The best insurance for a volatile market is to buy stocks (and MLPs) that pay steady dividends. There are also numerous studies indicate that dividend stocks have also outperformed the market. With this, long-term investors will be rewarded while waiting for the stock price to move higher. Here are the stocks that pay steady dividends at modest yields that will allow investors to sleep well at night.
Enterprise Products Partners L.P. (NYSE:EPD) Master limited partnerships (MLPs) are good investments for those seeking for a good stream of stable income. There is an incentive for MLPs to increase their required quarterly distributions. In practice, the higher the quarterly cash distributions to investors, the higher the management fee to the general partners. However, recent news is that the preferential tax status of these MLPs will be reexamined. The reason is that the federal government is seeking ways to plug its deficit. In this case, shares were mostly down for the year. However, declining prices of MLPs would also mean higher yields for long term investors.
At the current price of $39.45 a share, EPD has a dividend of yield of 6.10%. The stock is at the top quintile of steady dividend paying MLPs. Other high dividend paying MLP stocks include Energy Transfer Partners, LP (NYSE:ETP) at 8.30%, Kinder Morgan Energy Partners (NYSE:KMP) at 6.90% and Duncan Energy Partners (NYSE:DEP) at 4.60%. Last month, the company announced a quarterly dividend declaration of $0.605 per common unit, or $2.42 per unit on an annualized basis, an increase of 5.2% year on year. According to the records, the company has increased its distribution rates 37 times since its initial listing in 1998. The company’s long-term track record in delivering distribution payments will deliver strong gains for long-term investors.
Eaton Vance Corp. (NYSE:EV) Shares of closed-end fund manager Eaton Vance declined by 37.62% for the past 6 months. The market has ignored the strong fiscal third quarter earnings. It reported earnings per share of $0.55 for the third quarter, beating consensus estimates by $0.04, an increase of 61% compared with the same period last year. The sell-off is due to the decline of net inflows to $1.86 billion, a significant decrease from last year’s net inflow of $4.82 billion and the previous quarter’s net inflow of $2.92 billion. The concern is valid as investors are moving their cash into safe havens. However, this may be overblown for EV as it has cash of $503 million and little debt. This is enough for the company to weather the coming financial storm.
Analysts expect earnings per share of $1.76, implying forward earnings of 11.88 times and dividend yield of 3.40%. This is somewhat in line with most listed closed-end funds like Federated Investors, Inc. (NYSE:FII) with 10 times earnings and Invesco Limited (NYSE:IVZ) at 11.40 times earnings. The company sports higher operating margins of 31.50% compared with its peers, with margins in the region of 15 to 20%. It also has higher returns on equity at 21.78%. Management is optimistic that earnings will be higher in the future. Investors can sleep well at night knowing that EV will continue paying higher dividends.
Colgate-Palmolive Company (NYSE:CL) In terms of stock performance, CL is a stock that that has been resilient despite the recent equities sell-off. It has returned 5.84% for the year. The reason is that the stock is a defensive stock with a low beta of 0.50. For the past 10 years, it has grown its earnings 9.1% a year with an average net profit margin of 14.86%. It also has a return on capital of 24%. This is certainly better than its peers in the personal care industry. Procter & Gamble (NYSE:PG) has a net profit margin of 14.29% and return on equity of 8.85%, while The Clorox Company (NYSE:CLX) has a net profit margin of 5.49% and return on equity of 6.50%.
However, the stock is not as pricey as expected. It trades at 15.25 times forward earnings and has a 2.70% dividend yield. Although the stock is not as cheap as other consumer stocks that trade at 10 to 12 times earnings, this is still in line with PG’s 15 times earnings and 3.70% dividend yield but lower than CLX’s 30 times earnings and 3.80% dividend yield. The company has a track record of containing costs and managing margins well. This is the reason earnings have steadily increased over time. The stock is one of the recommended consumer stocks of Morningstar.
McDonald’s Corp. (NYSE:MCD) The shares of McDonald’s Corp. have risen by 13.64% for the year. The outperformance of its shares is attributed to investors flocking to “recession-proof” stocks. There are many market pundits who believe that another recession is on the way. Companies like MCD will benefit, as consumers tend to draw toward cheaper quick service restaurants for food. Analysts believe that the company will earn $5.22 a share next year, an increase of 10.50% year on year. The growth is in line with the estimated industry growth for next year.
At the current price of $88.09, the stock is trading at 15.27 times forward earnings and yielding 2.80%. This is lower than The Wendy’s Company (NYSE:WEN) at 18.28 times forward earnings and 1.80%, but in line with YUM Brands (NYSE:YUM)’s 15.39 times earnings and 2% dividend yield. For the past 10 years, the company has increased its earnings per share three-folds for an annual earnings growth of 36.64%. Given the stellar earnings performance, dividends are expected to be stable. Major research firms have upgraded the stock to outperform. Analysts expect the target price for MCD to be $97.95 a share, which implies an upside of 11.04%.
Air Products and Chemical, Inc. (NYSE:APD) The shares of Air Products and Chemical, Inc. are trading 3.33% above its 52-week low. The reason for the share underperformance is that the industrial gas market is dependent on the performance of the economy. Given the current situation of the global economy, it is easy to see why shares of APD have been punished by the market. What the market has failed to discount is the strong volume across its Asian segment, despite slower growth in the US and Europe businesses. Moving forward, the international business will contribute more to the bottom line.
Meanwhile, the company has a higher dividend yield at 3.10% compared with its peers Praxair, Inc. (NYSE:PX) and Airgas, Inc. (ARG). Both of these stocks sport a lower dividend yield of 2.20% and 1.90% respectively. At the current price of $75.24, the stock is trading at 11.62 times next year’s earnings. This is certainly lower than its peers, which trade at least 15 to 20 times earnings, given the good growth of the industry. At current valuations, the market is implying a single digit growth rate and the stock may easily beat the consensus earnings estimate. Analysts have upgraded the stock to buy with a target price of $106 a share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.