plunged -54%, from $0.52 in 2007 to $0.24 in 2010. That said, the dividend appears safe, with a high yield above 6%.

The combination of an expanding price-to-earnings multiple, future EPS growth, and dividends leads to total expected returns of 13.8% per year over the next five years.

#9: Enterprise Bancorp, Inc. (EBTC)

Enterprise Bancorp is a small regional bank, with 25 full-service branches in the North Central region of Massachusetts and Southern New Hampshire. The company’s primary business operation is gathering deposits and investing in commercial loans and investment securities. Enterprise offers commercial, residential and consumer loans, cash management services, insurance products,and wealth management.

About half of the company’s loan portfolio is in commercial real estate and about a third is in commercial construction loans. Enterprise Bancorp has a market cap of $263 million. Investors should note the small market cap of the stock as well as its low level of daily volume.

In late July, Enterprise reported (7/27/20) financial results for the second quarter of fiscal 2020. Net interest margin shrank from 4.0% in last year’s quarter to 3.6% but net interest income grew 13% thanks to strong loan growth. Total loans and customer deposits grew 32% and 26%, respectively, year-over-year. Excluding the Paycheck Protection Program, loans grew 11%. Thanks to its strong performance, Enterprise saw its earnings-per-share decrease only 8%.

For example, during the Great Recession, the company’s earnings-per-share jumped 37% in 2009 and increased 20% in 2010, with continued growth in the years after the recession ended. The outstanding performance in the worst financial crisis of the last 90 years is a testament to the great management of the bank, and its resilience to recessions.

The bank has grown its earnings-per-share at a 10.8% average annual rate in the last decade and has grown its earnings-per-share in all but one year throughout this period. Growth will be fueled primarily by new branch openings.

In the short term, Enterprise is facing a challenge due to COVID-19, but we expect the bank to recover next year, along with the broader economy. We expect Enterprise to grow its earnings-per-share by about 9% per year over the next five years. Management has not provided earnings guidance for the year.

Due to the recession caused by the pandemic, we have lowered our earnings-per-share forecast for the year from $3.05 to $2.20. Based on this, the stock trades for a price-to-earnings ratio of 10, below our fair value estimate of 12. An expanding valuation multiple could add meaningfully to shareholder returns.

In addition, we expect 9% annual EPS growth, and the stock has a 2.4% dividend yield. Taken together, Enterprise stock has a projected rate of return of 13.8% per year through 2025.

#8: Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance is a pharmacy retailer with over 18,000 stores in 11 countries. The stock currently has a $36 billion market capitalization. Walgreens has increased its dividend for 45 consecutive years.

Walgreens reported fiscal third-quarter earnings on July 9th. Sales increased 0.1%, while organic sales increased 1.2%. Sales growth was due largely to comparable store sales growth of 3.0% in the core Retail Pharmacy USA operating segment. However, higher costs and a sizable impairment charge led to an operating loss of $1.6 billion, compared with operating profit of $1.2 billion in the year-ago period. On a per-share basis, Walgreens swung to a loss of $1.95.

Walgreens incurred a non-cash impairment charge of $2 billion related to a re-evaluation of goodwill and intangibles in its Boots UK business. Excluding this, the company reported positive earnings. Adjusted earnings-per-share came to $0.83 for the quarter, although this still represented a year-over-year decline of 44%. However, Walgreens raised its dividend by 2.2%. The company hiked its cost-savings target to more than $2 billion by fiscal 2022, compared with previous forecasts of $1.8 billion.

While the company continues to be plagued by sluggishness and growing competition in the space, there should be plenty of room for growth next year and beyond. For example, in the most recent quarter Walgreens’ pharmacy sales increased 4.6% due to higher brand inflation and specialty sales.

Source: Investor Presentation

Separately, Walgreens announced more than 2,300 products will be available for delivery in Chicago, Atlanta, and Denver through DoorDash.

Walgreens has also announced a partnership with VillageMD in which Walgreens will offer full-service doctor offices co-located at its stores. Over the next five years, the partnership will result in 500 to 700 primary-care clinics in over 30 U.S. markets.

Walgreens’ competitive advantage is its leading market share. Its robust retail presence and convenient locations encourage consumers to use Walgreens instead of its competitors. This brand strength means customers keep coming back to Walgreens, providing the company with stable sales and growth.

