2021 was a strong year for stocks. The one-year returns for the three major indices are as follows: Dow Jones 20%, Nasdaq 24%, and the S&P 500 29%. All three ended the year near the all-time high. And while 2022 has been a much tougher environment for stocks, conservative dividend stocks have held up much better.
The SPDR S&P Dividend ETF (SDY), which tracks the performance of the High Yield Dividend Aristocrats Index, has been largely range-bound, down 5.4% year to date while the broader S&P 500 is down 21.5% in the same period.
Some of the best traditional dividend-paying sectors, including energy, finance and industrials, which took it on the chin during the pandemic and were the worst-performing S&P 500 sectors during the early recovery, were some of the top performers in 2021. The high dividend-paying sector of real estate was also a leading performer, although utilities certainly lagged for the year.
Technology led the market higher from the pandemic lows of March. People relied on it more than ever during the pandemic and technology stocks have thrived. But several strong dividend-paying sectors rely on the real economy, which is still being hampered by ongoing supply chain issues, the war in Ukraine and an escalating economic conflict with China that recently saw the U.S. implement strict controls on semiconductors.
It’s also worth noting that the hawkish Fed and rising rates are bad news for bonds. Investors will have practically no place else to go but dividend stocks to get a decent income. And the best income stocks currently offer great value and newfound momentum.
Here are a few good conservative dividend stocks to consider.
Conservative Dividend Stock #1: Chevron (CVX)
Chevron (CVX) is one of the world’s largest integrated energy companies, with operations throughout the world. The company is involved in every facet of the energy industry but it is heavily skewed toward the upstream segment, oil and gas production and exploration.
It has a huge and growing presence in the Permian basin, the largest shale oil producing region in the U.S. and the fastest growing oil region in the world.
Chevron is a low-cost producer that can quickly turn a profit as things improve. It got lean and mean before the pandemic and entered the year in better financial shape than its peers. Although it is exposed to commodity prices, it has been quick to recover and has outperformed other large oil companies through the pandemic and into the recent recovery.
It won’t be the most profitable energy company to own. But it is among the safest. And it pays a fat dividend that’s safe.
Conservative Dividend Stock #2: Realty Income (O)
Realty Income (O) is one of the highest-quality and best-run REITs on the market. Cash flow from a conservative portfolio of 6,500 properties has enabled the company to amass a phenomenal track record of paying dividends—to such an extent that Realty Income actually has the audacity to refer to itself as “The Monthly Dividend Company.”
Despite trouble at a very small percentage of its properties (namely movie theaters and fitness centers), the REIT actually grew year-over-year revenues in the first nine months of last year. The stock has been unjustifiably held back because of its association with retail properties. As a result, the stock is still trading below pre-pandemic highs.
But investors should warm to one of the best income stocks ever as the economy improves. Here are some things to like about this stock.
- 15% average annual total return since 1994
- 628 consecutive monthly dividends
- 5% annual dividend growth since 1994
- Sky-high credit ratings
Conservative Dividend Stock #3: AbbVie Inc. (ABBV)
AbbVie is a cutting-edge company specializing in small molecule drugs. Since AbbVie’s spinoff from Abbott Laboratories (ABT) in 2013, it has grown into the eight largest pharmaceutical company in the world, primarily on the strength of its blockbuster biologic autoimmune drug Humira, which is the world’s number one drug by far with annual sales of about $19 billion.
But the stock is cheap. ABBV is selling at only 12 times forward earnings.
It’s cheap because of fears about competition for its blockbuster Humira drug. But this company has one of the very best pipelines of newly launched drugs and soon-to-be-approved new drugs in the business that should overcome the revenue slippage.
The market seems to agree. ABBV returned over 26% in 2021 and is up 6.8% YTD. It has a huge longer-term tailwind as the population ages, a great valuation and now momentum as well.