Investors looking for safe dividends should consider it Dividend Kings, a group of just 45 stocks that have raised their dividends for at least 50 consecutive years. Of the Dividend Kings, three in particular have high yields of over 4% and safe dividends.
Good drug for investors: AbbVie Inc.
AbbVie Inc. (ABBV) is a pharmaceutical company launched by Abbott Laboratories (ABT) in 2013. Its most prominent product is Humira, which is now facing biosimilar competition in Europe, which has had a notable impact on the company. Humira will lose US patent protection in 2023. Even so, AbbVie remains a healthcare giant with a large and diverse product portfolio.
AbbVie announced its second quarter earnings results on July 29. Revenue of $14.58 billion rose 4.4% year over year, while adjusted earnings per share of $3.37 beat estimates by $0.06. The company lowered its full-year earnings guidance to a range of $13.78 to $13.98, from a previous expectation of $13.92 to $14.12 per share.
AbbVie’s efforts to shield Humira from competition until 2023 (in the US) and its significant R&D investments for next-generation drugs will allow the company to continue to grow revenues in the coming years. Humira’s US patent is still a few years away, giving AbbVie plenty of time to bring new drugs to market.
AbbVie’s new, improved drugs targeting the same indications as Humira have a good chance of capturing much of Humira’s current revenue stream. AbbVie’s management believes that company-wide revenue in 2025 will be higher than in 2020, despite the impact of the loss of Humira’s patent exclusivity. The Allergan acquisition, which closed in 2020, will also drive future revenue growth and further diversify the company.
AbbVie’s expected payout ratio for 2022 is 41%, at the midpoint of full-year EPS guidance. This means that the dividend payment is safe. Shares currently yield 4.0%.
Northern Light: Canadian Utilities
Canadian Utilities (CDUAF) is a Canadian-based utility stock. It has a market capitalization of about $8 billion with about 5,000 employees. ATCO owns 53% of Canadian Utilities. Canadian Utilities is a diversified global energy infrastructure company providing solutions in electricity, pipelines and liquids, and retail energy. The company boasts the longest consecutive years of dividend growth in Canada, with a 50-year streak
On July 28 Canadian Utilities reported second quarter 2022 results for the period ended June 30, 2022. Revenue for the quarter was $726 million in US currency, up 18.1% year-over-year, while EPS reached $0.39 compared to a loss of $0.03 in the second quarter of 2022. The higher revenue was primarily the result of rate relief provided to customers in 2021 in light of the global Covid-19 pandemic, and subsequently of the decision to maximize the collection of deferred revenue in 2021 in 2022 The increase in EPS was primarily due to the inflation indexation of Australian interest rates, the impact of the decision to apply for compliance with the 2018-2019 general tariffs and the timing of operating costs in the Natural Gas Distribution business. Our updated estimates point to FY2022 EPS of $1.80 (previously $1.77).
Canadian Utilities can slowly but steadily increase its earnings. The company is steadily investing in new projects and is benefiting from increases in key interest rates, which are rising at around 3% to 4% annually. Last year, the administration applied to the Alberta Public Utilities Commission to postpone increases in Canadian Utilities’ electricity and natural gas distribution rates. The company expects to receive the deferred revenue in early 2022. Combining the company’s development projects, the potential for modest margin improvements and — as voluntarily sought — the deferred interest base increases, we maintain our expected growth rate at 4%.
The company’s competitive advantage lies in the moat regulated uses it is surrounded by. Without easy entry into the industry, regulated utilities enjoy an oligopolistic market with little threat of competition. The durability of the company has been proven for decade after decade. Despite multiple recessions and uncertain environments over the past 50 years, the company has weathered each one while growing its dividend.
The company’s current annual dividend yield is approximately $1.37 at current Canadian dollar exchange rates. With a projected 2022 dividend payout ratio of 76%, the dividend payout looks safe, currently yielding 4.4%.
Overall a good investment: Universal Corp.
Universal Corporation (UVV) is the world’s largest exporter and importer of leaf tobacco. The company is the wholesale buyer and processor of tobacco that operates between farms and companies that manufacture cigarettes, pipe tobacco and cigars. Universal Corporation was founded in 1886.
Universal is a dividend king, having also increased its dividend payout for 50 consecutive years. This is due to Universal’s leadership in tobacco leaf processing. It has maintained a long track record of steady profitability, despite the persistent headwinds of declining smoking rates. The price increases helped offset the reduced demand for cigarettes, helping Universal remain highly profitable. For example, last year the company reported adjusted earnings per share of $3.49.
Maintaining consistent year-over-year profitability allows Universal to return excess earnings to shareholders through dividends and share repurchases. The stock currently yields 6.3%, while share repurchases have helped boost earnings per share growth by reducing shares outstanding.
Going forward, Universal intends to continue to grow by diversifying its business model. In response to the decline in smoking, Universal has branched out into processing other products, such as fruits and vegetables. It has made multiple acquisitions in this area to accelerate its diversification efforts.
For example, Universal acquired FruitSmart, an independent specialty fruit and vegetable ingredient processor. FruitSmart supplies juices, concentrates, blends, purees, fibers, seed and seed powders and other products to food, beverage and flavor companies around the world. In 2021 Universal acquired Silva International, a privately held dehydrated vegetable, fruit and herb processor. Silva sources over 60 types of dehydrated vegetables, fruits and herbs from over 20 countries around the world.
We believe a low-single-digit annualized EPS growth rate is possible for this tobacco company, largely due to buyback potential.
UVV’s expected dividend payout ratio is 79% for the current fiscal year. This provides enough coverage for the current dividend payment. Shares currently yield 5.9%.
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