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 March 12th, 2020 by Bob Ciura

Spreadsheet data updated daily

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

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

So what are blue chip stocks?

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

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

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

 

Click here to download your Excel spreadsheet of all 265 blue chip stocks, including metrics that matter like dividend yield and the price-to-earnings ratio.

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

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

The table of contents below allows for easy navigation.

Table of Contents

 

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

 

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

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

The 10 Best Blue Chip Buys Today

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

#10: United Parcel Service (UPS)

UPS is a logistics and package delivery company that offers services including transportation, distribution, ground freight, ocean freight, insurance and financing. Its operations are split into three segments: US Domestic Package, International Package, and Supply Chain & Freight. UPS trades with a market capitalization of $80 billion.

On January 30th, 2020 UPS reported Q4 and full year 2019 results. For the quarter the company generated revenue of $20.57 billion, representing a 3.6% increase compared to Q4 2018, driven by strong average daily volume growth during the peak holiday season.

Source: Investor Presentation

Adjusted net income equaled $1.84 billion compared to $1.69 billion prior, while adjusted earnings-per-share came in at $2.11 versus $1.94 prior.

For the year, UPS generated $74.1 billion in revenue, a 3.1% year-over-year increase, driven by strong volume growth in the U.S. Adjusted earnings-per-share totaled $7.53, up 4.0%, and within prior guidance of $7.45 to $7.75.

UPS also provided a 2020 outlook. For 2020, the company anticipates adjusted free cash flow to be between $4.3 and $4.47 billion, an effective tax rate between 22.5% and 23.5% and adjusted earnings-per-share are expected to be in the $7.76 to $8.06 range. At the midpoint of guidance, UPS expects adjusted EPS to increase 5% for 2020.

UPS enjoys significant competitive advantages. First, it dominates the global logistics industry, with only one major competitor in FedEx (FDX). While there are fears of Amazon (AMZN) building its own logistics platform, it is also a customer of UPS.

And, even with Amazon entering the fray, the industry remains healthy enough for UPS to capture its fair share of growth. This is thanks in large part to the e-commerce industry, which is growing at a high rate and shows no signs of slowing down. We expect 6% annual EPS growth per year over the next five years.

UPS has increased its dividend for 10 years in a row, and currently yields 4.6%. The stock also appears to be undervalued. With a 2020 P/E ratio of 11.1x, UPS stock trades below our fair value estimate of 16.0x. Valuation expansion could boost annual returns by 7.6% through 2025. Adding in 6% expected EPS growth, overall we expect total annual returns of 18.2% per year through 2025 for UPS stock.

#9: Cullen/Frost Bankers (CFR)

Cullen/Frost Banker’s roots go back to 1868 when Frost Bank was established in San Antonio, Texas, where T.C. Frost provided Texans with the supplies they needed to prosper on the frontier. In 1977, Frost merged with Houston-based Cullen Bankers Inc. to become Cullen/Frost Bankers Inc. Currently, Cullen Frost operates over 130 branches in Texas metropolitan areas, where the community-oriented bank serves individuals and local businesses.

The Bank offers consumer and commercial loans, investment management services, mutual funds, insurance, brokerage, and leasing. Since 2009, Cullen Frost has been trying to grow their insurance business through acquisitions, while also looking for ways to expand and diversify within its existing markets.

Source: Investor Presentation

On January 30th, Cullen/Frost reported Q4 and full year 2019 results. For the quarter net interest income equaled $251 million, a 0.8% improvement compared to Q4 2018. Net income and earnings-per-share equaled $101.7 million or $1.60 per share compared to $117.2 million or $1.82 for Q4 2018.

For the year, net income and earnings-per-share equaled $425.5 million and $6.84 compared to $446.9 million and $6.90 per share in 2018. Returns on average assets and common equity totaled 1.36% and 12.24% compared to 1.44% and 14.23% previously. The company’s Common Equity Tier 1 ratio came in at 12.36%, up from 12.27%.

Cullen/Frost has been growing earnings-per-share very consistently over the last decade, with just slight declines in 2013, 2015 and 2019. The company’s average growth since 2008 has been 6.3% per annum, with earnings-per-share nearly doubling during that timeframe. Going forward Cullen/Frost continues to have growth prospects in its traditional business, but the company will also need continue to expand its fee-based income and grow both internally and through acquisitions.

