Kiplinger Dividend 15: Still Paying!

None of the members of the Kiplinger Dividend 15—the list of our favorite dividend-paying stocks—has cut or suspended its dividend this year. In most years, that wouldn’t be news. But in response to the pandemic, more than 60 firms in the S&P 500 index have battened down the financial hatches by slashing or eliminating their payout. The Dividend 15 yield 3.4%, on average, well above the 1.9% yield of the S&P 500 and the paltry 0.7% from 10-year Treasury notes. (Prices, returns, yields and other data are as of June 12.)

Stocks on our list, like the broad market, tumbled in February, then rallied mostly back. In 2020, our picks have lost 6.5%, on average, compared with a 5.0% loss in the S&P 500. But amid plummeting fuel demand and sagging oil prices, energy stocks in the S&P 500 have surrendered an average of 32% in 2020. Among our energy picks, Enterprise Products Partners (symbol EPD) lost 29.7% and ExxonMobil (XOM), 30.1%.

Enterprise Products Partners charges other energy firms to transport and store oil, natural gas and other petrochemicals using its network of pipelines and oil facilities. Slowdowns in exploration and pro­duction have dinged profits. But Enterprise enjoys a diverse array of high-quality clients and produces ample cash to fund its payout. The firm pays 66% of excess cash as a distribution, well below the 90% threshold that would be concerning for a master limited partnership, says Brian Bollinger, president of research firm Simply Safe Dividends. It stays on our list.

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But Exxon comes off. Oil prices have come up from their April lows, but the recent per-barrel price of $36 is still a losing proposition for ExxonMobil, and Wall Street analysts expect it to lose more than a dollar per share in 2020. If oil prices stay low, Exxon will have to borrow money and sell assets to maintain its payout, which CEO Darren Woods says the firm is committed to doing. Exxon held its dividend steady in April—the month when the firm has historically hiked its payout. Whether Exxon continues its 37-year streak of raising the dividend or merely holds it steady, we’re concerned that a prolonged period of low oil prices could damage the firm’s balance sheet and diminish future spending on growth projects. Investors who hold the shares strictly for income need not sell, and we acknowledge Exxon’s juicy 7.4% yield. But the shares are no longer among our favorites given the uncertainty about energy prices.

Added to our lineup: McDonald’s (MCD price $189, yield 2.6%). The pandemic was hard on food-service firms, and the fast-food icon is likely to see steep declines in sales and earnings this year. But the firm looks positioned to outperform peers as the economy reopens, given the strength of its balance sheet and its ability to maintain customer demand during recessions because of its affordable meal offerings. Investors have long been able to rely on the Golden Arches for steadily increasing income, with McDonald’s having raised its payout every year since 1976.