It turns out that investing for steady returns in dividend stocks really isn’t that difficult. A risk-averse position is the primary means by which to achieve that goal. It’s the tortoise approach of slow and steady gains that leads to a win over the long term.
That means investors should choose the most reliable types of dividend stocks. High-yield stocks are out and lower-yield dividend shares with established track records of steady increases are in.
Even the highest risk-seeking retail investor has to admit that being able to reliably count on a steady income and slow but sure price appreciation has its perks. That contingent should consider those factors as well, especially as we near an expected recession.
|Church & Dwight
Church & Dwight (CHD)
Church & Dwight (NYSE:CHD) stock is in an excellent position following its strong Q1 showing. There’s a lot that can be said about it in the current macro economy. CPG firms are performing particularly well.
Consumers continue to pay for name-brand goods and overall spending remains strong despite continued inflation. In 2023, that has equated to overall strength for Church & Dwight.
Let’s look at the numbers because they emphasize those truths clearly. Company-wide revenues increased by 10.2% in the first quarter.
Those are strong numbers for a firm that has been around so long and derives the bulk of its sales from a boring product. But it’s also a testament to the power of having a brand champion like Arm & Hammer baking soda that is instantly recognizable.
That is especially true in the U.S. where domestic sales increased by 12.2% in the first quarter. Boring? For sure. But super reliable with a dividend that has grown continuously annually since 1985.
If you bought CHD stock prior to the Q1 earnings release, all the better. But if you didn’t it still makes sense after the price jumped up given the increased guidance and overall reliability.
Chubb (NYSE:CB) engages in what is arguably an even more boring business than selling baking soda. The stock represents a property and casualty insurance business.
It helps people protect the things they own while also protecting people from the harm they do to others and their property. Very boring and very necessary.
And while Chubb is arguably not very interesting it does excite in terms of the potential upside it offers to investors: Its target price is roughly 25% above its current price. That’s without any sort of downturn bringing prices sharply lower. Instead, Chubb shares have appreciated steadily over the past few years with additional upside ahead. That’s a sweet deal that gets sweet when you consider its reliable dividend yielding 1.72%.
Chubb’s recent results showed slightly shrinking revenues. But that wasn’t a problem given the firm’s record operating income that increased by 11.8%. Earnings were strong and in line with analysts’ expectations leading to further predictability overall.
A.O. Smith (AOS)
A.O. Smith (NYSE:AOS) further cements an overarching pattern among stocks that provide steady returns: Flashy, innovative business models are out, and everyday products reign supreme.
That’s very true of A.O. Smith which sells commercial and residential water heaters. Although company-wide sales declined by 1% in the first quarter, it was a convincing performance. Adjusted earnings per share reached $0.94, well above the highest portion of the analyst earnings range.
A.O. Smith’s GAAP EPS of $0.84 was a record for the first quarter.
The result was that management raised the overall 2023 EPS outlook by 10 cents to $3.30 on the low end and $3.50 at the high end.
That likely means that AOS stock can run higher in 2023 even as it is currently closing in on being fully priced. Its dividend is at the higher end of the payout range but isn’t concerning because it remains in the healthy range and hasn’t been reduced since 1985.
Nordson (NYSE:NDSN) sells adhesive application systems that are used across various industries, including semiconductors, biotechnology, and packaging.
There’s nothing sexy about that, but what is sexy about the company is the fact that it has been paying increasingly greater income to investors since 1964. With a low payout ratio of 0.27, there’s plenty of room left for future increases.
Nordson was added to the dividend aristocrats in 2022. In terms of reliability, it doesn’t get much better than that. It’s the kind of risk-averse provider of steady returns that quietly goes about its job and then surprises you one day.
Case in point: Over the past 10 years it has provided 12.79% annual returns. That was enough to more than triple an investor’s capital over that period
Nordson is a profitable company that offers strong margins and high returns to investors with a sound track record over a lengthy period of time.
McDonald’s (NYSE:MCD) stock, like others on this list, turns capital into greater sums of capital over the mid-term.
For example, the 14.41% annual returns in MCD shares over the past 10 years would have nearly quadrupled an investor’s capital. That’s far above what you’d receive in any savings account or certificate of deposit but all-in-all, nearly as safe.
Strong historical performance isn’t the only reason to invest right now. McDonald’s is performing very well and continues to pass on higher prices to consumers who happily oblige.
Management attributes the strong performance to operational overhauls that have improved speed and accuracy. Those certainly matter. However, the U.S. consumer has also shown their spending prowess won’t be stopped despite the macroeconomy.
MCD stock is sitting near record highs but with efficiency as the current focus, there’s plenty of reason to believe shares continue to rise.
IBM (NYSE:IBM) shares have been an underperformer for the past decade. In fact, they’ve returned less than 1% annually during that period. IBM stock traded near $200 a decade ago. Today it trades for $122.
That’s precisely the type of trend line investors want to avoid. But the rub comes from a few factors that favor IBM. For one, it is a noted leader in AI with Watson.
Side note, it has paused hiring in certain jobs and expects AI to replace nearly 8,000 jobs within time and 30% of its back office over the next 5 years. It’s clear that the company has an eye toward efficiency that could erase some of the misery of its performance over the past decade.
Further, it’s expected to appreciate by $20 over the next year or so. It pays a relatively high-yield dividend that makes it riskier than many might investors might care for. But the upside income it provides while AI offers growth makes IBM a potential turnaround story for this decade.
Brown-Forman (NYSE:BF.B) stock hasn’t performed especially well in 2023. In fact, it’s slightly down year-to-date. The alcohol company’s most recent earnings showed moderate top-line growth of 4%. But that wasn’t the problem. The problem was declining income including operating income which fell by 11%.
Those results naturally raise the question of why then should investors consider Brown-Forman at all. The answer is twofold: steady reliability and reason to believe that the company has turned a corner.
It’s steady reliability is a dividend that remains in a healthy payout range and hasn’t been reduced since 1985. The reason to believe the company has turned a corner comes as normalizing supply chains that caused finished inventories to fall behind until recently.
The company also has a few products that provide strong growth in its Jack Daniel’s and Woodford Reserve brands. Further, ready-to-drink products have also grown very rapidly at 12% in the most recent quarter.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.