Yes, you’ve read the title correctly. I am on the hunt for bullet-proof dividend stock investments that will stand strong during and after the pandemic, i.e. the Coronavirus/COVID-19.
Coronavirus watch list intro
Given the recent stock market panic and seeing the S&P 500 drop 20% over the last month (through 3/13/2020), it’s time to take a deep breath and see what undervalued dividend stocks are out there. I am not talking any ordinary dividend stock. These have to be exceptional dividend companies that have weathered crises, each and every time, as well as those that maintain a balance sheet and payout ratio to continue their dividend streaks.
The coronavirus is no joke. We all must be smart. However, I always say – when others are running from the market, that is when you should look at your strategy and stick to what you are doing, not paying attention to the intense noise.
Therefore, I will be looking at 3 dividend paying stocks that I feel could stand the brunt of the coronavirus and continue their dividend payments and growth streaks!
Johnson & Johnson (JNJ)
The King of dividends! Johnson & Johnson has increased dividends for OVER 55+ years and are reaching closer to 60 years. It is no wonder they are on our Top 5 Foundation Dividend Stocks for your portfolio. Further, with brands such as Band-Aid, Tylenol, Bendadryl, Aveeno, Neutrogena; JNJ will be doing just fine during the Coronavirus pandemic, as these are products used each and every day.
Here are Johnson & Johnson’s Dividend metrics when running them through our Dividend Diplomat Stock Screener, plus looking at their current and quick ratios:
1.) Price to Earnings Ratio (P/E): Trading at $134.29 with an earnings projection of $8.99 for 2020, JNJ’s P/E ratio is only 14.94.
2.) Payout Ratio: JNJ produces a dividend of $3.80 per year. Given the earnings projection is $8.99, the payout ratio stands at 42%. Therefore, they give out almost half of their earnings and they keep half of their earnings. In a Pandemic or crisis, they can weather the storm and still continue to increase dividends, as they have done.
3.) Dividend Yield & Growth: The dividend yield is currently at 2.82%. I know this doesn’t knock your socks or boots off, but it is a solid dividend. The most recent 5 year dividend yield average is 2.64% for JNJ. Therefore, they are yielding higher than normal. In addition, JNJ is a dividend aristocrat and currently boasts a 57+ year dividend growth streak. Phenomenal.
4.) Current Ratio: This is where you take the current assets over current liabilities, which helps demonstrate the flexibility and liquidity a company has. JNJ has $45,274 in current assets with current liabilities of $35,964. This equates to an impressive 1.26x ratio, which a ratio over 1 is preferred. JNJ can cover current obligations with current assets, no problem.
5.) Quick Ratio: Further, this is where you remove inventory from current assets and see truly how liquid they are when you remove assets that may have to sit there for a long-period of time. Inventory accounted for $9,020. Therefore, the current assets less inventory equates to $36,254, which still represents a ratio of 1.01x the current liabilities. Therefore, JNJ has a very strong balance sheet and can pay obligations without worrying about moving current product inventory.
In conclusion, JNJ is a beast during market turmoil. They meet EVERY dividend metric and also have safety on their balance sheet. They are definitely a stock to look and own, during such volatile times.
Leggett & Platt, Inc. (LEG)
Another dividend aristocrat, baby! Do you see the trend? Leggett & Platt is a manufacturer of beds, seating, etc.. In addition, LEG has increased their dividend for 49 straight years! During times when you are to stay at home and forced to be home, one has to have beds, chairs and seating. That is where LEG comes into play.
Here are Leggett & Platt’s Dividend metrics when running them through our Dividend Diplomat Stock Screener, plus looking at their current and quick ratios:
1.) Price to Earnings Ratio (P/E): Trading at $32.44 with an earnings projection of $2.50 for 2020, LEG’s P/E ratio is only 12.98.
