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

Sure Dividend

High-Quality Dividend Stocks, Long-Term Plan
The Sure Dividend Investing MethodMember's Area

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


Updated on July 14th, 2020 by Bob Ciura

Spreadsheet data updated daily

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

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

So what are blue chip stocks?

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

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

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

 

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

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

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

The table of contents below allows for easy navigation.

Table of Contents

 

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

 

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

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

The 10 Best Blue Chip Buys Today

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

#10: AT&T Inc. (T)

AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses), WarnerMedia (including Turner, HBO, 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.

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

Source: Investor Presentation

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

From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per annum. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, the company has a large debt load after the acquisitions, while its legacy businesses are steady or declining. We expect 4% 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.

One of AT&T’s biggest areas of future growth is in 3G deployment. 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.

The dividend appears secure, as AT&T has an expected payout ratio below 70% for 2020. And, the company is fairly resistant to recessions, having maintained profitability and dividend growth through the Great Recession. With an attractive 7% yield, expected EPS growth of 4% per year, and a modest boost from an expanding P/E multiple, we expect total returns of 14.2% per year over the next five years for AT&T stock.

#9: L3Harris Technologies (LHX)

L3Harris Technologies (LHX) is the result of a merger between L3 Technologies and Harris Corporation completed on June 29, 2019, forming the sixth-largest defense contractor.

The company now reports four business segments including Integrated Mission Systems (30% of revenue); Communication Systems (23% of revenue); Space and Airborne Systems (25% of revenue); and Aviation Systems (23% of revenue). The majority of the L3Harris’ sales are to the U.S. Government or to other defense contractors. The combined companies had pro-forma revenue of over $18 billion in 2019.

L3Harris reported strong results for the first quarter. Company-wide revenue increased 5% to $4.6 billion, while adjusted EPS increased 21% from the same quarter a year ago due to the merger, as well as organic growth.

Source: Investor Presentation

Integrated Mission Systems revenue increased 1%, and had a book-to-bill ratio of 1.37. Meanwhile, revenue for Space & Airborne Systems increased 7%, while Communications Systems revenue increased 5%. Lastly, Aviation Systems revenue increased 11% for the quarter.

The company completed the divestiture of airport security and automation for $1 billion in cash. L3Harris is planning to divest another 8%-10% of revenue. The company adjusted guidance downward due to COVID-19 but is still expecting top line growth and merger synergies to drive an increase in the bottom line. We believe the company is positioned for both top and bottom line growth in high margin market segments.

Its competitive advantages will help it reach these growth objectives. As a large defense contractor L3Harris has competitive advantages related to defense contracting, which often requires knowledge of acquisition regulations and accounting standards particularly for large programs. The company develops and manufactures complex and bespoke systems for the Department of Defense, requiring a skilled work force with security clearances that is not easily replicated.

We are currently forecasting average annual earnings per share growth of 10% out to 2025. Increased defense spending will support top line growth. In addition, earnings growth will be driven by higher margins, and robust share buybacks, as well as cost synergies from the recent merger.

The stock has a 2.1% dividend yield. Combined with 10% expected EPS growth and a modest expansion of the P/E ratio, total shareholder returns could reach 14.2% per year over the next five years.

#8: Weyco Group (WEYS)

Weyco Group Inc. designs and distributes footwear. Weyco’s brand portfolio consists of Florsheim, Nunn Bush, Stacy Adams, BOGS, and Rafters. The company sells its products wholesale mainly through department stores and national shoe chains in the U.S.and Canada.

It also operates Florsheim retail stores in the U.S. and sells directly through online sales. The company owns Florsheim Australia that operates in Australia, South Africa and Asia Pacific, and it also owns Florsheim Europe. Weyco also licenses its brands in the U.S. and Mexico.

In the fiscal 2020 first quarter, net sales declined 14% while diluted earnings-per-share fell 70%. The decline in sales and earnings was due to the impact of COVID-19. In the U.S. and other countries around the world, government mandated shutdowns and restrictions resulted in store closures.

Net sales in the North American wholesale segment were $52.7M, down (11%) compared to $59.5M in the prior year. The Florsheim brand grew sales 4% due to higher volumes in January and February. But this was offset by (22%) lower sales for BOGS, (23%) lower sales of the Stacy Adams brand, and (8%) lower sales of Nunn Bush.