Consumers are unlikely to cut spending on prescriptions and other healthcare products even during difficult economic times which makes Walgreens very resistant to recessions. Walgreens’ adjusted earnings-per-share declined by just 7% during 2009 and the company actually grew its adjusted earnings-per-share from 2007 through 2010.

The combination of P/E expansion, expected EPS growth and the 5.1% dividend yield to generate nearly 14% annualized total returns over the next five years.

#7: Prosperity Bancshares (PB)

Prosperity Bancshares Inc. was formed in 1983 as a vehicle to acquire the former Allied Bank–chartered in 1949 as the First National Bank of Edna, Texas–which is now known as Prosperity Bank. The bank’s main operation is receiving deposits from the general public and using the capital to originate commercial and consumer loans.

The bank operates 271 branches in the greater Houston area and some neighboring counties in Texas and 14 more branches in Oklahoma. The company also has the following operations: wealth management, retail brokerage, and mortgage banking investment services. The bank’s main lending focus is commercial mortgages, which make up 33% of their loan portfolio, followed by residential mortgages, which make up 24%.

The bank has a long history of generating steady earnings-per-share growth.

Source: Investor Presentation

On November 1st, Prosperity Bancshares completed the acquisition of Legacy Texas Bank in a deal valued at $2.1 billion. Legacy Texas has 42 branches in Texas and thus it has strengthened the position of Prosperity Bancshares in the area. As the deal value of $2.1 billion was almost half of the market cap of Prosperity Bancshares before the deal, it is evident that this acquisition is major for the future growth of Prosperity.

In late July, Prosperity Bancshares reported (7/29/20) financial results for the second quarter of fiscal 2020. Excluding a tax benefit of $0.22 per share, earnings-per-share edged up 1% over last year’s quarter, from $1.18 to $1.19. Loans grew 9.9%, deposits grew 9.8% and non-performing loans remained low, at 0.28% of interest-earning assets. Due to the severe recession caused by the pandemic, the bank raised its provisions for losses from $327.2 million to $354.2 million. It is also worth noting that the bank has some exposure to the energy sector, which has been severely hit by the coronavirus crisis.

Prosperity Bancshares has grown its earnings-per-share at a 5.8% average annual rate in the last decade, primarily thanks to strong economic activity in Texas and Oklahoma. The bank stalled from 2014 to 2017 but it has reignited growth in the last two years. It is now facing the strong headwind from the pandemic but we expect the economy to begin to recover from next year. We expect the bank to grow its EPS by 6.0% per year on average over the next five years thanks to its recent major acquisition and the resulting synergies it will enjoy.

The stock has a P/E ratio of 10.7, below our fair value estimate of 14.7. The stock also has a 3.3% dividend yield. Including expected EPS growth, total returns are expected to reach 14%-15% per year over the next five years.

#6: Mercury General (MCY)

Mercury General is an insurance company that is active in the following businesses: automobile, homeowners, renters & business insurance. Mercury was founded more than 50 years ago,in 1961. Personal automobile insurance is the most important business unit for Mercury General. The company is active in eleven states, with California being the most important market. Insurance is primarily sold through about 10,000 independent agents.

Mercury General reported its second-quarter earnings results on August4. The company reported net premiums earned of $812 million, down 13% year-over-year. Net premiums written also declined 13%. Net investment income totaled $34 million during the second quarter, roughly on par with the previous year’s level. Adjusted earnings-per-share totaled $1.86. Thanks to a very strong first half, the outlook for fiscal 2020 is quite positive, as profits will likely exceed 2019 levels.

Following a solid 2019, analysts are forecasting an even better 2020, despite the current pandemic. Normalizing catastrophe losses, which were unusually high over the last couple of years, should be a tailwind for Mercury going forward.Analysts are not forecasting a major negative impact from the coronavirus crisis on Mercury’s operations, apart from the accounting loss during the first quarter, which was reverted in Q2. We expect 1%-2% annual EPS growth over the next five years.

During the last financial crisis Mercury remained profitable, which can be explained by two key factors. First, even during times when the economy is weak, people still need insurance for their cars, property, and other belongings. Demand for Mercury’s offerings is thus not overly dependent upon the economy. Second, Mercury did not invest in high-risk assets prior to the financial crisis, and therefore was able to avoid the huge losses many other financial corporations had to report.

Mercury overall is nearly recession-proof which is a plus during the current economic downturn. The company is significantly more impacted by catastrophes that affect its operations directly, such as 2017’s huge California wildfires.