Meanwhile, the share repurchase program should support the bottom line. Working against the company’s past history and general growth prospects is the idea that the majority of the bank’s revenue is from net interest income. With rates lower in the short-term, this could pressure asset yields and reduce margins. Taking these items collectively, we are forecasting 5% growth over the next five years.

Cullen/Frost stock trades for a 2020 P/E ratio of 8.7. Our fair value estimate is a P/E ratio of 13, slightly discounted from its 10-year average of 15-16. Still, a rising P/E multiple could add 8.4% to the stock’s annual returns. And, expected EPS growth plus the 5% dividend yield result in total expected returns of 18.4% through 2025.

#8: Polaris Industries (PII)

Polaris Industries designs, engineers, and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers located throughout the U.S.

The company operates under 30+ brands including Polaris, Ranger, RZR, Sportsman, Indian Motorcycle, Slingshot and Transamerican Auto Parts. The global powersports maker has a $4.7 billion market cap, employs about 12,000 people and serves over 100 countries.

On January 28th, 2020 Polaris released Q4 and full year 2019 results. For the quarter sales increased 7% to $1.74 billion, driven by a 7% increase in the Off-Road Vehicles / Snowmobile segment which made up 66% of total sales, along with a 37% improvement in the motorcycle segment. Adjusted net income and earnings-per-share equaled $114.6 million and $1.83 respectively, representing small increases.

Source: Investor Presentation

For the year, sales came in at $6.78 billion, an 11.6% increase, helped by a 7% increase in the Off-Road Vehicles / Snowmobile segment and a significant improvement in the new Boats segment. Adjusted net income and earnings-per-share equaled $393.7 million and $6.32 compared to $419.6 million and $6.56 in 2018.

Polaris also provided an outlook for 2020. The company expects sales to grow 2% to 4%, while adjusted earnings-per-share are anticipated to the be in the $6.80 to $7.05 range. It also increased its quarterly dividend by 2%, to $0.62 per share. On an annualized basis, the stock has a forward dividend yield of 3.4%.

While Polaris is not a high-yield stock, it should continue to increase its dividend each year. Based on expected 2020 EPS of $6.92 at the midpoint of guidance, the stock has an expected dividend payout ratio of 36% for 2020. We also expect 7% annual EPS growth through 2025. The stock trades at 10.5x earnings, below our fair value estimate of 16x. In all, we expect total annual returns of 19.2% per year over the next five years.

#7: Bank OZK (OZK)

Bank OZK is a $2.9 billion market cap regional bank founded in 1903 whose service territory mainly includes Florida, N. Carolina, Georgia, Arkansas and Texas. It also has locations in five other states. At the end of 2019, Bank OZK had total assets of $23.6 billion. Loans and deposits were $17.5 billion and $18.5 billion, respectively.

Bank OZK has a long history of generating impressive growth, year after year.

Source: Investor Presentation

On January 16th, Bank OZK reported fourth quarter and full-year financial results. For the quarter, total interest income declined 3.8% year-over-year, as an improvement in non-purchased loans was more than offset by a decline in purchased loans and investment securities. Earnings-per-share declined 12% for the quarter. For the year, total interest income increased 5.6% to $1.16 billion. Earnings-per-share of $3.30 increased 3% from 2019.

The company also increased its quarterly dividend by 4%, and has now increased its dividend for 38 quarters in a row. On a year-over-year basis, the dividend announcement represents an impressive 18% increase.

Bank OZK has a very strong history of growth, compounding earnings at a 22% annual rate from 2009 to 2018. The bank has been able to grow profits at impressive rates over time through a combination of organic and acquired growth, and we see this continuing. We see a forward growth rate of 5% annually in the years to come, which is low by Bank OZK’s own standards, but still acceptable.

Bank OZK appears significantly undervalued. The stock trades for a 2020 P/E ratio of 6.3, well below our fair value estimate of 10. We expect annual returns of 19.6% per year going forward, comprised of a 9.7% return from an expanding P/E ratio, 5% annual earnings growth and the 4.9% dividend yield.

#6: Foot Locker (FL)

Foot Locker was established in 1974 as part of the F.W. Woolworth Company, and became independent in 1988. Today, Foot Locker is a major athletic apparel retailer, operating over 3,100 stores in 27 countries. The company generates annual revenue of $8 billion, and the stock has a market capitalization of $3.2 billion.

