While the stock market in the US has recently snapped a seven-week losing streak, it doesn’t mean that the pain for investors is over.
That’s because the US Federal Reserve (Fed) is set to keep hiking interest rates in the face of high inflation.
However, falling stock markets provide investors with multiple opportunities to buy stocks on the cheap.
That’s particularly true of dividend stocks, which can effectively “pay you to wait” (for the inevitable recovery) via their income streams.
So, with dividends once again in vogue, where should investors be searching for income? If you’ve got US$1,000 to invest, here are three dividend stocks you can buy right now and hold for the long term.
1. Johnson & Johnson
For anyone who has used Aveeno for their skin, given Calpol Panadol syrup to their kids, or used a Band-Aid plaster, then you’ll be familiar with brands owned by healthcare and personal care goods giant Johnson & Johnson (NYSE: JNJ).
Traditionally, it’s considered a “defensive” dividend stock given the essentials it sells and the size of the company – it boasts a market cap of over US$450 billion.
That assumption has played out in reality as shares of Johnson & Johnson have outperformed so far this year, notching up a 1.3% gain in 2022 versus the S&P 500 Index’s 16.2% decline.
Johnson & Johnson’s latest earnings were a testament to its resilience. For the first quarter of 2022, the company recorded sales of US$23.4 billion, which was up 5% year-on-year.
Without the effect of the strong US dollar, sales would have risen 7.7% year-on-year, given around US$12 billion of revenue in its most recent quarter came outside the US.
While most investors may be more familiar with its consumer-facing brands, Johnson & Johnson is in fact also a heavyweight healthcare and pharmaceuticals name.
Its Pharmaceutical division, which includes drugs sold for immunology to oncology and cardiovascular diseases, saw worldwide operational sales growth (excluding currency effects) of 9.3% year-on-year to US$12.9 billion.
Crucially, the company’s diversification supports its ability to pay a solid dividend. Johnson & Johnson is a Dividend Aristocrat, having increased its dividend for 60 consecutive years.
That growth has also been impressive, with its dividend’s compound annual growth rate (CAGR) over the past decade coming in at 6.4%.
With a 12-month forward dividend yield of 2.6%, Johnson & Johnson shares offer investors a reliable dividend stock in volatile times.
For anyone bullish on the housing market in the US, then home improvement retailer Lowe’s Companies Inc is one of the key beneficiaries.
We’ve all read about the lack of housing stock in the US but what really drives the likes of Lowe’s and its main competitor – Home Depot Inc (NYSE: HD) – is the fact that over half of US homes are over 40 years old.
That increases demand for continuous home improvement works, regardless of the state of the residential property market.
All this, along with impeccable execution by CEO Marvin Ellison, has driven earnings for Lowe’s.
In its latest fiscal Q1 2022, the company saw sales decrease to US$23.7 billion, from US$24.4 billion in the year-ago period, but still recorded diluted earnings per share (EPS) of US$3.51 versus US$3.21 in the same period a year ago.
That was primarily attributed to operating margin improvement and share buybacks. Meanwhile, the dividend from Lowe’s is generous – having grown at a whopping CAGR of 18.8% over the past 10 years.
The company’s most recent dividend hike was a robust 30%. With Lowe’s shares offering investors a 12-month forward dividend yield of 2.2%, it’s an income stock for all seasons.
3. Church & Dwight
Finally, there’s a name many investors might not be familiar with; Church & Dwight (NYSE:CHD). A consumer staples specialist, the company owns a stable of household brands.
Singapore investors might be most familiar with its ARM & HAMMER brand of baking soda, which is available in supermarkets across the island.
It also owns the WATERPIK brand of water flossers, as well as Oxi-Clean fabric cleaner, among others.
Church & Dwight’s latest first-quarter 2022 results saw its net sales grow 4.7% year-on-year to US$1.3 billion.
While the company did say it was experiencing issues with ongoing supply chain challenges, it still managed to grow consumption in 11 of the 17 categories it competes in.
Over the past decade, Church & Dwight has grown its dividend at a CAGR of 12.9%. Offering income investors a 12-month forward dividend yield of 1.2%, Church & Dwight shares offer some level of safety given its consumer staples focus.
Stability of income
During volatile times like these, it’s important that long-term dividend investors find passive income that is both reliable and sustainable.
While Johnson & Johnson, Lowe’s and Church & Dwight aren’t the highest-yielding dividend stocks, the stability of their income (as well as solid growth) means they should be able to weather any potential recession in the US economy.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Lowe’s Companies Inc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.