An increasingly bearish macro environment, marked by the U.S.-China trade war, a slowing global economy, slowing corporate earnings growth, and high stock market valuations, has many investors seeking safety. “With the Fed on hold, one of the principal arguments against dividend-paying stocks has disappeared,” as Jeremy J. Siegel, finance professor at the Wharton School of the University of Pennsylvania and senior investment strategy adviser to fund management company WisdomTree Investments, told Barron's.

Dennis DeBusschere, head of portfolio strategy and quantitative research at investment banking firm Evercore ISI, indicated to Barron's that bond prices reflect "low and stable inflation expectations for at least 10 years." He adds, "As long as that condition exists, stocks that can pay out significant cash flows to shareholders should attract capital."

Barron's suggests seven stocks with attractive dividend yields or dividend growth prospects: JPMorgan Chase & Co. (JPM), Sempra Energy (SRE), Honeywell International Inc. (HON), Microsoft Corp. (MSFT), Air Products & Chemicals Inc. (APD), McCormick & Co. Inc. (MKC), and NextEra Energy Inc. (NEE). The table below offers thumbnail sketches of these stocks.

7 Stocks to Weather Trade Wars and Other Storms

  • JPMorgan Chase, 2.8% yield, largest U.S. bank, diverse businesses
  • Sempra, 3.1% yield, utility in middle of 5-year valuation range
  • Honeywell, 1.9% yield, free cash flow and dividends are growing
  • Microsoft, 1.5% yield, AAA rating, 60%+ gross margin, rising dividend
  • Air Products, 2.3% yield, strong returns, consistent dividend growth
  • McCormick, 1.5% yield, 33 straight years of dividend hikes
  • NextEra, 2.6% yield, utility with growing traditional & clean energy units

Source: Barron's; data as of May 7, 2019.

Significance for Investors

“Where you’ve got slowing growth, that is an environment where it makes sense to focus on dividends as a source of return,” as Adam Virgadamo, equity strategist at Morgan Stanley, told Barron's. The dividend yield on the S&P 500 Index (SPX) was 1.93% as of May 10, per The Wall Street Journal. As recently as the 1980s, the average annual returns from dividends were around 5%, per data from Ibbotson and WisdomTree cited by Barron's. Below are closer looks at the three of the seven stocks.

JPMorgan Chase has a “very diverse group of businesses that really allow it to operate through the economic cycle,” as Michael Barclay, a manager of the Columbia Dividend Income Fund (LBSAX), told Barron's, adding that they have “been very good at investing over the past 10 years in each of their businesses to grow and strengthen them." Regulators are allowing banks to return more capital to shareholders, and JPM boosted its dividend by 43% in Sept. 2018.

NextEra Energy is the parent of traditional regulated electric utilities Florida Power & Light and Gulf Power. FP&L is its largest division with operating profits of $2.6 billion in 1Q 2019. Its second-biggest unit is an unregulated player in the growing market for wind and solar power that delivered $1.1 billion, much of it from long-term contracts with customers. NextEra is experiencing solid growth in all its divisions.

Air Products & Chemicals is a leading supplier of industrial gases. Already planning to return $1 billion in cash to shareholders during the next year, CEO Seifollah Ghasemi announced in February, per Barron's, “we are returning about half of our free cash to the shareholders in terms of the dividend.” The company also has said that it has a target dividend yield of 2.5% to 3%.

Looking Ahead

The current dividend payout ratio for the S&P 500 is 34%, below the 30-year average of 38% partly because share repurchases are up, per analysis by Goldman Sachs cited by Barron's. Jeremy Siegel told Barron's that, in a downturn, “The vast majority of firms could cover their dividend obligations. Some will cut, of course, but they’ve got a very good cushion now,"