Foot Locker reported fourth-quarter and full-year financial results in late February. For the fourth quarter, sales of $2.2 billion declined 2.2% year-over-year, as comparable sales (which measures sales at stores open at least one year) declined 1.6%. That said, adjusted earnings-per-share increased 4% for the quarter, boosted by share repurchases. For 2019, net sales grew 0.8% to a record of $8 billion. Comparable sales increased 2.2% for the year, while adjusted earnings-per-share increased 4.7% to $4.93. The company exhibited strong inventory management, as merchandise inventories were $1.21 billion at the end of the year, down 4% in constant currencies from the 2018 fourth quarter.

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

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

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

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

We expect 4% adjusted EPS growth over the next five years. Based on 2020 expected EPS of approximately $5.13, Foot Locker shares trade for a price-to-earnings ratio of 5.9. The stock trades below our fair P/E ratio of 9.0, meaning valuation changes could add 13% to Foot Locker’s annual returns through 2025. With a 6.4% dividend yield, we expect total returns of 23.4% per year over the next five years.

#5: 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 current market capitalization of $10 billion.

Principal Financial Group reported its fourth-quarter earnings results on January 28. The company recorded revenues of $514 million for its retirement and income solutions fee business, which was 36% more than the fee revenues that were generated by the segment during the previous year’s period. Principal Financial Group saw its assets under management grow to $735 billion, which was a new record. This was possible thanks to positive net flows which totaled $6.9 billion during the fourth quarter.

A total of 87% of the company’s assets under management held a 4 or 5 star rating by Morningstar at the end of the fourth quarter, which shows the company’s high expertise in managing wealth for its clients. This was also reflected in the fact that 79% of assets outperformed their peer group over the last 5 years.

Source: Investor Presentation

Principal Financial Group generated earnings-per-share of $1.41 during the fourth quarter, which slightly beat the consensus estimate. Earnings-per-share were up 27% compared to the earnings-per-share that were created during the previous year’s quarter. For all of 2019, Principal Financial Group managed to grow its earnings-per-share by 1%.

Principal has a modest growth trajectory in the years ahead. A rising number of new customers and strong market performance helps drive AUM. Separately, in its insurance business, Principal Financial Group has been able to grow its premiums and fees in the past as well, and a growing float that can be invested should result in rising investment income.

Principal Financial Group has also boosted its earnings-per-share growth by repurchasing shares in the past, and plans to do the same going forward. Through these measures, the company should achieve mid-single-digit growth over the next five years.

Principal stock trades for a P/E ratio of 6.1, based on 2020 expected EPS of $5.90. Our fair value estimate is a P/E ratio of 11, meaning valuation expansion could add 12.5% to the stock’s annual returns. We expect total annual returns of 23.8% per year, comprised of dividends (6.3%), EPS growth (5%), and multiple expansion.

#4: 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 February 4th, 2020 Prudential released fourth-quarter and full year 2019 results. For the quarter, Prudential reported net income of $1.128 billion ($2.76 per share) compared to $842 million ($1.99 per share) in Q4 2018. After-tax Adjusted Operating Income totaled $950 million ($2.33 per share) compared to $1.035 billion ($2.44 per share) in the year ago period.

2019 was another very strong year for the company. For the year, Prudential reported net income of $4.186 billion ($10.11 per share) compared to $4.074 billion ($9.50 per share) in 2018. Earnings-per-share increased 6.4% for 2019. In addition, Prudential declared a $1.10 quarterly dividend representing a 10.0% year-over-year increase.

Source: Investor Presentation

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

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

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

With expected EPS of $12.50 for 2020, Prudential stock trades for a P/E ratio of just 4.7. Our fair value estimate is a P/E of 8.5, meaning expansion of the P/E ratio could boost annual returns by 12.6% through 2025. Combined with 4% expected EPS growth and the 7.5% dividend yield, total returns could reach 24.1% per year over the next five years.

#3: Ameriprise Financial (AMP)

Ameriprise Financial operates in the financial sector. It is an asset manager, with a market capitalization of approximately $14 billion, with nearly 10,000 employees and $921 billion in assets under management. Ameriprise Financial’s operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection (insurance products).

