Why Dividends Are A Safe Haven In Tough Times

Dividend stocks can be an appealing option when markets are volatile, as they are an excellent source of passive income. While the markets have rejoiced in the lower July inflation data, which signals an impending rate cut, broader market concerns persist, causing the benchmark S&P 500 index to pull back slightly over the past week. In addition, the tech-focused Nasdaq Composite Index has declined marginally over the past five days. 

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The Promise of Stable Returns 

One of the most compelling reasons dividends are valued during economic uncertainty is their ability to provide a steady income stream. Companies that pay regular dividends often signal underlying financial strength and stability. During economic downturns, businesses with strong cash flow and healthy balance sheets are likelier to continue paying dividends. 

Additionally, dividends serve as a measure of management's confidence in the company’s future. When a company commits to paying dividends, it indicates that management believes in the sustainability of its earnings and the strength of its business. 

Moreover, some companies regularly increase their dividend payouts, often termed dividend growth stocks. 

Procter & Gamble 

The Procter & Gamble Company PG, a consumer goods behemoth, epitomizes reliability in the dividend world. As of fiscal 2024, the company has paid dividends for 134 years and raised its payouts for 68 years. Procter & Gamble last hiked its dividends in April 2024, raising its quarterly payouts by 7%. It pays $4.03 in dividends annually, yielding 2.37% on the current stock price. 

Procter & Gamble's fast-moving consumer goods portfolio has historically remained in high demand despite fluctuating market trends, signaling strong earnings growth and sustained dividend payouts over the long run. 

While Procter & Gamble's fiscal fourth-quarter revenue of $20.53 billion missed the $20.74 billion expected by analysts surveyed by LSEG, the company's adjusted earnings per share of $1.40 surpassed the consensus estimate of $1.37. 

In addition, Procter & Gamble's overall volume rose by 1%, marking the first volume increase in over two years. This highlights a resurgence in demand for P&G's products, which can be attributed to a 4% increase in volume in the home market in North America. 

Procter & Gamble expects its core net earnings per share to range between $6.91 and $7.05 in fiscal 2025, with an anticipated revenue growth of 2% to 4%. Citigroup has a "Buy" rating on PG stock with a price target of $190, indicating a potential upside of over 10%. 

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Exxon Mobil

Exxon Mobil XOM, the largest oil and gas company in the U.S., has long been a cornerstone of the energy sector. Despite the cyclical nature of the oil and gas industry, Exxon Mobil has maintained its status as a reliable dividend stock, having raised its payouts for 41 consecutive years. The company's dividend per share has risen at a compound annual growth rate of 5.8% over the last four decades. 

Furthermore, the company has taken active steps to boost its market share in the U.S., which has paid off. In the last reported quarter, Exxon Mobil's revenues came in at $93.06 billion, surpassing the Wall Street estimate of $90.99 billion. The company's production volume increased by 15%, thanks to record volume extracted from Guyana and Permian basins.

"If we look at the oil produced in the second quarter, it is the highest level we produced since Exxon and Mobil merged [in 1999]," said Darren Woods, CEO of Exxon Mobil. 

Bernstein currently has an "Outperform" rating on Exxon stock, with a price target of $138, indicating a potential upside of over 17%. 

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