Shares currently trade for a price-to-earnings ratio of 9.5, which is below our fair value estimate of 13. The stock also has a 6.1% dividend yield. The addition of future EPS growth leads to total expected returns of 14.7% through 2025.

#5: AT&T Inc. (T)

AT&T is the largest communications company in the world, operating in three 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, Warner Bros. and the Xandr advertising unit), and AT&T Latin America (offering pay-TV and wireless service to 11 countries). The company generates $180+ billion in annual revenue.

AT&T reported second-quarter 2020 financial results on July 23rd. For the quarter, the company generated $40.95 billion in revenue, down 9% year-over-year. The coronavirus pandemic led to declines across the business, including lower content and advertising revenue for WarnerMedia, as well as lower domestic video and legacy wireless revenue. On an adjusted basis, earnings-per-share declined 6.7% to $0.83.

Still, AT&T generated $7.6 billion of free cash flow, which was used to pay down debt, return cash to shareholders, and invest in future growth. AT&T’s net debt-to-EBITDA ratio was ~2.6x at the end of the quarter.

Source: Investor Presentation

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. We expect 3% annual EPS growth through 2025.

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.

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. On June 29th, AT&T announced it had turned on 5G service to 28 additional markets. AT&T now provides access to 5G to parts of 355 U.S. markets, covering more than 120 million people. The company also invested $1 billion in the second quarter to acquire 5G spectrum.

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. The combination of a rising P/E multiple, dividends and earnings-per-share growth could lead to total annual returns of 14.8% per year through 2025.

#4: 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.

Source: Investor Presentation

On July 28th, 2020 Unum reported Q2 2020 results for the period ending June 30th, 2020. For the quarter Unum generated $3.02 billion in revenue, up 0.2% compared to Q2 2019. Premium income was up 1.1%, but this was offset by a decline in net investment income. Net income equaled $265.5 million ($1.30 per share) compared to $281.2 million ($1.33 per share) previously. On an adjusted basis, excluding investment gains or losses, operating income equaled $250.1 million or $1.23 per share compared to $1.36 in the year ago quarter.

Book value per share was $51.90 compared to $45.11 at the end of Q2 2019. 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 $5.00 for 2020. Based on this, the stock has a price-to-earnings ratio (P/E) below 4. 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 6.0, which implies the potential for a significant valuation tailwind. In addition, shareholder returns will be driven by expected EPS growth of 2% per year, and the 6.0% dividend yield. Overall, we expect total annual returns of 15.4% per year over the next five years for Unum stock.

#3: 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 $60 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.

An overview of Enbridge’s business model can be viewed in the image below:

Source: Investor Presentation

Enbridge reported its second-quarter earnings results on July 29. The company generated revenues of US$6.0 billion during the quarter, which was down ~40% from the same quarter a year ago. Revenues were down despite the fact that new projects were placed into service, but this was mostly due to the fact that commodity prices are a pass-through item.

Adjusted EBITDA increased 3% from the previous year’s quarter, as revenue declines could be fully offset by lower costs. Distributable cash flow of US$1.8billion, or US$0.89 on a per-share basis, easily covered Enbridge’s dividend payment. Despite the coronavirus crisis, Enbridge maintained its guidance for distributable cash flow-per-share of ~US$3.47 for 2020.

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.

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. The combination of cash flow growth, dividends, and valuation changes results in expected annual returns of 16.0% per year over the next five years.

#2: Principal Financial Group (PFG)

Principal Financial Group is a financial corporation that operates several businesses including insurance, primarily life insurance, and investment management, retirement solutions and asset management. Principal Financial Group was founded in 1879, and has a market capitalization of $12 billion.

Principal Financial Group reported its second-quarter earnings results on July 27. The company recorded revenues of $460 million for its retirement and income solutions fee business, which was 19% growth from the previous year’s second quarter. Assets under management grew to $702 billion, based on the global equity market recovery during the quarter. Principal Financial’s successful management of the assets of its customers was showcased by the fact that 80% of AUM outperformed their peer average over the last five years, while 77% of AUM holds a Morningstar rating of 4 or 5 stars.

Principal Financial Group generated earnings-per-share of $1.46 during the second quarter, which easily beat the consensus estimate. Earnings-per-share were down 4% year-over-year. Full-year profits will likely be down versus 2019 due to the coronavirus, but we do not see this as reflective of the underlying earnings power of Principal Financial.