Ameriprise Financial released earnings results for the fourth quarter and full year on 1/29/2020. The company’s adjusted earnings-per-share totaled $4.20 for the quarter, which was $0.06 below estimates, but 10.5% higher than the previous year. Revenue grew 3.5% to $3.3 billion, which was $240 million above estimates.

For 2019, adjusted earnings-per-share grew 8.7% to $16.13, $0.03 above our estimates. Revenue improved 2% to $13 billion. Assets under management reached a new record of $973 billion in the quarter. Advice & Wealth Management led the way for the quarter, with a 19% year-over-year increase in assets, which reached a new record.

Source: Investor Presentation

Asset Management’s adjusted operating earnings increased 16% to $178 million due to $3.3 billion of in flows compared to the previous year. Adjusted operating earnings for the Annuities & Protection were essentially flat as improvements in the Annuities business was offset by weakness in the Protection business.

Ameriprise Financial completed the sale of its Auto & Home business to American Family Insurance for $700 million during the quarter. The company is expected to earn $17.90 in 2020 on $12.4 billion in revenue.

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

Ameriprise’s future growth will be derived from rising AUM and share repurchases. We expect 8% annual EPS growth through 2025. The stock is also undervalued, with a 2020 P/E of 6.2 compared with our fair value estimate of 11.5. The combination of 13.2% annual return from an expanding P/E multiple, 8% expected EPS growth, and the 3.5% dividend yield fuels expected annual returns of approximately 24.7% through 2025.

#2: Truist Financial Corporation (TFC)

Truist Financial Corp is a financial holding company in the U.S. and is the result of a merger-of-equals between BB&T and SunTrust Banks, completed in December 2019. Truist offers a wide range of financial services including retail and commercial banking, investments, insurance, wealth management, asset management, mortgage, corporate banking, capital markets and specialized lending. The holdings company has a market capitalization of $49 billion and boasts $473.1 billion in assets.

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

TFC released fourth quarter 2019 results on January 20th and revenue for the quarter was $3.6 billion, up 23% from last year. The company reported adjusted net income of $1.0 billion. Adjusted earnings per diluted common share was $1.12, a 4.2% increase from $1.07 last year. Results for the fourth quarter produced an annualized return on average assets of 0.95% and an annualized return on average common shareholder’s equity of 7.33%.

For the full fiscal year of 2019, Truist earned $4.37 in adjusted earnings per diluted share, up 7.9% from last year’s earnings per share of $4.05. Return on average assets decreased from 1.47% in 2018 to 1.31% for the year of 2019. Return on common shareholders’ equity was down from 11.50% to 9.87%.

Average loans held for investment increased by $41.6 billion from the last quarter, mostly due to the merged loans of BB&T and SunTrust Banks. Core net interest margin dropped 15 basis points from the last quarter as it continues to decline. Management expects to meet 30% of their net cost savings of $1.6 billion by the end of this year. The full cost savings are expected by end of 2022.

Management is expecting organic growth to come in at approximately 4% now, post-merger. Organic growth is expected through commercial and retail loan growth and fee income from their insurance segment, as well as returns on their investments in their digital platform. In addition, the company expects 3.0% to 3.5% growth from strategic initiatives and share repurchases in the medium-term. We expect 7% total annual EPS growth through 2025.

Shares of Truist trade for a 2020 P/E ratio of 7.7, based on expected earnings-per-share of $4.46. Our fair value estimate is a P/E ratio of 14, slightly below the 10-year average of 14.9. Multiple expansion could fuel 12.7% annual returns through 2025. In addition, 7% annual EPS growth and the 5.3% dividend yield result in total expected returns of 25%.

#1: Canadian Natural Resources (CNQ)

Canadian Natural Resources is an energy company that operates in the acquisition, exploration, development, production, marketing, and sale of crude oil, natural gas liquids (NGLs), and natural gas. The company is headquartered in Calgary, Alberta, and the common stock is cross listed on the Toronto Stock Exchange and the New York Stock Exchange, where it trades with a market capitalization of US$19 billion.

In early March, Canadian Natural Resources reported (3/5/20) financial results for the fourth quarter and fiscal 2019. In the year, average production grew 2%. In addition, the company reduced its operating costs by -10%, to $11.50 per barrel, and thus grew its adjusted earnings-per-share by 17%, from $2.06 to $2.40. Moreover, the company grew its adjusted funds flow by 13%, to an all-time high of $10.3 billion, and delivered record free cash flows of $4.6 billion.

