Following on our piece about dividends that could get cut, we're taking a look at 6 stocks with rock solid yields suitable for a retirees portfolio. As always, use the list below as a starting point for your own research.
This is what we found:
Johnson & Johnson (NYSE:JNJ): JNJ is all excitement and no stagnation as this New Jersey-based healthcare company has increased payouts for 49 consecutive years. A buy before earnings just two months ago would have led to a yield on cost nearing 4%, not to mention a 14% boost in share price. Still, the current yield around 3.42% is attractively above average, while 13 brokers see a median 1-year further upside of around 5%.
The price to earnings ratio around 15.1 appears fair, while the 48.26% payout ratio suggests sustainability. In addition, Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) has 45 million shares and seems to be enjoying the 10 year average dividend growth rate around 13%.
Abbott Laboratories (NYSE:ABT): This Illinois based drug manufacture has increased dividend payouts for 39 straight years and has a current yield of 3.77%. The 62% payout ratio is in line and the dividend growth rate has been quite stable hovering around 10% for the 1, 3, 5 and 10 year averages. Further, ABT has slightly increased its dividend payout growth rates as of late. If Abbott can keep it up for the next 10 years it'll come in with a yield on cost just under 10%; do it for 20 years and it'll be closer to 25%.
In recent years the dividend growth rate has slowly been increasing, from an 8.8% average increase in the 10 year average to the 10.6% average increase in the 3 year average. It might not be poised for huge growth, but ABT does allow for a strong combination of a high current yield and steadily increasing payouts. If you believe the heath care sector has been left behind, it could be an opportune buy.
Intel Corporation (NASDAQ:INTC): This dividend king has been designing and developing integrated circuits since the late 1960s. With a market cap of $118.3 billion, Intel is a behemoth of a company and easily the world's largest chip maker. Intel has a P/E ratio of 10.5 and an impressive 3.22% dividend yield. In its Q1 earnings report, Intel announced that year-over-year revenue grew an impressive 25%, up $2.5 billion to $12.8 billion on the quarter.
The company also boasts a 61% gross margin, and price target estimates are averaging around $26.00. Intel's extremely strong cash flow and large dividends are extremely attractive to investors. INTC has been able to grow dividends for 8 consecutive years now, but perhaps most surprising is by how much. The average 10 year dividend growth rate is near 25% while recently it has been climbing in the low double digits. Sustainability doesn't appear to be a problem either as INTC pays out just 36% of its profits.
H.J. Heinz (HNZ): This consumables company relies heavily on its brand-names to outdistance peers in the generic products categories in which it competes. Heinz has successfully driven earnings growth and maintained margins during quarterly bouts of inflation dating back to 1985. Shares in this $17 billion company trade for 53.81 apiece and yield 3.6%. It has trended off its high in recent months, so it might be worth watching for an inflection point.
Commodity costs will create headwinds, but this is true across the consumer sector. Like some of its behemoth peers its brand recognition and economies of scale along with marketing savvy position it to withstand these headwinds better than some smaller, less organized groups.
Diageo PLC (NYSE:DEO): Even during the hardest of times, people drink. With brands including Johnnie Walker, Jose Cuervo, Guinness and Smirnoff, you're sure to find a taste to suit you. It holds nearly $4 billion in cash, which facilitates a situation in which it needs to acquire its way to new market share. Looking out over the next five years, analysts are predicting a steady 10% growth in EPS.
With massive brand appeal making the competition sweat and healthy dividends, this stock is a good choice for your home bar and perhaps your stock portfolio. Yields 3.0%. The payout ratio is approaching 57%, which is a bit high, but we think the company has a competitive moat that will protect cash flows.
We think Diageo will continue to look for acquisitions. Constellation Brands (NYSE:STZ) is high on our list of potential acquisition targets for this spirits distributor.
Verizon (NYSE:VZ): Verizon is a solid business that generates a ton of cash, cash that it uses to pay a hefty 5.47% dividend yield and quickly pay off the debt used to fund the Alltel acquisition. This market leader (the company serves around 94 million subscribers or approximately 25% of the U.S. population) already has an extremely loyal consumer base, and with Apple (NASDAQ:AAPL) iPhone pre-orders doing gangbusters thus far, we think those relationships will only grow stronger. The company is worth $37 per share using a 10% discount rate.
Though the AT&T (NYSE:T) deal does throw a potential curve ball into Verizon's plans, should the deal be approved, we think it's very likely VZ will make strategic acquisitions to maintain market share in the face of new competition. We think the recent pullback gives investors an opportunity to grab a piece of this telecom giant ant its yield. We are still waiting for Apple to weigh in on the AT&T and T-Mobile (OTCQX:DTEGY) tie-up, which mildly benefits Verizon, in our opinion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.