If you're buying a dividend stock, you need to carefully consider not just the payout ratio but also the company's long-term prospects. Intel suspended its dividend recently, an example of a situation that shouldn't have been all too surprising for a company that was struggling with profitability and growing its foundry business. In a situation like that, it's difficult to expect the company to invest in a costly growth strategy and pay a dividend.
There are many other safe dividend stocks to buy that can be much more suitable for your portfolio and aren't nearly as risky. Three stocks you can count on for long-term dividend income are Abbott Laboratories (NYSE: ABT) , ExxonMobil (NYSE: XOM) , and AT&T (NYSE: T) .
Abbott Laboratories
One of the safest dividend stocks you can own is undoubtedly from healthcare company Abbott Laboratories. Last year, the Dividend King announced it was raising its dividend for a 52nd straight year. And the company has now been paying dividends for 100 years.
There's little reason to suggest that Abbott can't continue its streak, either. The business, which generates revenue from multiple segments, including nutrition, diagnostics, pharmaceuticals, and medical devices, is well-diversified and consistent. Abbott reported a solid 4% revenue growth in its most recent period (ended on June 30), driven by an impressive 10% growth rate in its medical device segment. The company has been obtaining clearance and approval for new products, including two new continuous glucose monitoring devices, suggesting that there's still room for a lot more growth in its future.
Abbott's steadily growing business makes it an ideal option for income investors. Its payout ratio is modest at around 67% and while its dividend yield of 2% may seem low, that's still above the S&P 500 average of 1.4%. And with future rate hikes looking highly probable, there's plenty of incentive for investors to just buy the healthcare stock and hang on to it for years.
ExxonMobil
Investors can secure a higher yield from oil and gas producer ExxonMobil. At 3.2%, its yield is more than double the S&P 500 average. Although it doesn't have as long of a track record as Abbott does when it comes to growing its dividend, it has raised its payout for an impressive 41 consecutive years. And with a payout ratio of just 45%, there's still plenty of room for the company to extend its streak this year.
What's remarkable is that even amid all the volatility in oil prices and the impact that can have on the business, Exxon has continued to grow its dividend. Its $60 billion acquisition of Pioneer Natural Resources last year has only made Exxon bigger while also positioning it to achieve lower-cost production for years to come. In the past three years, Exxon has accumulated $115 billion in profit.
Even as there is growth in electric vehicles, investors may not necessarily have much to worry about by investing in a top oil and gas stock anytime soon. Analysts at Goldman Sachs expect that demand for oil will continue to rise and won't peak until 2034. And while demand might decline after that, oil is likely to remain a key source of energy for the foreseeable future.
AT&T
The highest-yielding stock on this list is AT&T. At 5.7%, the telecom stock's yield has been coming down as investors have been buying up shares of the company this year, but it's still a higher-than-typical yield for AT&T. The company has been slowly winning over its doubters with some strong quarterly results and in the months ahead I would expect the stock to continue rallying and for the yield to come down as a result.
The company's free cash flow in its most recent quarter, which ended in June, totaled $4.6 billion, which was better than the $4.2 billion it generated a year ago. Free cash flow is one of the more important metrics for the company with respect to its dividend as it tells investors just how healthy the telecom operator's cash flow is and how much room there is for AT&T to pay dividends and pay down debt. Given that the company pays approximately $2.1 billion per quarter in dividends, I wouldn't be surprised if AT&T were to announce a rate hike this year.
Although AT&T hasn't been a great buy in recent years and the stock is down 34% since 2020, its financial position looks to be in a much better state today. The company is no longer chasing costly growth opportunities in the streaming industry and is focusing instead on being a top telecom provider, making it a more tenable option for income investors who just want a solid dividend stock to own.
Before you buy stock in Abbott Laboratories, consider this: