Investors often turn to dividend stocks during periods of rising inflation and slowing economic growth because they provide income streams when capital gains growth is difficult to come by. The strategy is sound as the asset managers at Hartford Funds found dividends contributed 40% to the total return of the S&P 500 index over 91 years, stretching back to 1930.
While there have been two decades during that period when stocks generated negative returns, dividend stocks still generated growth even in those challenging periods. The study also found that from 1970 on, dividends represented an astounding 84% of the index’s total return.
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So we know investing in dividend-paying stocks is an exceptional strategy, but which ones to buy? I recommend starting with companies that have a long track record of making their payouts in all kinds of markets. Having been through numerous business and economic cycles, they’ve proved their mettle and continue to reward shareholders. The following pair of dividend stocks are among the best to buy that are on sale today.
1. AT&T
You’re probably thinking right now: Whoa! Didn’t AT&T (T 1.08%) just slash its dividend in half? How can that be good? Well, it’s true, but it was a result of the spinoff and merger of its Warner Media entertainment business with Discovery to form Warner Bros Discovery (WBD -3.78%).
While AT&T didn’t have to slash its payout, the resulting savings will allow it to further invest in its primary telecom business and the rollout of next-generation 5G networks. Moreover, it’s arguable that AT&T’s dividend was too generous beforehand, particularly since the new lower payout still yields 6.1% annually. This generous yield puts it in the top 10 of dividend-paying S&P 500 stocks.
5G networks offer faster speeds, lower latency (how fast data travels), and optimal usage for burgeoning new mobile technology, such as autonomous vehicles, the connected home, streaming video, online gaming, and augmented and virtual reality.
AT&T’s mobility business added 813,000 postpaid phone customers this past quarter, the strongest second quarter of net adds the telecom has seen in over a decade. Still, the market remains confused over its potential.
After initially hammering the stock after AT&T announced it was going to divest Warner Media, it subsequently warmed up to the idea that paying down its heavy debt load with proceeds from the transaction was a good idea that would provide investors with a streamlined telecom stock. Its shares soared in 2022. However, the higher costs it experienced more recently had it lowering its free-cash-flow estimates for the year, and operating margins are under pressure.
Although AT&T’s stock is down less than 2% for the year, the stock is 15% below the highs it reached in May. However, trading at seven times trailing earnings and next year’s estimates, a fraction of its sales, and only 13 times free cash flow, the telecom is cheap while still possessing excellent growth prospects.
2. ExxonMobil
For a stock that’s up 46% year to date, ExxonMobil (XOM 4.63%) may not seem like it’s on sale. Nonetheless, this oil and gas giant has years, if not decades, of growth ahead of it beyond just the current elevated price environment we’re currently in.
Fossil fuels get a bad rap, but they’re literally what powers the world around us. Even electric cars that are touted as the future of vehicle travel are charged from a power grid that’s chiefly based on oil, gas, and coal. It’s even required for solar and wind production and operation, meaning like it or not, fossil fuels are here to stay for many, many years to come, and Exxon will be one of the major beneficiaries of that sustained demand.
This vertically integrated major is the largest energy stock by market cap and is prioritizing stable production goals through a narrowed focus on its most profitable projects. It has some of the richest assets in the industry, such as in Guyana, where it could be producing as much as 1 million barrels of oil per day by the end of the decade. That would transform the country into one of the top 20 oil-producing countries in the world.
Exxon has also prioritized its dividend, especially during the pandemic. By contrast, many of its peers were suspending or slashing their payouts at the same time. The oil giant has paid a dividend every year since 1911 and has increased it for 39 consecutive years at an average rate of 6% annually.
Moreover, the stock trades at less than 10 times next year’s earnings estimates even as Wall Street expects it to grow its earnings 24% annually for the next five years. So it is indeed a dividend stock on sale that’s well worth buying today.
Rich Duprey has positions in AT&T, ExxonMobil, and Warner Bros. Discovery, Inc. The Motley Fool recommends Warner Bros. Discovery, Inc. The Motley Fool has a disclosure policy.
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