I’m very much a dividend investor these days, but I frequently caution that the presence of a big yield isn’t always sufficient to make a stock desirable.
That’s been hammered home recently as a string of companies have suspended their dividends in the wake of the coronavirus crisis. Although it’s affecting some that I hold myself, I think it’s a wise move to focus on balance sheet strength right now. But if you want the safest income you can find, what dividends should you go for?
FTSE 100 dividends
Just as we’re only allowed to shop for essentials, investing in companies that provide essentials can help secure more reliable dividends. Prime examples include utilities like Severn Trent (LSE: SVT).
Severn Trent’s share price has been reasonably resilient, losing 17% or so since the virus dip started. That’s not great, but it’s a lot better than the FTSE 100’s 26% fall – and the falls of 50% and more that riskier stocks have experienced.
Severn Trent’s dividend yield has never been one of the market’s biggest. But the share price fall has pushed the forecast yield up to 4.5% now. It’s certainly not guaranteed, and the firm’s income is not immune from the pandemic threat. But it’s surely a lot more reliable than income from companies offering more discretionary products and services.
National Grid (LSE:NG) is perhaps of even more central importance. And it’s also offers one of my favourite long-term income streams. With a fall of 14% in its share price, the market seems to see it as more resilient too. And, interestingly, National Grid shares are actually up over the past 12 months, by 4%, while the FTSE 100 has lost about a quarter of its value.
Again, the recent fall has made the dividend yield look a bit more attractive. National Grid has traditionally provided yields a little ahead of the general utility sector level, and right now we’re looking at forecasts for around 5.4%.
With operations in North America too, National Grid also offers a bit of international diversity. And that can’t be a bad thing in these restricted times.
Looking at Severn Trent and National Grid together, I’m reminded that more reliable dividends like these are not just for crisis times. No, they can always make a solid core for an income portfolio.
I also like the approach of seeking companies whose business models are necessarily directed to the long term. That includes AstraZeneca (LSE: AZN), with its multi-year drug development focus. GlaxoSmithKline fits the bill as well, but I’ll just look at one of the two today.
The AstraZeneca share price is yet another that appears resistant to the great sell-off, falling a very modest 11.5%. It’s also another that has actually gained over the past year, up 5%. As such, the recent dip hasn’t done a great deal to the forecast dividend yield, though it still stands at a respectable 3.5%.
AstraZeneca’s operations could well be hurt by the social distancing aspect of the current lockdown, and it might lose work in non-essential areas of the business. But I really don’t see a great threat to the dividend. The firm’s dividend is already keyed to its years-long earnings and balance-sheet expectations. And, in my view, it’s another example of the kind of long-term dividend we should be seeking.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.