Dividend-paying stocks are attracting renewed buying interest in reaction to trade war escalation, which has forced concerned investors to look for alternative plays that might work well in the next recession or economic slowdown. This flight to safety could pick up steam at the expense of international growth plays in coming months, lifting shares of consumer staples, utilities, and domestically focused telecoms.
High-yielding real estate investment trusts (REITs) could perform well in the next two or three years as well, with limited inventories and favorable demographics overcoming reduced buying power that is typical in bear markets and weak economies. On the flip side, companies that are dependent on China and other tariff-targeted countries could lose ground, with freed-up capital underpinning the hunt for yield.
Dow component The Coca-Cola Company (KO) pays a 3.15% annual dividend yield and is trading at an all-time high after a strong advance that has mounted resistance at $50 for the first time in 2019. Looking back, a multi-year uptick topped out in the mid-$40s in 1998, while the subsequent decline found a trading floor in the upper teens in 2003. It tested that support level in 2004 and 2009, finally entering an uptrend that completed a round trip into the prior century's high in 2013.
The stock has spent the past six years testing multi-decade resistance, building modest gains within a shallow rising channel that has tested the will of long-term shareholders. A 2018 breakout attempt topped out at $50.84, ahead of a decline the found support in the mid-$40s at year end. Price action so far this year has carved a V-shaped rally pattern that could finally signal the start of a more dynamic uptrend.
Verizon Communications Inc. (VZ), also a Dow component, pays a 4.23% annual dividend yield. A multi-year uptrend ended at $64.75 in 1999, giving way to a downtrend that posted lower lows into October 2008, when the stock finally bottomed out at $21.48. It posted healthy gains into 2013, stalling in the mid-$50s, ahead of sideways action that persisted into a 2018 breakout. That uptick fizzled out just three points below the multi-decade peak in November, giving way to a trading range with support in the low $50s.
The stock has carved a symmetrical triangle in the past seven months, oscillating between narrow support and resistance levels. It has just bounced at the 200-day exponential moving average (EMA) for the third time since December, setting up bullish conditions for an uptick that could finally trigger a test at the all-time high. T-Mobile-US, Inc.'s (TMUS) proposed acquisition of Sprint Corporation (S) remains a wild card in this equation, with government approval likely to trigger a fresh wave of buying power.
Campbell Soup Company (CPB) pays a 3.86% annual dividend yield. The stock topped out at $62.88 in 1998, following a multi-year uptrend, and sold off to $19.65 in 2002. That marked the lowest low in the past 17 years, ahead of mixed price action that finally completed a round trip into last century's high in 2016. It broke out immediately but made limited progress, posting an all-time high at $67.89 and turning tail in a steep decline that hit a six-year low in January 2019.
The company has embarked on a major reorganization plan, shedding unprofitable divisions, and it attracted fresh buying interest after beating fiscal third quarter profit and revenue estimates earlier this week. Recent price action has nearly completed a broad-based double bottom reversal, setting the stage for the first uptrend in nearly three years. Even so, short-term progress may be limited, with the declining 200-week EMA just above Wednesday's closing print.
The Bottom Line
Dividend-paying stocks with limited exposure to worldwide trade tensions could shine in the coming months, with investors reallocating capital out of growth plays and into safe havens.
Disclosure: The author held no positions in aforementioned securities at the time of publication.