2.) Payout Ratio: LEG produces a dividend of $1.60 per year. Given the earnings projection is $2.50, the payout ratio stands at 64%. They are at the top of my payout threshold that I usually like. However, they’ve increased their dividend during all financial crisis in the last 50 years. That proves out quite a bit to the dedication this company has.
3.) Dividend Yield & Growth: The dividend yield is currently at 4.93%. This is SIGNIFICANTLY higher than their 5 year average of 3.38%. A steep discount, here, if I may say. In addition, a 49 year dividend growth streak is nothing to scoff at. They are a dividend monster, to say the least.
4.) Current Ratio: LEG has $1,538.10 in current assets with current liabilities of $928.10. This equates to an impressive 1.66x ratio, which a ratio over 1 is preferred. LEG can cover current obligations with current assets, no problem.
5.) Quick Ratio: Further, this is where you remove inventory from current assets and see truly how liquid they are when you remove assets that may have to sit there for a long-period of time. Inventory accounted for $636.70. Therefore, the current assets less inventory equates to $901.40, which still represents a ratio of 0.97x the current liabilities. Therefore, LEG also has a very strong balance sheet and can pay obligations without worrying about moving current product inventory, for the most part.
In conclusion, LEG yields higher than JNJ, albeit with a higher payout ratio. They have a better current ratio than JNJ, but JNJ has a better quick ratio than LEG, slightly. Another powerful, dividend beast.
United Parcel Service (UPS)
As I’ve been driving around, I still see UPS trucks everywhere. In all actuality, families and individuals, as well as businesses, are ordering stock of everything lately. Guess what? It has to get from point A to point B somehow. UPS has to deliver goods that are ordered, especially as the products are crucial for those in survival mode.
UPS Dividend metrics are below, when running them through our Dividend Diplomat Stock Screener, plus looking at their current and quick ratios:
1.) Price to Earnings Ratio (P/E): Trading at $94.23 with an earnings projection of $7.83 for 2020, UPS P/E ratio is only 12.03.
2.) Payout Ratio: UPS produces a dividend of $4.04 per year. Given the earnings projection is $7.83, the payout ratio stands at 51.59%. UPS is smack dead in the middle with retaining earnings for their own company and giving back half to their shareholders. Love the balance that UPS has.
3.) Dividend Yield & Growth: The dividend yield is currently at 4.29%. This is also incredibly higher than their 5 year average of 3.29%. A steep discount again. In addition, a 10+ year dividend growth streak is fairly sound. No dividend cuts, but during 2009, they maintained their same dividend, but resumed back in 2010. Therefore, a fairly risk-free streak of no dividend cuts with maintaining their dividend once in the recent 20 years (3 crisis: tech, housing/financial, coronavirus).
4.) Current Ratio: UPS has $17,103 in current assets with current liabilities of $15,413. This equates to an impressive 1.11 ratio, which a ratio over 1 is preferred. UPS can also cover current obligations with current assets, no problem.
5.) Quick Ratio: Further, this is where you remove inventory from current assets and see truly how liquid they are when you remove assets that may have to sit there for a long-period of time. This is a trick question for UPS. This is because UPS has NO INVENTORY! Therefore, UPS remains just as liquid as their current ratio, well over 1x.
In conclusion, UPS is a strike in the middle of LEG and JNJ. A better yield than JNJ, lower yield than LEG. A better payout ratio than LEG, but a higher payout ratio than JNJ. All, in all, another great dividend producer for your portfolio.
Coronavirus Dividend Watch List Conclusion
Overall – if I had $1,000 to invest, I more than likely would do $350-$400 in both Johnson & Johnson (JNJ) and United Parcel Services (UPS) and the remaining $200-$300 into Leggett & Platt (LEG). That would represent an average yield of approximately 4% going forward, plus a plethora of dividend increase history.
Obviously we do not know when the coronavirus will end or slow down. However, business need to continue to operate, especially if it’s needed to live your life. The global population and global investment markets are definitely shaken, not just by a smidge but by a shift that holds grand magnitude. However, I will note that when comparing pricing to 12-18 months ago, things do not look that significantly different.
