This is no longer our grandparents’ or even parents’ stock market. High valuations have become the norm in an investing world dominated by retail traders. But when market volatility is high and economic uncertainty is on the rise, your best bet is to invest in mega-cap stocks.
Why? Well, although there are no guarantees in the stock market, you can rest easy when you have invested in a large enterprise. That’s because they offer strong price momentum, excellent dividends and a stable long-term outlook.
So, with that in mind, this list will provide seven mega-cap stocks that offer all these things and more. During times like these, it cannot hurt to fireproof your portfolio with these kinds of mature companies.
Yes, these investments might not result in triple-digit gains. But you will rarely have headaches or sleepless nights when investing in mega-cap stocks.
- Fifth Third Bancorp (NASDAQ:FITB)
- Realty Income (NYSE:O)
- McDonald’s (NYSE:MCD)
- Automatic Data Processing (NASDAQ:ADP)
- Goldman Sachs (NYSE:GS)
- Disney (NYSE:DIS)
- Lowe’s (NYSE:LOW)
Mega-Cap Stocks to Buy: Fifth Third Bancorp (FITB)
Trailing 12-month (TTM) dividend yield: 2.84%
A $26 billion midwestern and mid-Atlantic bank, Fifth Third Bancorp is one of the best dividend-paying mega-cap stocks out there. Headquartered in Cincinnati, this company has over $200 billion in assets and is one of the largest locally based banks in the United States.
Due to its impressive scale, the bank managed quite well during the novel coronavirus pandemic. According to CNBC data, Fifth Third has beat earnings estimates for the last four quarters.
Most recently, Fifth Third Bancorp’s second-quarter earnings more than quadrupled from the year-ago period, which was smack dab during the middle of the pandemic. That handily outpaced analysts’ estimates. Moreover, the company earned 94 cents per share, up significantly from just 23 cents in Q2 2020. FITB also forecasts full-year fee income to jump from 2020 while net interest income should dip slightly. Commenting on the results, CEO Greg Carmichael said the following:
“We are well-positioned to benefit when interest rates rise and well-hedged if rates remain at low levels for several more years.”
Fifth Third plans to hike its quarterly distribution by 3 cents per share in September. For more than ten years, the company has lifted the FITB stock dividend consistently as well.
Realty Income (O)
TTM dividend yield: 3.96%
Next up on this list of mega-cap stocks is Realty Income. Real estate investment trusts (REITs) are always a favorite of income investors due to the 90% rule. According to the U.S. Securities and Exchange Commission (SEC), “To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.”
However, every REIT is different due to the property type in which they invest. The sole exceptions are diversified and specialty REITs, which may hold different types of properties in their portfolios. That said, Realty Income “focuses on acquiring freestanding, single-client properties under long-term, net lease agreements.”
Due to its diversified strategy, the company was able to weather the novel coronavirus pandemic quite well. In fact, this company’s top tenants include health clubs like LA Fitness and Lifestyle Fitness and movie-theater chains like AMC Entertainment (NYSE:AMC). That’s a testament to Realty Income’s resilience — it maintained dividend hikes while surviving a particularly awful time in its history.
As of this writing, Realty Income has made 614 consecutive monthly dividend payments. Now, with the economy whirring back to life, the chances of O stock’s streak being broken are close to zero.
Mega-Cap Stocks to Buy: McDonald’s (MCD)
TTM dividend yield: 2.14%
While MCD stock has done well over the years, it often gets lost in the shuffle because of heavy hitters like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO).
Nevertheless, taking McDonald’s lightly would be a huge folly. Over the last year, the fast-food giant did reasonably well due to its existing drive-thru capability and enhanced delivery options. Revenue at MCD dropped about 9% last year and earnings slipped over 20%.
Considering the impact of the pandemic, these statistics are very respectable. Plus, most recently, the fast-food giant topped Wall Street’s estimates in reporting its Q2 earnings and revenue. According to CNBC, “U.S. same-store sales climbed 25.9% in the quarter and 14.9% on a two-year basis.”
According to the company, these strong sales are because of its new chicken sandwich and promotional campaign with a K-pop group called BTS. The fast-food giant reported a net income of $2.22 billion, or $2.95 per share, up from $483.8 million or 65 cents per share in the prior year. MCD also raised its full-year forecast, now expecting “systemwide sales growth in the mid-to-high teens.” For Q3, the company predicts same-store sales growth in its five largest global markets to beat 2019 levels as well.
