8 Pandemic-Proof Dividend Stocks That Yield More Than Bonds

Growing up, I — like many other children of my generation — would almost always receive a paper EE savings bond from my grandmother for Christmas.

As a hyperactive seven-year-old, I’d politely thank her for her gift before handing it to my parents, forgetting about it, and running off to play with my cousins. I was far too young to understand what a bond was, nevermind its future value to me.

Decades have passed since those Christmases. Those bonds have all matured — and I along with them. Today, I have an economics degree, a deep knowledge of the bond market, and years of experience helping people meet their financial goals — but I still don’t understand what function bonds serve for most investors.

And even among financial services professionals, I’m not alone in my confusion about this.

Bonds, What Are They Good For?

Conventional wisdom says that a sizable bond allocation can help investors boost their long-term returns because the bonds will outperform stocks during bear markets.

To that end, many classic allocations recommend that pre-retirees hold almost half of their wealth in the asset class…

For many decades, this style of “60/40” portfolio did indeed outperform most stock market benchmarks. But a decade of persistent near-zero interest rates has destroyed its returns. And in the aftermath of a series of devastating bear markets, many economists are asking, does a heavy bond allocation actually preserve capital?

The “Safe Haven” Isn’t So Safe, After All

Recent data seems to conclusively say no.

2020 was the perfect test case for the supposed protective power of bonds. A devastating black swan event — specifically an unforeseeable pandemic that has killed millions and shut down the global economy — sent stock markets plummeting. The S&P 500 lost more than 33% of its value between when the selloff began in mid-February and when it abated in late March.

And yet over the course of the year, the stock index handily outperformed two of the most popular bond funds, the Vanguard Total Bond Market Index Fund ETF (NYSE: BND) and the Vanguard Long-Term Treasury Fund (NYSE: VUSTX)

Part of the reason for this is a dearth of yield from most investment-grade bonds, motivated by a decade of Federal Reserve overnight rates that are negative in inflation-adjusted terms. And those ultra-low rates aren’t going away anytime soon, according to Federal Reserve Chairman Jerome Powell.

“We think that the economy’s going to need low interest rates, which support economic activity for an extended period of time — it will be measured in years,” he said at a recent press conference.

So in this economy, where bonds aren’t even paying enough to be useful as a parking spot for money, what’s a conservative or income-oriented investor to do?

Many have been turning to a different kind of asset — one which offers far higher yields and capital gains than bonds, but which theoretically carries more risk…

Are Dividend Stocks Better? Depends On Which Ones

In this environment, many asset managers, like RNC Genter Capital Management’s Dan Genter, are moving their income-oriented clients into dividend stocks. Genter called dividend stocks “one of the few games in town” for income-oriented investors in a recent interview with MarketWatch’s Philip van Doorn.

Indeed, many dividend stocks currently offer yields that should exceed Treasury yields for years to come, if they can maintain their payouts.

And that’s easier said than done. 2020 was a rough year for bonds, but it wasn’t especially kind to every dividend stock, either. Dozens of previously-reliable players — including longtime income investor darlings like Disney (NYSE: DIS) — cut or paused their payouts during the pandemic.

Others, however, didn’t. In this report, we’re looking at a select group of eight dividend stocks with multi-decade track records of consecutive annual dividend increases which have continued through the pandemic.

These stocks are also extremely unlikely to cut their dividends anytime soon — because their payouts account for less than half of their earnings per share (EPS), and because their EPS is still growing on a year-over-year basis.

Best of all, each of these eight stocks has a yield far higher than that of the 10-year Treasury…

Aflac (NYSE: AFL)

Founded in 1955 and based in Columbus, Georgia, Aflac is the largest supplemental insurance provider in the U.S.

The company acted quickly on early warnings from its Asian subsidiaries about the seriousness of COVID-19, and was thus among the first financial services firms to shift to a remote work model.

As a result, its operations have continued largely uninterrupted through the pandemic, and its stock has risen to new heights in that time…

Aflac’s dividend currently works out to a 2.19% yield, and that dividend accounts for less than 17% of the firm’s EPS. That EPS, in turn, has grown 21.9% year-over-year as of the most recent quarter.

All this is to say that Aflac’s track record of rising dividends is not going to end anytime soon.

Archer-Daniels-Midland (NYSE: ADM)

Archer-Daniels-Midland was founded in 1902 and is currently based in Chicago. ADM is the second-largest of the big four “ABCD” global agricultural commodities trading firms by revenue. (The others are Bunge, Cargill and Louis Dreyfus).

The supply chain disruptions caused by COVID-19 actually created a lucrative business opportunity for ADM, as the firm’s trading operations were able to quickly resolve food and cleaning supply shortages in various regions of the world (while banking arbitrage profits in the process).

According to CEO Juan Luciano in a recent interview with Reuters, ADM has been able to profit from selling in-demand commodities like alcohol for hand sanitizer (which it can produce at its corn processing plants). As a result, its stock has fared very well during the pandemic...

And those returns don’t even account for ADM’s dividend — a 2.53% yield at the time of writing which accounts for just 45.71% of EPS.

ADM has also grown its EPS by 36.3% in 2020. It has been raising its dividend on an annual basis for nearly five decades.

Atmos Energy (NYSE: ATO)

Dallas-based Atmos Energy was founded in 1906. It’s one of America’s largest gas distributors, with more than 3 million customers across nine states.