All dividend investors, soon to be investors and the entire community – please be safe and be healthy out there. Be smart with your financial situation. Also, wash your hands, cough in your elbow, maintain appropriate distance and don’t force yourself somewhere if you are feeling ill.
We will beat this, just as these companies above have continued to beat crisis after crisis. Good lucky and happy investing everyone.
-Lanny
Lanny,
So many good values, if I had the money I would probably buy shares in like 15 companies. JNJ and other stalwarts are where it is at.
Enjoy the sale prices.
– Gremlin
Gremlin –
Luckily with low to no trading costs, buying a a few shares when you can, has never been easier. That’s what I’ve really enjoyed during this time period.
-Lanny
Lanny,
JNJ and UPS are good calls. Others can be Kimberly Clark (KMB) and Proctor & Gamble (PG)
Westrock (WRK) may be an option for the increased demand on cardboard boxes also.
Keep safe!
John
CW –
Couldn’t agree more with KMB and PG, for sure. They will be killing it. That’s funny with WRK – I mentioned that to Bert on Sunday. Definitely worth a look.
-Lanny
Great article as usual
Looking to open a New position on the following:
BCE, Fortis, MFC and AQN
Trying to average down on the following:
BNS, CNR, TD and RY
Crazy times…
Cheers
Tom
Tom –
Great picks, love BCE and Fortis.
Lastly – nice work averaging down, definitely give you a thumbs up on BNS! Just received their annual report in the mail last week.
-Lanny
Nice list. Agree on JNJ, however LEG is more exposed as furniture is none esential items like RE, Cars, ect. And on recesion which im sure we will hit in 2020 (apart from all goverment saying different) there will be decline in these sectors. LEG is a good buy but I would go for afraculture instead. I would wait for this yo bootom out. Made bet with BP and next day its -12% 🙁
P2035 –
JNJ, no doubt. LEG is a dividend aristocrat, hard to stop that streak, right? I agree, theirs wouldn’t be an industry that screams must have. Times are so interesting…
-Lanny
JNJ is the only one I own of those three. I’m looking at IBM, SBUX, MSFT myself. GL out there, it’s a “bloodbath.”
Min –
Definitely. Love JNJ, definitely the staple.
-Lanny
nice list.
jnj, microsoft, pepsi are tops on my list usd side.
cdn the banks r dirt cheap, telcos and more smart reit.
keep it up
cheers
PCI –
I do like MSFT during this time period as well, cloud based solutions with teleconferencing abilities…
-Lanny
Love the watchlist!
So far I have not touched UPS yet. I just struggle with their enormous pension liabilities and have discounted that from their fair value. I therefore have my purchase order at 80 bucks. Let’s see if it gets triggered!
Euro DGI –
Nice. Yep, I haven’t added to UPS again, yet… maybe at those prices I’ll start nibbling more.
-Lanny
PS – I hope it does trigger.
Nice list. I recently added to UPS and LEG. I’ve been averaging down on dozens of positions the past few weeks.
Kody –
Nice work, legacy dividend companies that have weathered through a storm or two.
-Lanny
Agree on all of the above, especially JNJ. I’m a little less positive on UPS though, especially if Amazon moves to completely using its own delivery service…
Scott –
Yep, good point with Amazon and UPS. JNJ is definitely doing well, and it’s nice to see that stock price also go down with the market, would be curious if they reach ~$100 per share.
-Lanny
Hey Lanny,
These are definitely the times when the importance of a solid dividend shines through. Companies that overextended their balance sheets during the bull run are the ones who will be punished. Those that kept capital on hand to benefit from a downturn that will weed out competition… they’re the ones to own.
I’ve had JNJ in the portfolio since 2010 and love it even more now.
Take care,
Ryan
Ryan –
Couldn’t agree more. JNJ – a legacy company that continues to stand the test of time.
-Lanny