Thanks to the strong earnings-per-share of the company and its confidence in the long-term outlook, management raised the dividend by 13.3% this year. It is the 20th consecutive year of dividend increases for the company.

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

Canadian Natural Resources grew its proved reserves by 11% in 2019, to 10.99 billion barrels, and thus enhanced its reserve life index to 27.8 years. As this figure is more than twice as much as the average life of reserves of its peers (~11 years), it is impressive and certainly bodes well for the future growth prospects of the company.

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

Shares trade for a 2020 P/E ratio of 6.5, based on our expectations of $2.25 in EPS. Our fair value estimate is a P/E of 12, a discount from its 10-year average P/E of 15 (excluding the oil crash of 2015-2017.) Still, total returns could reach 26% per year, from multiple expansion (13%), 5% EPS growth, and the 8% dividend 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: Prudential Financial (PRU)

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

#9: Canadian Natural Resources (CNQ)

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

#8: Exxon Mobil (XOM)

Exxon Mobil is an energy giant with a market capitalization of $178 billion. It is an integrated super-major, with operations across the oil and gas industry. In 2018, the oil major generated 60% of its earnings from its upstream segment, 26% from its downstream (mostly refining) segment and the remaining 14% from its chemicals segment.

In late January, Exxon reported (1/31/20) financial results for the fourth quarter of 2019. Production remained flat over last year’s quarter, as a 4% increase in liquids was offset by a 5% decrease in gas. Excluding non-recurring gains of $3.9 billion, which resulted from asset sales, adjusted earnings-per-share plunged 71%, from $1.41 to $0.41, primarily due to depressed margins in the downstream and chemical segments.

Source: Earnings Slides

We remain positive regarding Exxon’s long-term growth prospects. Global demand for oil and gas continues to rise, which provides a strong fundamental tailwind for the company’s long-term future. According to a recent company presentation, new supply of 550 billion barrels of oil and 2,100 trillion cubic feet of natural gas are required through 2040 to meet projected global demand.

In preparation, the oil major has greatly increased its capital expenses in order to grow its production from 4.0 to 5.0 million barrels per day by 2025.

The Permian Basin will be a major growth driver, as the oil giant has about 10 billion barrels of oil equivalent in the area and expects to reach production of more than 1.0 million barrels per day in the area by 2024. Guyana, one of the most exciting growth projects in the energy sector, will be another major growth driver.

In 2019, Exxon Mobil made 6 major deep-water discoveries in Guyana and Cyprus. In Guyana, Exxon Mobil has started Liza Phase I ahead of schedule. Guyana’s total recoverable resources are estimated at over 8 billion oil equivalent barrels.

We believe Exxon Mobil’s dividend is secure, despite the massive declines in the oil industry over the past few weeks. It has the highest credit rating among its integrated peer group, and it is one of only two energy companies on the list of Dividend Aristocrats.

#7: Simon Property Group (SPG)

Simon Property Group is a real estate investment trust (REIT) that was formed in 1993. The trust focuses on retail properties, mainly in the US, with the goal of being the premier destination for high-end retailers and their customers. The trust has interests in about 230 different properties that amount to nearly 200 million square feet of leasable space. Simon produces about $5.8 billion in annual revenue and has a market capitalization of $39 billion.

Simon reported Q4 and full-year financial results on February 4th. 2019 was another year of modest growth for the company. Comparable FFO-per-share increased 2.8% for the fourth quarter, and 4.4% for the full year.

While 2019 was not a year of strong growth for SPG, it continued to generate strong cash flow. This is critical for the company’s continued investments in new properties, redevelopments, and cash returns to shareholders. And, future growth will be supplemented by the recent $3.6 billion acquisition of 80% of Taubman Realty Group LP.

Source: Acquisition Presentation

Taubman owns, manages, and/or leases 26 shopping centers in the U.S. and Asia. Under the terms of the deal, Simon will buy all of Taubman Centers (TCO) common stock for $52.50 per share and the Taubman family will sell about a third of its ownership interest at the transaction price, remaining a 20% stake in Taubman Realty Group. SPG expects the deal will be immediately accretive to FFO.