For more than ten years, this company has also hiked its dividend consecutively. True, at 57.13%, the payout ratio might seem high. But this is McDonald’s we are talking about. It’s not like this pick of the mega-cap stocks will run out of cash anytime soon.
Automatic Data Processing (ADP)
TTM dividend yield: 1.75%
Next up on this list of mega-cap stocks, Automatic Data Processing is a payroll processor that also offers other human resources services. The company was founded in 1949 and is headquartered in New Jersey.
This company is one of the best large-cap dividend stocks out there; ADP has a five-year dividend growth rate of 12.89%. It also has an enviable record of increasing its annual distribution consecutively over the last ten years.
Despite a tough year, ADP managed quite well during the pandemic. In fiscal 2020, net earnings rose by about 8% and revenue increased by 3%. However, these numbers are muted compared to the year-ago period. The wild swings in employment rates undoubtedly impacted how many payrolls and other programs the company could offer its customers.
That said, the last four quarters highlight how the recovery has greatly aided ADP stock. This company has beat expectations every time and, although the year-over-year (YOY) comparisons aren’t flattering due to Covid-19, the numbers are still impressive.
This name’s payout ratio is a bit high at 56.12%. But that should not be a problem, considering a stronger job market in 2021. That should help ADP expand its distribution once more.
Mega-Cap Stocks to Buy: Goldman Sachs (GS)
TTM dividend yield: 1.25%
In comparison to sectors like tech and pharmaceuticals, financial stocks struggled during the pandemic due to falling interest rates and concerns surrounding the China-U.S. trade war. Against this backdrop, the nearly 100% one-year return achieved by Goldman Sachs is particularly impressive. Investors have awarded the bank handsomely for surpassing analysts’ earnings estimates for four straight quarters.
Now, you might be asking yourself if this is the best time to invest in GS stock. After performing exceedingly well in the last several quarters, the company is riding high and the price momentum is solid.
However, even though shares have appreciated handsomely in the last year, GS stock still trades at just 2.34 times forward price-to-sales. Plus, over the last three months, the stock has only gained 10.7%. So, there is a definite slowdown in momentum.
Tipranks tracks 11 analysts offering 12-month price targets on Goldman Sachs. The average price target is $429 per share, representing upside of around 5% from the current price. That’s not a lot, but it’s still enough to entice you to invest in this mature financial pick of the mega-cap stocks.
TTM dividend yield: N/A
Disney is a name that needs no introduction. A very mature business enterprise with multiple business lines, this entertainment conglomerate was able to do quite well during the pandemic despite the impact on its theme parks, cruise ships and cinema attendance. One of the main reasons DIS stock has done so well is its Disney+ streaming service, which has already surpassed 100 million subscribers.
This company has aggressively made inroads in the streaming space with Disney+, ESPN+ and Hulu. Moreover, although streaming is crowded, the company’s extensive content library is one of the best in the business. And Disney has no plans of stopping anytime soon.
Disney plans to distribute more than 100 new titles every year on Disney+ and is committed to spending $14 billion to $16 billion annually on streaming content across its services within the next four years. Plus, with the economy restarting, the more traditional business lines behind this pick of the mega-cap stocks will also start to move the needle.
All in all, this is an excellent time to invest in DIS stock.
Mega-Cap Stocks to Buy: Lowe’s (LOW)
TTM dividend yield: 1.26%
Last up on this list of mega-cap stocks is LOW stock. Home improvement retailer Lowe’s did very well in terms of sales during the pandemic. With millions of Americans stuck at home, people had little to do but invest time, money and effort into DIY home improvement projects. This is a trend that will continue until at least the end of 2021. That’s why this company’s last four quarters have seen such strong numbers.
More recently, Lowe’s handily surpassed estimates for fiscal Q2 earnings and also raised its sales forecast. Profits rose to $3 billion, or $4.25 per share. That was up from $2.8 billion, or $3.74 per share, in the year-ago period. Additionally, net sales jumped to $27.6 billion, up from $27.3 billion last year.
This year, the home improvement retailer forecasts $92 billion in revenue. Now, CEO Marvin Ellison believes the outsized growth Lowe’s saw during the pandemic will continue as people keep spending on their homes while also managing other priorities. Ellison said the following:
“[T]he pandemic has created a long-term impact of the home’s importance and we just don’t see the changing.”
Considering these positive developments, this home improvement retailer should maintain its streak of dividend hikes.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.