Atmos got ahead of the pandemic by aggressively controlling costs. It recently revised its estimate of its total pandemic-related expenses down to $2.5 billion from $3.5 billion, triggering a small rally in its stock…

The firm’s returns over the last year may be modest — but its 2.7% dividend yield is quite generous compared to most bond yields at the moment. That dividend accounts for just 45.81% of Atmos’s EPS — and Atmos has grown EPS by 21.8% year-over-year as of the latest quarter.

It’s no wonder Atmos has managed 25 years of consecutive annual dividend increases.

Cardinal Health (NYSE: CAH)

Founded in 1971 and based in Dublin, Ohio, Cardinal Health is a massive healthcare services and supplies firm that provides products to more than 75% of U.S. hospitals — and also operates the country’s largest network of radiopharmacies.

Throughout the pandemic, it has worked very actively with the Centers for Disease Control and Prevention (CDC) among other government agencies to expedite testing, ICU setup, and most recently, vaccine distribution. In other words, the pandemic has juiced Cardinal’s core business, and sent its stock price to new heights…

The firm also sports a dividend which equates to a 4% yield at the time of writing. That dividend only uses up 41.69% of Cardinal’s EPS — and EPS has soared 185.9% in the last year.

To that end, Cardinal’s 34-year streak of annual dividend increases is unlikely to end anytime soon.

Chubb (NYSE: CB)

Zurich-based Chubb has grown into the largest publicly-traded property and casualty company in the world since its founding in 1985.

The company has kept itself in strong financial shape during the pandemic by aggressively controlling claim payouts — too aggressively, according to some commentators. In July 2021, a New York City hospital operator threatened to sue the firm after Chubb found a way to deny its claim for the cost of dealing with the pandemic.

Whether or not Chubb’s business practices have been moral, they’ve certainly been profitable, as you can see from the stock price graph below…

Chubb’s dividend payout currently works out to a 1.94% yield, at a payout ratio of just 39.67%.

The firm may be somewhat ruthless with its clients — but that ruthlessness has led to a 106.1% increase in EPS over 2020, and a 30-year history of raising its dividend annually.

Cincinnati Financial Corporation (NASDAQ: CINF)

Cincinnati Financial Corporation, named for its home city, was founded in 1950. It’s a relatively small insurance company — ranking 20th in the U.S. by market share — but is very well-diversified, combining decades of experience in property and casualty insurance with a thriving life and annuities operation and a newly-acquired specialty underwriting branch.

Like Chubb, Cincinnati Financial Corporation has stayed ahead of the COVID-19 devastation by cracking down on its claim payouts, to the point of drawing negative PR. The firm is currently dealing with several small lawsuits over its denial of payouts to several business interruption insurance clients.

But also like Chubb, its strict, perhaps-morally-questionable insurance practices have paid off handsomely for shareholders during the pandemic…

The firm currently boasts a 2.1% dividend yield which only uses up 32.04% of EPS. That EPS, meanwhile, has risen 67.6% during the pandemic.

Cincinnati Financial Corporation has been raising its dividend annually for a mind-blowing 60 years consecutively, and it doesn’t look like it’s going to stop anytime soon.

Clorox (NYSE: CLX)

Founded in 1913 and based in Oakland, Clorox is one of America’s most dominant manufacturers and sellers of cleaning products, with a 50% market share in cleaning wipes in the U.S. and a 61% market share in bleach.

Thanks to this ubiquity, Clorox has become a worldwide symbol of COVID-19 disinfection, with its products appearing or being referenced in public service announcements, memes, pop song lyrics, and more.

With this in mind, Clorox’s stock price action has been relatively muted in the last year — but its dividend makes up for its modest returns.

Clorox’s payout equates to a 2.9% yield at the time of writing, and accounts for just 45.4% of the firm’s EPS. That EPS, in turn, has grown 40% in the last year as of the most recent quarter.

With all this in mind, Clorox’s four-decade-long streak of annual dividend increases looks set to continue for a long time.

T. Rowe Price (NASDAQ: TROW)

Baltimore-based investment management firm T. Rowe Price was founded in 1937, and manages more than $1.3 trillion of assets today.

The firm recently made a strategic decision to desist from passive investment management and instead focus on active management — and that decision has paid off during the current crisis.

The firm has been a flurry of activity during the pandemic, commissioning bespoke studies, stepping up client outreach, and generally going the extra mile to help its clients through the recent downturn.

With that in mind, it’s no wonder the firm has grown significantly in recent years, nearly doubling its stock price…

T. Rowe Price currently sports a 2.1% dividend yield at a payout ratio of just 36.07%. Its EPS, meanwhile, grew 43.7% during the pandemic.

With all of this in mind, the firm’s 30 years of annual dividend increases should continue for many years to come.

A Big-Picture View of Dividend Stocks Vs. Bonds

The eight stocks profiled above have an average yield that is 40% higher than the 10-year Treasury note, and an average return that is more than 15 times higher than that of the Vanguard Total Bond Market Index Fund ETF.

They have also been increasing their dividends on an annual basis for an average of 38 years — almost as long as bond funds have existed.

If anything heralds the death of bonds as a useful asset class for investors like you and me, it’s the superiority of these eight stocks.

Of course, bonds aren’t the only assets that are being radically transformed by the Fed’s low-interest-rate policy and the exceptional conditions of the post-COVID-19 economy.

Investors need help navigating this brave new world, and that’s why a portion of Nick Hodge’s Foundational Profits is always dedicated to income-yielding plays. Right now there are several such dividend-paying stocks in that portfolio, some of which pay several times more than current bond yields.