SPG currently pays a quarterly dividend of $2.10 per share. This equates to annualized payout of $8.40 per share, which represents a current yield of 6%. SPG provides a high dividend yield, which is nearly three times the average dividend yield of the S&P 500 Index. And, the company raises its dividend on occasion. It provided two separate ~2% dividend increases to shareholders in the past year.

The company’s strong FFO generation provides sufficient cushion to the dividend. SPG distributed approximately two-thirds of its per-share FFO for 2019. The payout ratio is a reasonable level, providing more than enough cash flow to continue reinvesting in the business.

SPG’s dividend should be sustainable for the foreseeable future, thanks in large part to the company’s high-quality property portfolio, as well as its strong financial condition. SPG also has a strong credit rating of ‘A’ from Standard & Poor’s, which helps secure the dividend by keeping its cost of capital lower than if it had a poor credit rating.

#6: Altria Group (MO)

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

Related: The Best Tobacco Stocks Now, Ranked In Order

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

In late January, Altria reported strong fourth-quarter earnings. Revenue (net of excise taxes) increased 0.3% for the fourth quarter, and 0.9% for 2019 as price increases more than offset volume declines. Adjusted earnings-per-share increased 7.4% for the fourth quarter.

For 2019, adjusted earnings-per-share increased 5.8% to $4.22, due to cost controls and share repurchases. Altria exceeded its target of $575 million in cost reductions. Separately, Altria took a non-cash impairment charge of $4.1 billion related to its investment in Juul, bringing total Juul-related charges to $8.6 billion for 2019.

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: Earnings Slides

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 reaffirmed its guidance for 2020 full-year adjusted diluted EPS to be in a range of $4.39 to $4.51, which would be 4% to 7% growth from 2019. The company also expects 4% to 7% annual adjusted EPS growth from 2020-2022.
Altria is also highly resistant to recessions. Cigarette and alcohol sales fare very well during recessions, which keeps Altria’s strong profitability and dividend growth intact. With a target dividend payout of 80%, Altria’s dividend appears secure.

#5: Omega Healthcare Investors (OHI)

Omega Healthcare Investors is a Real Estate Investment Trust with a focus on healthcare properties. Omega Healthcare Investors (OHI) is a healthcare REIT that generates over 80% of its revenues from its skilled nursing facilities, and the remainder of its revenues from senior housing developments. Omega has a market capitalization of $8.2 billion.

It focuses on skilled nursing facilities, because of favorable trends.

Source: Investor Presentation

In the most recent quarter, adjusted FFO increased 6.8% from the same quarter a year ago, due to revenue growth from higher rental income and mortgage interest income. For the year, adjusted FFO-per-share increased 1%, to $3.07. For 2020, Omega has guided for AFFO in a range of $3.12 to $3.20.

Omega’s dividend appears to be secure, as the company should enjoy favorable long-term industry dynamics. Omega benefits from some favorable secular trends. The number of elderly people in need of healthcare is expected to grow at a fast pace over the next decade. In addition, the trend is for increasing healthcare spending in the U.S. Omega will see only a small portion of its leases expire over the next decade. Moreover, it has no material debt maturities until 2022.

Omega’s dividend should be sustainable in a recession as well. The healthcare sector is much less cyclical during recessions than other sectors of the economy. During the Great Recession, Omega saw its FFO-per-share decrease only 3%. It also has an exceptional dividend growth record. While it has kept its dividend constant this quarter due to the previously mentioned headwinds, company management stated in the recent quarterly earnings release its intention to raise the dividend at some point in the near future.

Until then, the dividend appears secure, provided the company’s FFO continues to grow. Omega’s dividend payout ratio for 2020 is fairly high at 84%, but the dividend appears sustainable as long as the company’s turnaround stays on track.

#4: Meredith Corporation (MDP)

Meredith Corporation is a media and marketing company that provides consumers products in the categories of home, family, food and lifestyles. The company’s revenues come from two divisions: National Media (~63% of sales) and Local media (~37% of sales).

Meredith Corporation’s portfolio of magazines includes Better Homes and Gardens and EveryDay with Rachael Ray. The company’s magazines are sold by the issue at newsstands, with women being the primary consumer and subscriber. The company also owns 17 television stations that reach 12 million households in the U.S. Meredith Corporation has a market capitalization of $1.1 billion. The company generates annual revenues of $3+ billion.

