Equities have surged to lofty valuations in the past year and a half. The S&P 500 index jumped from a low of around 2,200 in March 2020 to more than 4,400 in about 350 trading days, the quickest doubling of the index in stock market history.

However, the big rally is likely to come to an end. As investors become increasingly concerned about an inevitable correction around the corner, September looks to be the right time to reallocate towards reliable dividend stocks.

Dividend shares add stability to long-term portfolios and allow income seekers to collect regular cash payments regardless of market volatility. In fact, metrics highlight that dividend stocks have vastly outpaced their non-dividend-paying peers over the long run.

Recent research suggests that, “From 1930–2020, dividend income’s contribution to the total return of the S&P 500 Index averaged 41%… Today, investors continue to place a high premium on the more tangible and immediate returns that dividends provide.”

JPMorgan Chase (NYSE:JPM) also cites, “… companies that initiated and grew their dividends posted average annualized total returns of about 9.5% from 1972 through the end of 2012 compared with 1.6% for non dividend-paying stocks.”

As we move forward in September, these seven dividend stocks offer the perfect combination of value, income, and growth potential:

• 3M (NYSE:MMM)
• Brookfield Renewable Partners (NYSE:BEP)
• Innovative Industrial Properties (NYSE:IIPR)
• iShares Core High Dividend ETF (NYSEARCA:HDV) 
• Johnson & Johnson (NYSE:JNJ)
• Lockheed Martin (NYSE:LMT)
• Medical Properties Trust (NYSE:MPW)

We should also emphasize that including dividend growers in portfolios has meant less short-term volatility for investors. Most notable dividend stocks include vital businesses with consistent demand, regardless of the current economic cycle.

Dividend Stocks: 3M (MMM)

52 week range: $156.13 — $208.95

Dividend yield: 3.21%

St. Paul, Minnesota-based 3M is a multinational conglomerate that designs and sells roughly 55,000 products across virtually every industry globally. Its products range from adhesives, films and flagship wares to cutting-edge materials.

3M reported solid Q2 results in late July. Sales surged 24.7% year-over-year (YOY) to $8.9 billion. Net income came in at $1.5 billion ($2.59 per diluted share), up 16% YOY from $1.3 billion ($2.25 per diluted share) in the prior-year quarter. Adjusted free cash flow stood at $1.6 billion. Cash and equivalents ended the quarter at $4.7 billion.

On the results, CEO Mike Roman remarked:

“3M delivered strong performance in the second quarter, once again posting organic growth across all business groups and geographic areas, along with increased earnings and robust cash flow.”

The reopening of the economy has boosted many of 3M’s cyclically exposed businesses, leading to significant organic sales growth. However, 3M now faces cost pressure from increasing raw material prices and supply chain issues. Hence, sales growth may not necessarily translate into significant earnings growth in the near term. Analysts still expect the company to grow EPS at a rate of 9%-10% moving forward.

MMM stock has come under pressure since the start of September. But it is still up 5.5% this year. Management has increased the dividend payout for over 60 years in a row, now offering a generous dividend yield of 3.2%.

Forward price-to-earnings (P/E) and current price-to-sales (P/S) ratios stand at 17.12 and 3.11, respectively. A decline below $180 would make the shares especially attractive.

Brookfield Renewable Partners (BEP)

52 week range: $29.11 — $49.87

Dividend yield: 3.03%

Brookfield Renewable Partners is a pure-play renewable power platform operating a portfolio of assets that generate electricity from renewable resources in facilities across North America, parts of Latin America, and Europe. 

Brookfield reported Q2 results in early August. Revenue increased 8% YOY to $1.02 billion. Net income came in at $110 million, a 13 cent loss per diluted share, compared with a net loss of $10 million (11 cents lost per diluted share) in the previous year. Cash and equivalents stood at $530 million as of June 30.

CEO Connor Teskey remarked:

“We had a strong quarter, as we delivered solid financial results … initiated one of the largest onshore wind repowerings in the world, and entered a strategic collaboration with the world’s largest corporate buyer of renewable power.”