The North American retail segment (Florsheim retail stores and e-commerce) sales were down (15%) to $4.8M from $5.6M in the prior year. Florsheim Australia and Florsheim Europe net sales were down (32%) to $6.1M from $9.1M in comparable periods, and had an operating loss of $1.3 million.

The coronavirus crisis and related closures of retail stores across the U.S. led to the steep declines, although the re-openings taking place around the country bode well for the future.

Weyco Group’s earnings have been volatile over the past decade. Sales have been impacted by the rise of e-commerce and Internet sales. Historically, Weyco Group has focused on wholesale distribution. But many department stores and national shoe chains have suffered from declining sales and some have declared bankruptcy.

Fortunately, the company is building distribution in new sales channels and now runs its own e-commerce platforms. Overall, we expect 1% annual EPS growth over the next five years. With a P/E ratio of 10.3, significantly below our fair value estimate of 15, the stock appears to be undervalued and also has a high dividend yield of 5.2%. In all, we expect total annual returns of 14.6% per year through 2025.

#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 Q2 2020 results on 5/26/20. Revenue increased 2% to C$8.0 billion year-over-year, thanks to a 5.3% gain in net interest income, offset by a 2% decline in non-interest income. Net income fell 41% to C$1.3 billion, due to C$1.85 billion in provision for credit losses, which more than doubled from the year-ago period. On an adjusted basis, earnings-per-share fell 39%.

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 flat as 4% growth in net interest income was offset by an 11% decline in non-interest income. Loans and deposits each increased 4% for the quarter, while net interest margin contracted by 7 basis points.

Other segments performed better for Scotiabank in the fiscal second quarter. For example, adjusted net income rose 3% in the Global Wealth Management segment, as revenue increased 4% excluding divestitures thanks to strong results in brokerage fees and retail mutual fund sales.

The best-performing segment for the company last quarter was its Global Banking & Markets business, which registered 25% year-over-year net income growth. Strong trading revenue led to 27% revenue growth for the most recent quarter.

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 $2.65 per share yields 6.4% right now. In addition to EPS growth and the impact of a rising P/E multiple, we expect total annual returns of 15.1% through 2025.

#6: Walgreens Boots Alliance (WBA)

Walgreens Boots Alliance is a pharmacy retailer with nearly 19,000 stores in 11 countries, and including equity investments, has a presence in more than 25 countries. The stock currently has a $33 billion market capitalization, and the company produces $139 billion in annual revenue. Walgreens has increased its dividend for 45 consecutive years, which makes it a member of the prestigious Dividend Aristocrats.

Walgreens reported fiscal third-quarter earnings on July 9th, with revenue beating analyst expectations but adjusted earnings-per-share coming in below estimates. Sales increased 0.1% to $34.6 billion, and increased 1.2% on a constant-currency basis. Revenue growth was due largely to comparable store sales growth of 3.0% in the core Retail Pharmacy USA operating segment. Operating income swung to a loss of $1.6 billion, compared with operating profit of $1.2 billion in the year-ago period.

Source: Investor Presentation

Walgreens reported a net loss of $1.95 per share, as the company absorbed a non-cash impairment charge of $2 billion related to a reevaluation of goodwill and intangibles in Boots UK. Adjusted earnings-per-share (EPS) fell 44% to $0.83 from the same quarter last year. The company also suspended share repurchases for the remainder of fiscal 2020. However, it upped its cost-savings target to more than $2 billion by fiscal 2022, compared with previous expectations of $1.8 billion in cost reductions. And, Walgreens increased its quarterly dividend by 2.2%.

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.

Walgreens has a positive long-term growth outlook. Retail pharmacy has proven to be resistant to e-commerce and will benefit from the aging U.S. population and rising demand for healthcare. For example, in the most recent quarter Walgreens’ pharmacy sales increased 4.6% compared with the year-ago quarter, due to higher brand inflation and a 15.9% increase in specialty sales.

Based on expected fiscal 2020 adjusted EPS of $5.50, Walgreens stock trades at a price-to-earnings ratio (P/E) of just 7.2. We believe Walgreens is valued far too cheaply based on its strong business model, competitive advantages, and long history of dividend increases. An expanding P/E ratio combined with dividends and EPS growth lead to total expected returns of 15.1% through 2025.