Source: Investor Presentation

On 2/6/2020, Meredith Corporation reported earnings results for the second quarter of fiscal 2020. The company’s earnings-per-share from continuing operations was $0.91 for the quarter, which topped estimates by $0.60, but declined 38% from the prior year. Revenue declined 7.7% to $810.5 million, which beat estimates by $18 million. EBITDA decreased 16% to $194 million.

Revenue for the National Media Group was lower by 3% to $597 million. Total advertising revenues were down 1%, mostly due to the closing of certain magazines like Money and Martha Stewart Weddings. Comparable revenues were higher for the quarter. The People title had double-digit advertising revenue growth. Digital advertising revenue increased 8% and contributed 44% of revenues for the segment. Total readership for the company’s titles improved 4% in the second quarter.

Local Media revenues of $214 million were a record for the second quarter in a non-election year. Non-political advertising revenue improved 2% due to growth in markets such as Kansas City, Las Vegas and Phoenix. Professional services and pharmaceutical drove growth for this segment. Consumer-related revenues were up 15% due to retransmission fees from cable and satellite television providers.

Meredith Corporation continues to expect revenue of $3 billion to $3.2 billion and earnings-per-share from continuing operations in a range of $2.58 to $2.88 for fiscal 2020.

Meredith Corporation’s profits would likely suffer in a recession. Given that the majority of sales come from single issue newsstand magazines, consumers facing tough economic conditions might deem a magazine purchase as extravagant. While the company is not recession proof, Meredith Corporation’s key competitive advantage remains the popular magazines titles that it owns. Divesting non-core assets has also allowed the company to reduce its debt position, which should offer it some benefit in the event of a recession.

The company’s expected EPS are expected to cover the annualized dividend of $2.30 per share. The expected dividend payout ratio is above 80%, and investors should keep an eye on the company’s future quarterly reports to make sure it returns to EPS growth. That said, the company continues to increase its dividend each year, including a 3.5% raise in February 2020.

#3: Invesco Ltd. (IVZ)

Invesco is a global investment management firm. It has more than 7,000 employees and serves customers in more than 150 countries. Invesco currently trades with a market capitalization of $8.6 billion and has over $1.1 trillion of assets under management (AUM).

In the 2019 fourth quarter, Invesco generated revenues of $1.27 billion, up 38.2% compared to the prior year’s quarter. Invesco’s revenue increase was primarily based on an increase in the company’s assets under management, to more than $1.2 trillion, with the majority of that AUM growth stemming from the Oppenheimer Funds acquisition.

Invesco saw long-term net outflows of $14 billion during the quarter, which offset some of the growth from the Oppenheimer Funds takeover. Earnings-per-share of $0.64 for the fourth quarter rose 45% year-over-year, again mainly from Oppenheimer.

Source: Earnings Slides

For the year, adjusted net revenue increased 15.6% to $4.4 billion, while adjusted EPS increased 4.9% to $2.55. Conditions have worsened to begin 2020, however. AUM fell 4.9% in February to $1.16 trillion, due primarily to the declines in the stock market, as well as net long-term outflows and unfavorable currency fluctuation.

Invesco’s future growth will depend largely on its recent acquisitions. Invesco acquired Oppenheimer Funds for ~$5.7 billion. Acquiring Oppenheimer Funds grew Invesco into becoming the 6th-largest U.S. retail investment management company.

Separately, Invesco also acquired the ETF business from Guggenheim Investments for $1.2 billion. Invesco also made a significant investment in financial technology with its acquisition of Intelliflo, a leading technology platform for financial advisors that supports approximately 30% of all financial advisors in the U.K.

Share buybacks will also help boost earnings-per-share growth. During 2019, the company purchased $670 million of its common shares. Since it announced its $1.2 billion stock repurchase plan in October 2018, the company has repurchased $973 million of its common shares. It expects to utilize the remaining ~$227 million by the first quarter of 2021.

Invesco has a payout ratio of 48% for 2020. This should allow the company to maintain its dividend payout. Invesco also has a strong balance sheet, with a credit rating of BBB+ from Standard & Poor’s.

#2: EPR Properties (EPR)

EPR Properties invests in properties in specific market segments that require industry knowledge to operate effectively. It selects properties it believes have strong return potential in Experiential and Entertainment, properties.