Source: Investor Presentation

Earnings-per-share were down 20% in the first quarter, and profits will likely be down substantially versus 2019 based on the impact of the coronavirus. But we do not see this as reflective of the underlying earnings power of Principal Financial. We calculate fair value and total returns with an earnings power figure of $5.70.

Principal Financial Group recorded a highly compelling average annual earnings-per-share growth rate of 12% between 2008 and 2019. The company’s asset management business, where Principal Global Investors and Retirement & Income Solutions are the main components, has benefited from solid assets under management (AuM) growth A rising number of new customers also helps drive AuM, in addition to market appreciation in normal times. We expect 5% annual EPS over the next five years.

The strong performance and ratings of Principal Financial Group’s actively managed funds, ETFs, and other products is a competitive advantage, as this increases the likelihood of customers choosing Principal to manage their assets. Principal Financial Group’s stock was extremely volatile during the last financial crisis, but its actual underlying performance was not impacted much. Operating earnings declined by just 10% from 2007 to 2008 and started to rise again in 2009. This compares very favorably to the much weaker performance of many other financial companies.

The combination of expected EPS growth, dividends, and an expanding P/E multiple leads to expected total returns of 16% per year over the next five years.

#1: 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. An overview of ONEOK’s business can be seen in the image below:

Source: Investor Presentation

ONEOK reported its second-quarter earnings results on July 28th. Revenues of $1.66 billion declined by 33% from the previous year’s quarter. ONEOK missed the analyst consensus estimate by $660 million. Despite a steep revenue decline compared to the prior year’s quarter, which can be explained by commodity price movements, ONEOK managed to remain quite profitable. This can be explained by the fact that its input costs declined as well, as those are also partially commodity-price based.

During the most recent quarter, ONEOK generated adjusted EBITDA of $530 million, down 16% versus the previous year’s quarter. Distributable cash flows totaled $300 million, down 40% on a year-over-year basis. Distributable cash flows came in at $0.67 on a per-share basis.

ONEOK sees 2020 distributable cash flows declining slightly versus 2019, to $1.94 billion, or roughly $4.65 per share. ONEOK forecasts improving results during H2 compared to Q2, but DCF will nevertheless be down from 2019. 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.

Shares of ONEOK trade for a 2020 price-to-earnings ratio just above 6. Our fair value estimate is a P/E ratio of 10. An expanding valuation multiple could boost annual returns, as will 3% expected annual DCF-per-share growth, and the stock has a high dividend yield of nearly 13%. Total returns are expected to reach 21% per year 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: 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.

Source: Investor Presentation

W. P. Carey reported its second-quarter earnings results on July 31. The trust reported that its revenues totaled $291 million during the quarter, which was 5% less than the revenues that W. P. Carey generated during the previous year’s period. Funds From Operation, or FFO, came in at $1.14 on a per-share basis, which was $0.05 more than the analyst consensus. Funds-from-operations were down on a per-share basis compared to the previous year’s quarter, declining by 7% year over year.

W. P. Carey had previously withdrawn its guidance for 2020, citing the coronavirus crisis and the unknown impact it will have. So far, W.P. Carey is weathering the storm quite well, as funds from operations declined only slightly during the second quarter, while Q1 was better compared to the previous year. Rent collection improved to 98% for July, which is why Q3 and Q4 could be back in line with pre-crisis levels.

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.

#9: Philip Morris International (PM)

Philip Morris International was spun off from Altria in 2008, and is charged with the production and distribution of Altria’s products outside of the United States. This includes the flagship Marlboro brand. Philip Morris is a large-cap stock with a sizable market capitalization of $124 billion, and should produce in excess of $28 billion in revenue this year.

The company has been hurt by a strong dollar, which has negatively affected the conversion of international sales into dollars. It has also dealt with the global economic downturn as a result of the coronavirus pandemic. If all that weren’t bad enough, the broader decline of the smoking industry is a lingering challenge. It should be no surprise that our estimate of $5.00 in earnings-per-share for this year is below 2012 earnings of $5.17 per share.

Overall, Philip Morris has failed to grow its earnings in the last seven years and thus its stock price has dramatically underperformed the market over this period. However, the stock has an attractive 6% dividend yield, and we see the potential for a return to growth.