Earlier this year, Brookfield repowered its 845-MW Shepherds Flat wind project in Oregon, one of the most significant onshore wind projects in the U.S. The energy group has also partnered with Amazon (NASDAQ:AMZN) to develop new renewable energy projects on a global scale; Amazon is in fact the world’s largest corporate buyer of renewable energy.

Brookfield has also forged an alliance with Trane Technologies (NYSE:TT) to offer decarbonization-as-a-service. That could create a new revenue stream as it opens a market that could be worth $600 billion in the future.

BEP stock hovers at $40 and supports a dividend yield of 3%. The stock, which is down 7% in 2021, trades at less than three times current sales. Brookfield’s combination of yield and growth should provide investors with lucrative returns for many years.

Innovative Industrial Properties (IIPR)

52 week range: $112.25 — $253.61

Dividend yield: 2.38%

Park City, Utah-based Innovative Industrial Properties is a real estate investment trust (REIT) focused on specialized industrial properties leased to state-licensed operators for regulated medical-use cannabis facilities.

The REIT released Q2 results in early August. Revenue went up by 101% YOY to $49 million. Net income came in at $29 million ($1.17 per diluted share) up from $13 million in the prior-year quarter. Cash, equivalents, and short-term investments ended the quarter at $806 million.

Management noted, “As of August 4, 2021, IIP owned 73 properties …, representing a total of approximately 6.8 million rentable square feet.”

Investors might think that the cannabis industry could be among the last sectors to search for a reliable dividend stock. But IIP has a highly predictable cash flow over the next decade. After all, 100% of its rentable space has been completely leased with an average lease length of over 16 years.

Moreover, the failure of cannabis banking reform at the federal level constitutes a significant tailwind. While financial institutions decline offering marijuana businesses essential financial services, IIP has been ready to step in with its sale-leaseback program.

Management highlights:

“We act as a source of capital to these state-licensed operators by acquiring and leasing back their real estate. This allows for the opportunity to redeploy the proceeds into core operations, yielding a higher return than they would otherwise get from owning real estate.”

As a REIT, IIP distributes at least 90% of taxable income to shareholders in dividends. Its earnings have grown rapidly in recent years. And management has increased the dividend payout by over 600% in the past three years. IIPR stock currently offers a dividend yield of 2.4%.

The shares have gained 90% in the past 12 months and 28% year-to-date (YTD). They hover around $235 territory. Forward P/E and current P/S ratios stand at 33.50 and 34.78, respectively. Potential investors could regard a decline toward the $225 level as a better entry point.

iShares Core High Dividend ETF (HDV)

52-Week Range: $76.23 — $100.48

Dividend Yield: 3.61%

Expense Ratio: 0.08% per year

Out next choice is an exchange-traded fund (ETF). The iShares Core High Dividend ETF invests in high dividend-paying U.S. shares. The fund was launched in March 2011 and assets under management have since grown to $7.2 billion.

HDV currently has 75 holdings. In terms of sectoral breakdown, consumer staples has the highest slice with 21.69%. Next in line are energy (17.47%) and healthcare (16.41%) shares.

As the leading ten names comprise about 55% of the fund, this is a top-heavy ETF. Exxon Mobil (NYSE:XOM), Johnson & Johnson, Verizon Communications (NYSE:VZ) and Chevron (NYSE:CVX) are among first names we see in the roster.

The fund is up close to 17% YTD and hit a record high in May. HDV’s current P/E and price-to-book (P/B) ratios stand at 23.56 and 3.29, respectively. A potential decline below $95 would make the fund more attractive for long-term holders.

Johnson & Johnson (JNJ)

52 week range:  $133.65 — $179.92

Dividend yield: 2.54%

Johnson & Johnson is among the world’s largest and most diverse healthcare conglomerates. It offers global customers a wide range of pharmaceutical drugs, consumer products as well as medical devices.