Source: Investor Presentation

The REIT structures its investments as triple net, a structure that places the operating costs of the property on the tenants, not the REIT. The portfolio includes more than $6 billion in investments across 370 locations in 44 states, including over 200 tenants. Total revenue is close to $600 million annually and the stock has a market capitalization of $4.7 billion.

Operating conditions for the commercial real estate industry are challenged. The decline in brick-and-mortar retail in the U.S. has been a significant headwind for REITs with a heavy exposure to malls. Consumers are increasingly shopping online instead of going to stores, and the resulting e-commerce boom has impacted many REITs.

EPR reported Q4 and full-year earnings on February 24th and results were largely in line with expectations. Total revenue for the year came to $652 million, up from $640 million in 2018. However, property operating expenses doubled from $30 million to $60 million year-over-year, which crimped earnings. Lower joint venture income caused EPR to post lower operating profits for the year, as that metric fell by about a third. FFO came to $5.44 per share on an adjusted basis, down from $6.10 in 2018, which was a blockbuster year for the trust’s earnings.

EPR issued guidance for 2020 of adjusted FFO-per-share of $5.19 to $5.39, so our initial estimate is for $5.30. The trust expects an anticipated investment of $1 billion in a new gaming venue for 2020 to help boost future growth. The trust said it would fund the investment with cash on hand, and also said it planned almost no dispositions for 2020. In addition, it raised the monthly dividend from $0.375 per share to $0.3825 per share.

The most important catalyst for EPR’s future growth is a growing economy. Consumers tend to cut back spending on entertainment and other recreational activities during a recession. As long as the U.S. economy stays out of a downturn, the economic climate should remain supportive of growth for EPR.

EPR is a monthly dividend stock. It has an exceptionally high yield of 13.2%, the result of a massive sell-off in recent weeks, along with the broader market. A double-digit yield should always be viewed with a healthy dose of skepticism; that said, the company’s fundamentals and FFO generation appear to support the current dividend payout.

#1: Tanger Factory Outlets (SKT)

Tanger Factory Outlet Centers is a Real Estate Investment Trust. Tanger Factory Outlet Centers is one of the largest owners and operators of outlet centers in the United States. It operates and owns, or has a stake in, a portfolio of 39 upscale outlet shopping centers.

Tanger’s operating properties are located in 20 states and in Canada, totaling approximately 14.3 million square feet, leased to over 2,800 stores which are operated by more than 510 different brand name companies.

Tanger’s diversified base of high-quality tenants has led to steady growth for many years.

Source: Earnings Slides

Tanger released 2020 fourth-quarter and full-year financial results on January 27th. Fourth-quarter revenue of $121 million declined by 5% year over year, while adjusted funds from operations (AFFO) fell 7.8% year-over-year. For the full year, AFFO declined 6.9% to $2.31 per share. Tanger’s occupancy rate stood at 97% in the most recent quarter, up from 95.9% in the previous quarter.

For 2019, blended average rental rates increased 2.7% on a straight-line basis but decreased 1.3% on a cash basis for all renewals and re-tenanted leases. Same-center net operating income, or NOI declined 0.7% for 2019, due to the impact of tenant bankruptcies, lease modifications, and store closures. Tanger also increased its annual dividend by $0.01 per share, for the 27th consecutive year of dividend growth.

Tanger has a current dividend payout of $1.43 per share annually, which represents a current yield above 17%. This is a very high yield and is clearly attractive for income investors. The biggest concern with a yield this high is sustainability.

We expect Tanger will generate AFFO-per-share of $2.39 for 2020. With a current annual dividend payout of $1.43 per share, Tanger’s expected 2019 dividend payout ratio is 60%. This is a manageable payout ratio, which appears to secure the dividend. Of course, the company’s financial condition could change, particularly due to the ongoing weakness in retail and the potential fallout from the coronavirus.

Investors should closely monitor Tanger’s financial results each quarter, to ensure the company remains on track. The difficulties facing malls in the U.S. are significant, and Tanger’s declining revenue and AFFO are valid concerns. The dividend payout appears secure for now, but continued deterioration in the company’s financial results could put the dividend in danger of being cut.

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. Investors should take caution particularly when it comes to extreme high-yielders.

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