Expansion of IQOS in new markets is a potential game-changer. Philip Morris has increased its capital expenses in the last two years in order to develop and manufacture this new product. IQOS has met great success in some markets, such as Japan and Korea.

This has helped the company grow its sales meaningfully in recent quarters, even though the volumes of traditional cigarettes have declined. They have also led management to provide upbeat guidance for the medium-term.

Source: Investor presentation

Management sees currency-neutral revenue growth in excess of 5% annually, and 8% earnings-per-share growth over the coming years, which are robust growth targets considering how the company has performed of late. Interestingly, Philip Morris has a stated corporate goal of switching all of is users from tobacco products to some sort of smoke-free alternative over time.

There aren’t many businesses around the world that are deliberately trying to force its customers off of their core product and into something else. This inherently carries with it some measure of risk as competition in the smoke-free industry is also quite tough, and isn’t concentrated in the hands of a few companies like the cigarette industry.

Philip Morris currently offers an attractive 6.0% dividend yield. Thanks to the promising prospects of IQOS, the stock is likely to offer mid-single digit earnings growth in the upcoming years. This will allow Philip Morris to maintain and even grow the dividend payments to shareholders going forward.

#8: 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 August 4th, 2020 Prudential released Q2 2020 results for the period ending June 30th, 2020. For the quarter Prudential reported a net loss of -$2.409 billion or -$6.12 per share compared to net income of $708 million or $1.71 per share in Q2 2019. However, these results included substantial investment losses. On an adjusted basis, operating income totaled $742 million or $1.85 per share compared to $1.262 billion or $3.03 in the year ago quarter.

While results declined, the per share metrics continue to be aided by a lower share count.Adjusted book value per share totaled $92.07 against $97.15 in Q2 2019. At quarter-end Prudent held $1.605 trillion in assets under management compared to $1.497 trillion in the year ago period.

You can see an image of Prudential’s quarterly performance 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.

During the last recession, Prudential generated earnings-per-share of $7.31 in 2007 followed by $2.69, $5.58 and $6.27 in 2008 through 2010. It wasn’t until 2014 that earnings finally eclipsed their pre-recession peak. Similarly, the dividend was slashed from $1.15 in 2007 down to $0.58 in 2008 and did not recover until 2010. This sort of cyclicality is certainly possible in the next downturn. Still, the company has a reasonable payout ratio and strong financial position.

#7: 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 Q3 2020 results in which adjusted earnings-per-share fell 44%. Results were negatively impacted by loan loss provisions of $2.18 billion for the quarter.

You can see a snapshot of Scotiabank’s capital and liquidity position at quarter-end in the image below:

Source: Investor Presentation

In the core Canadian Banking segment, revenue was down by 6%, although loans grew 5% for the quarter. Segment adjusted net income declined 53% year-over-year due to higher provisions for credit losses.

Other segments performed better for Scotiabank in the fiscal second quarter. For example, adjusted net income rose 60% in the Global Banking & Markets business, thanks to higher trading and investment banking revenue.

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 $2.72 per share yields over 6% right now. With a dividend payout ratio of approximately 70% for 2020, the dividend payout appears safe.

#6: People’s United Financial (PBCT)

People’s United Financial is already analyzed in the first section of this article.

#5: AT&T Inc. (T)

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

#4: 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 $1.0 billion.

With 50 years of dividend increases, Universal Corporation is on the list of Dividend Kings.

Source: Investor Presentation

Universal Corporation reported its fiscal 2021 first-quarter results, in which revenue of $316 million increased 6% year-over-year. Revenue growth was due to higher volumes, offset partly by lower sales and leaf prices as well as less favorable mix. Operating income grew by 13% for the 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. Profits generated in fiscal 2020 appear to sufficiently cover the forward dividend payout of $3.08 per share.

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.

This level of earnings growth, albeit modest, should still provide sustainability to the dividend and even allow for small dividend increases each year.

#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 July 28th, Altria reported financial results for the 2020 second quarter. Revenue of $5.06 billion fell 2.5% year-over-year. Smokeable product volume declined 8.7% year-over-year, a full percentage point better than expectations. Smokeless product volume dropped 1%, far better than the 2.7% drop that was anticipated. Adjusted earnings-per-share came to $1.09, up 1% year-over-year.

The company maintained its target dividend payout ratio of 80%, in terms of adjusted EPS. Altria also announced a 2.4% dividend increase. 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 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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