The company announced solid Q2 results in July. Revenue surged 27% YOY to $23.3 billion. The company’s medical device segment saw revenues increase by 63% YOY to around $7 billion. Adjusted net earnings increased 49% YOY to 6.6 billion ($2.48 per diluted share). Cash, equivalents, and marketable securities ended the quarter at about $25 billion.

CEO Alex Gorsky remarked:

“Our second-quarter results showcase Johnson & Johnson’s diversified portfolio, driven by strong sales and earnings growth across our Medical Device, Consumer Health and Pharmaceutical businesses.”

As the pandemic has highlighted, humans always need healthcare. Johnson & Johnson has a stable business and plenty of extra room to grow despite its almost $440 billion market cap. Analysts expect the company’s profits to go up by 7% to 8% on an annual basis.

JNJ stock is a member of the Dividend Kings club, sporting a dividend that has increased for almost six decades. JNJ shares currently offer a 2.5% dividend yield, making it a solid pick for buy-and-hold investors.

Plus, the company has the highest possible AAA credit rating from S&P Global (NYSE:SPGI). The shares currently trade around $167, up 6% this year. Forward P/E and P/S ratios stand at 15.1 and 4.9, respectively. A potential decline below $165 would improve the margin of safety.

Lockheed Martin (LMT)

52 week range: $319.81 — $399.60

Dividend yield: 3.01%

Known for its  F-35 fighter jets, Sikorsky helicopters, missile defense, and communications technology, Lockheed Martin is one of the most important names in the global aerospace and defense industry. The U.S. government accounted for almost 75% of company revenues in 2020.

The defense name announced Q2 results in late July. Sales increased 5% YOY to $17 billion. Net earnings came in at $1.8 billion ($6.52 per share), up from $1.6 billion ($5.79 per share) in the prior-year quarter. Cash from operations stood at $1.3 billion compared to $2.2 billion a year ago.

On these metrics, CEO James Taiclet remarked, “… we are maintaining our prior guidance for full-year sales, segment operating profit, and cash from operations, while raising guidance for full-year EPS.” The company increased guidance to 4% top-line growth as well as double-digit percentage diluted EPS growth.

Lockheed Martin recently developed a high-performance, low-cost hybrid antenna, the “Wide Angle ESA Fed Reflector” (WAEFR), that bolsters the current “5G, Radar, and Remote Sensing Applications.” The science behind such technology is complicated, but shows the level and importance of research and development (R&D) investment by the company.

The stock’s consistent performance highlights its value as a high-quality dividend stock. Management recently increased its quarterly dividend to $2.60 per share, supporting a 3% dividend yield.

LMT stock hovers around $345, down 2.5% YTD and almost 9% over the past year. It trades at less than 12.5 times forward earnings and 1.5 times current sales. Interested readers could find value around these levels.

Medical Properties Trust (MPW)

52 week range: $16.10 — $22.80

Dividend yield: 5.32%

Medical Properties Trust is a healthcare facility REIT that specializes in owning and leasing hospitals. The vast majority of Medical’s revenue is generated in the U.S., followed by Germany and the U.K.

This Birmingham, Alabama-based REIT released Q2 results in late July. Revenue went up by 30% YOY to $382 million. Net income stood at $115 million or 19 cents per diluted share, compared to $110 million or 21 cents per diluted share, in the previous year. Cash and equivalents ended the quarter at $721 million.

Medical Properties Trust is the second-largest non-government hospital owner worldwide with $21.4 billion in assets. Yet the company owns only a modest fraction of the global hospital real estate market.

Put another way, with a market capitalization (cap) of $12.5 billion, the business has room to grow significantly. It has already secured $3.6 billion of new investments in 2021, slightly more than it closed during the previous year.

Since the company went public in 2005, MPW stock has generated around 12% total annual return. It also has a reliable dividend growth track record, as management has increased dividends over the past eight years at a 5% annual rate. MPW stock currently supports a generous 5.3% dividend yield.

MPW stock hovers at $21, down 3% YTD, and shares trade at 8.40 times current sales. Interested readers could consider investing around these levels. Medical Properties Trust is well-positioned to expand its hospital portfolio and dividend in the coming years.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.