#5: Enbridge Inc. (ENB)

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

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

Adjusting for non-recurring charges, adjusted earnings-per-share actually increased 2.5% to $0.83 for the 2020 first quarter. Distributable cash flow of $2.7 billion declined fractionally from the same quarter last year. The company also reaffirmed its full-year outlook, expecting distributable cash flow of $4.50 to $4.80 per share. This should keep the company’s current annual dividend of US$2.38 per share intact.

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

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

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

Due to its fee-based nature Enbridge’s business is not cyclical, and not dependent on commodity prices. During the last financial crisis the company was able to grow its cash flows as well as its earnings. Since the infrastructure that Enbridge provides is needed whether the economy is doing well or not, it is likely that future recessions will not have a large impact on Enbridge. The combination of cash flow growth, dividends, and valuation changes results in expected annual returns of 15.5% per year over the next five years.

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

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

Source: Investor Presentation

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

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

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

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. The combination of 4% EPS growth, the 7.2% dividend yield, and a rising P/E multiple could generate annual returns of 16% per year through 2025.

#3: Eagle Financial Services (EFSI)

Eagle Financial Services is a small bank holding company which owns 100% of the stock of Bank of Clarke County. It serves retail and commercial customers and offers consumer, mortgage and commercial loans as well as other banking services. It is a micro-cap stock, with a tiny market capitalization of $86 million.

Eagle Financial Services reported its first-quarter earnings results on May 1. The company generated revenues of $9.7 million during the quarter, which represents a growth rate of 2% versus the previous year’s quarter. Eagle Financial Services reported solid growth rates across several key metrics. The company’s loan balances grew to $674 million during the quarter, up $29 million during the last three months.

Eagle Financial Services was not able to increase its interest margin further, as the company’s yield on average loans totaled 4.87%, down slightly versus the previous quarter. The very strong loan growth more than offset this small interest rate headwind, though, and total interest income still grew from $7.5 million to $7.9 million over the last year. Eagle Financial Services’ net income was $2.4 million during the first quarter, which equates to earnings-per-share of $0.71 for the quarter, versus $0.74 during the previous year’s quarter.

Earnings were down slightly due to higher provisions for credit losses, caused by the coronavirus crisis. Earnings during 2020 will likely be down versus 2019, but the underlying earnings power, which is what we use to calculate fair value, is at $2.90 according to our estimates. This is what Eagle Financial would have earned in a more normal 2019, based on its past performance.

Eagle Financial Services remained profitable during the last financial crisis, but earnings took a hit from 2008 to 2009. From 2009 through 2019, earnings-per-share grew at an average pace of 10% annually, which is a quite attractive growth rate, although it should be noted that earnings growth has been uneven during that time frame.

We expect 5%-6% annual EPS growth over the next five years. One factor is ongoing growth in the company’s loan portfolio, a trend that remained in place during the last decade. Coupled with strong interest margins, this will allow for ongoing interest income growth over the coming years. Rising net interest income is a major component for revenue growth for Eagle Financial Services.

In addition to EPS growth, the 4.1% dividend yield and a small impact from a rising P/E multiple yield total expected returns of 16.4% 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 $11.5 billion.

Principal Financial Group reported its first-quarter earnings results on April 27. The company recorded revenues of $490 million for its retirement and income solutions fee business, which was 28% more than the revenues that were generated by the segment during the previous year’s period. Principal Financial Group saw its assets under management decline to $631 billion, based on global equity market declines during the first quarter. The second quarter will likely see much better AUM totals based on the market recovery of the past several weeks.

Principal’s U.S. investment portfolio exceeded $91 billion at the end of March.

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 17.5% per year over the next five years.

#1: Unum Group (UNM)

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

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

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

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

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

Over the past decade, Unum grew its earnings-per-share by approximately 8% per year on average. Results were helped by rising premium income, as well as aggressive share repurchases which retired 5% of the share count each year. The company suspending its share repurchases will be a negative headwind for future earnings-per-share growth.

However, we believe Unum can continue to grow through reasonable improvement in premium and investment income, along with expense management. We believe 3% annual EPS growth is a reasonable expectation through 2025.

We expect Unum to generate adjusted earnings-per-share of $4.90 for 2020. Based on this, the stock has a price-to-earnings ratio (P/E) of just 3.4. 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 7.0, which implies the potential for a significant valuation tailwind.

