When fear and uncertainty hit the stock market, investors typically head for safer harbors. That can manifest in many ways, from very conservative investments like Treasury bills to investments that still provide market exposure, yet are historically less volatile, such as blue chip dividend stocks.
There are two key reasons why blue chip stocks that pay a dividend are attractive during a volatile stock market. First, with their consistent dividends, these stocks can provide a baseline of returns whenever the broad market treads water or turns negative. Second, these stocks typically have decades-long dividend growth track records.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Past performance may not be indicative of future performance, but these types of stocks typically gain steadily over time in tandem with rising payouts. Hence, with both steady dividend and appreciation potential, they can perform well in both bull and bear markets.
Out of scores of high-quality dividend stocks, including Dividend Kings (companies with over 50 years of consecutive dividend growth), Abbott Laboratories (NYSE: ABT) stands out as a name to buy and hold if one fears a more volatile stock market is just around the corner.
Abbott Laboratories: A Dividend King on sale
Illinois-based Abbott Laboratories is a diversified healthcare products company. Besides being a major player in the world of medical devices and diagnostics, Abbott is also the company behind products like Similac baby formula and Ensure nutritional supplements.
With this mix of defensive healthcare businesses, it’s no wonder that the company has managed to reach Dividend King status. For 55 years in a row, Abbott has raised its quarterly cash dividend. Currently, the stock has a forward yield of around 2.8%. That may make it a moderate yielder rather than a high yielder, but Abbott’s yield today could snowball into larger yield on cost in the long term.
Why? Over the past decade, Abbott has raised its payout by an average of 9.4% annually. Although dividend growth has slowed down in recent years to around 7%, don’t rule out the potential for dividend growth to speed back up again, especially as this company has a payout ratio (the dividend as a percentage of earnings) of 41.6%. For reference, a payout ratio below 50% is considered very sustainable.
