[Editor’s note: This story was previously published in December 2018. It has since been updated and republished.]
Even with the China-U.S. trade war appearing to simmer down and the Fed looking set to pause its interest-rate hikes, the stock market is still facing many steep risks. America’s political situation hasn’t been this tense in decades. The EU is facing a host of challenges, and the Chinese-U.S. trade war could easily flare up again. Similarly, the Fed could soon become hawkish again.
Add it all up, and things could easily get volatile quite soon. That leaves investors wondering where they can go for safety.
After years of tech outperforming everything, the problems facing Apple (NASDAQ: AAPL), Facebook (NASDAQ:FB), and Amazon (NASDAQ:AMZN) have many people bailing on growth as well. That leaves safe-haven dividend stocks as a more favorable alternative. Here are six worth taking a look at.
Dividend Yield: 1.75%
Rain or shine, good economy or bad, people like to drink alcohol. And for safe dividend seekers, that makes Diageo (NYSE:DEO) an ideal play. While its name may not be familiar, its brands almost certainly are. Diageo owns and manufactures Guinness beer, Captain Morgan rum, Smirnoff vodka and Johnnie Walker whiskey, among many others.
DEO stock is a well-known safe haven for investors. The company is headquartered in the U.K., and was one of the very few stocks to go up the day after Brexit in that country as British investors sold risky stocks and moved to safety. Diageo will again serve as a safe haven whenever the next bear market/recession hits.
Diageo isn’t just a great business, it’s also a great dividend play. The company has continuously raised its dividend (as measured in its home currency of British Pounds) each of the past 20 years.
Campbell Soup (CPB)
Dividend Yield: 4.33%
Campbell Soup (NYSE:CPB) is one of the unloved packaged-foods makers. It’s not hard to see why, if you only think about the company’s name. Canned soup certainly isn’t trendy with younger consumers at this point. And there’s a general nutritional wariness about heavily salted foods.
That said, there’s much more to Campbell Soup than just the iconic red cans. The company is more and more a snack food play. As we know, while Americans profess an interest in healthier eating, they still love their junk food from time to time. Campbell’s — owner of Hanover, Pop Secret, Goldfish and Pepperidge Farm — is in a great position to profit off of this.
Pepsico (NYSE:PEP), the leader in snacks, consistently gets a high P/E ratio from the market, as investors acknowledge the stickiness of their brands with consumers. The market, however, is not appreciating Campbell Soup at all. Shares are down from $50 in 2017 to $32 now. That has attracted activist investors, who got a new CEO hired and are demanding more change. If shares stay down here, expect that a suitor will buy out the company at a nice premium. If not, enjoy the 4.3% dividend — the highest CPB stock has offered in at least 30 years.
PacWest Bancorp (PACW)
Dividend Yield: 5.86%
After investors dumped bank stocks late last year, a lot of value has been created in this generally overlooked sector of the market, where solid dividends abound.
That brings us to PacWest Bancorp (NASDAQ:PACW), which offers a 5.86% dividend yield at the moment. Headquartered in Los Angeles, PacWest is a major player throughout the California market and currently sports a $5.1 billion market cap. That puts it in a sweet spot, size-wise, where it may still be a buyout candidate, but it is large enough to manage the rising costs of regulation and banking technology costs.
Despite the horrid state of the California housing market in 2008, PacWest survived the crisis; in fact its shares never came close to zero during the panic. The bank has come out stronger, and is now generating record profits. Thanks to the corporate tax cuts in particular, PACW stock is now at a cheap P/E ratio of just 11 times its trailing earnings.
New York Community Bancorp (NYCB)
Dividend Yield: 5.52%
Despite its large yield, New York Community Bancorp (NASDAQ:NYCB) is an even safer bank stock. NYCB stock currently yields 5.5%, and they earn more than enough to cover the dividend, with earnings coming in at 79 cents and dividends at 68 cents annually.
Why is NYCB stock down 12% over the past year? Of course, the sector is down, as discussed above. On top of that, some investors hold a resentful view toward New York Community Bancorp due to a failed merger with Astoria Financial in late 2016. Due to Trump’s unexpected win, bank stocks spiked, and the deal failed to close. Investors have had it out for NYCB’s management ever since.
Regardless, the bank is one of the safest in the country. It lends primarily against multi-family homes in New York City — one of the lowest-risk lending markets out there. The bank’s loans barely budged in performance even during 2008. With a strong dividend covered out of earnings and a safe loan book, investors can earn a large dividend income from a most conservative bank.
Southern Co (SO)
Dividend Yield: 4.9%
In the worst of times, people tend to still want to use electricity. Even a severe economic downturn tends to not impact utility stocks too dramatically. As such, it’s a sound sector to buy when investors get panicky, such as what we’re seeing with the market now.
Southern Co (NYSE:SO), as one of the highest-yielding large power utilities, checks the boxes for safe dividend stocks here. SO stock is currently yielding 4.9%.
Its high yield is in large part, it seems, due to interest rates going up. Many investors treat utility stocks as substitutes for bonds. As such, when interest rates go up, investors demand a higher yield from their utility stock as well. If interest rates were to keep surging for years to come, SO stock would likely underperform.
But since the Fed looks set to pause its rate hikes,, a stock like Southern Co should shine.
Exxon Mobil (XOM)
Dividend Yield: 4.17%
Speaking of things people use in good times and bad, gasoline ranks pretty highly on the list. Sure there is a minor dropoff in consumption during recessions, as people take fewer road trips, for example, but in general, oil and gas is a safe haven business. And Exxon Mobil (NYSE:XOM) as the largest U.S. player is a true sleep-well-at-night stock.
The combination of a fortress balance sheet, diversified operations and a storied dividend make XOM stock an excellent place to endure market storms. It may seem strange to call Exxon diversified. But what many investors don’t realize is that much of big oil has spun off the other segments of their businesses. We saw a ton of refining and pipelines subsidiaries moved out of the parent companies into MLPs and other corporate entities. That is all well and good as far as shareholder value maximization goes. But Exxon’s more diversified approach ensures that it remains solidly profitable even when the price of oil plummets, as it did in recent years.
XOM stock is hardly the most exciting in a high growth market. But at 16 times earnings and paying a slightly greater than 4% dividend yield, it is a fine option for defensive investors. And buyers are still getting a fair value at this point.
At the time of this writing, Ian Bezek owned DEO, CPB, PACW, NYCB and XOM stock. You can reach him on Twitter at @irbezek.