Expansion of the P/E multiple could boost annual returns by 11.5% per year over the next five years. Unum is one of the most undervalued stocks in our coverage universe. In addition, shareholder returns will be driven by expected EPS growth of 3% per year, and the 6.9% dividend yield. Overall, we expect total annual returns of 21.4% per year over the next five years for Unum stock.

The 10 Blue Chip Stocks With The Highest Dividend Yields

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

#10: Canadian Imperial Bank of Commerce (CM)

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

CIBC reported its fiscal Q2 2020 earnings results on 05/28/20. Against fiscal Q2 2019, revenue of C$4,578 million was stable, rising by 0.8%. Adjusted net income declined 68% to C$441million. Adjusted EPS also fell 68% to C$0.94. Adjusted return on equity (“ROE”) dropped to 4.5% from 15.9%. The big drop in earnings is largely due to prudent loan loss provisioning in light of the COVID-19 impact.

Adjusted pre-provision earnings were C$1.9 billion, which would have been down a more modest 2% year over year. The provision for credit losses ratio on impaired loans was 0.34%, up from 0.26% from a year ago. The bank’s capital position remains solid with a Common Equity Tier 1 ratio at 11.3%.

Source: Investor Presentation

Year-to-date, CIBC’s net income fell 37% to C$1,604 million, diluted EPS declined 38% to C$3.46. The bank should have what it takes to weather this economic downturn, but it could take a few quarters for the macro environment to improve.

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

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

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

#9: 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 $4.7 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 April, People’s United Financial reported (4/23/20) financial results for the first quarter of fiscal 2020. Due to flat interest rates, the net interest margin of the company remained essentially flat sequentially.

Nevertheless, the company grew its net interest income 3% thanks to 3% growth in loans. Earnings-per-share decreased from $0.37 to $0.33 sequentially due to higher non-interest expense but they exceeded analysts’ consensus by $0.03.

People’s United Financial has grown its earnings-per-share for 9 consecutive years and has not missed analysts’ earnings-per-share estimates for 15 consecutive quarters. 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, we still expect 5% 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%.

#8: Bank of Nova Scotia (BNS)

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

#7: PPL Corporation (PPL)

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

Source: Investor Presentation

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

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

PPL shares suffered sharp declines in earnings during the last recession. It took the company 2 years to recover to new earnings-per-share highs after the 2009 lows. Part of the earnings-per-share decline can be attributed to the company more than doubling its share count between 2008 and 2017. Adjusting for this increase in share count, PPL actually saw net profit increase 4.4% per year over the last ten years.

Investors often hold utility stocks due to their defensive nature, but PPL showed in the last recession that is susceptible to steep earnings declines. PPL’s payout ratio has climbed higher in recent years as earnings-per-share have declined. PPL’s key competitive advantage is its business diversity. While there have been concerns in the past about achieving rate increases in the U.K, the company was granted a rate increase last April. PPL also offers a very high dividend yield that has room to continue to grow.

#6: Prudential Financial (PRU)

Prudential 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: Unum Group (UNM)

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

#3: 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 will soon join the list of Dividend Kings.

Source: Investor Presentation

Universal Corporation reported its fourth quarter (fiscal 2020) earnings results on May 27. The company generated revenues of $632 million during the quarter, which was 6% less than the revenues that Universal Corporation generated during the previous year’s quarter.

Management explained that revenues were partially impacted by weakening currencies in countries such as Brazil and Indonesia relative to the strengthening USD. Nevertheless, this revenue decline was much less severe compared to the revenue decline reported during the previous quarter.

Universal’s adjusted earnings-per-share totaled $1.08 during the fourth quarter, which was down about 20% from the earnings-per-share that the company generated during the previous year’s quarter. Profits were down due to the impact of lower sales during the quarter, coupled with some margin pressures on Universal’s operations.

The company generated adjusted earnings-per-share of $3.49 during fiscal 2020. Still, 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. Universal has now increased its dividend for 50 consecutive years.

#2: Enbridge Inc. (ENB)

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

#1: Altria Group (MO)

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

Related: The Best Tobacco Stocks Now, Ranked In Order

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

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

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

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

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

Source: Investor Presentation

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

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

Final Thoughts

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

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

Thanks for reading this article. Please send any feedback, corrections, or questions to support@suredividend.com.


More from sure dividend
The Sure Dividend Investing MethodMember's Area