A Note From Marc: As many of you know, I recently started a YouTube series called State of the Market.

Last week, I dedicated an entire video to what I call “Forever Dividend Stocks.”

In it, I reveal how to generate enough passive income in retirement that you never have to touch your initial investment.

Click here to watch it.
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This was the oddest Fourth of July I’ve experienced since I lived in San Francisco many years ago. At that time, we sat on some rocks overlooking the Bay, trying to watch fireworks in the pea soup thick fog and saying to each other, “Oooh, that was probably a good one.”

This year, we were supposed to go to a friend’s condo on the beach to watch fireworks. Then, they closed the beaches.

So instead, we sat on our patio, 6 feet apart from our friends, and watched amateur fireworks set off by neighbors.

There was no baseball to watch, and we didn’t eat hot dogs. But we had apple pie for dessert, so there was that.

In honor of the recent July Fourth holiday, I’m looking at the dividends of three all-American companies to determine if they’re safe or if they should be handled with care like lighting off a bottle rocket after drinking a six pack of Coors.

The Home Depot

The Home Depot (NYSE: HD) was founded 41 years ago with two stores in Atlanta, Georgia. Today, there are more than 2,200 locations in North America and Mexico.

The home improvement retailer pays a $1.50 per share quarterly dividend, which comes out to a 2.4% yield.

The Home Depot’s free cash flow has been steadily rising and is expected to continue to do so this year and next.
Loan Loss PrevisionsIt has raised its dividend every year for 10 years.

The company’s payout ratio was a comfortable 54% in 2019 and will likely creep up to 56% in 2020.

With The Home Depot’s rising cash flow, the dividend is safe.

Dividend Safety Rating: B
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Johnson & Johnson

My second all-American company is Johnson & Johnson (NYSE: JNJ).

While Johnson & Johnson is now a global company with 130,000 employees, it got its start in 1886 in New Brunswick, New Jersey, where its headquarters remains today. The company makes consumer health products, pharmaceuticals and medical devices.

With a $1.01 per share quarterly dividend, it yields 2.8%. Johnson & Johnson has lifted its dividend for 58 years in a row.

This year, cash flow is forecast to dip to $17.1 billion from $19.9 billion last year.

Its payout ratio last year was a very comfortable 50%. Because of the drop in cash flow, this year’s payout ratio will climb to 61%.

Like The Home Depot, Johnson & Johnson’s cash flow covers the dividend, and it has a strong track record of a sustainable payout to shareholders. So I don’t see anything to worry about here.

Dividend Safety Rating: B


Is there anything more American than cheap tasty food that’s terrible for you?

McDonald’s (NYSE: MCD) has served billions of customers since it started in 1948 selling hamburgers for $0.15 in Southern California.

Today, there are nearly 39,000 Mickey D’s restaurants around the world.

The fast-food giant has raised its dividend every year for 20 years. The stock yields 2.7%.

The question on everyone’s mind is not what is in the special sauce, but whether the company can continue to pay its $1.25 per share quarterly dividend.

Not surprisingly, the coronavirus pandemic will wreak havoc with McDonald’s business. Several weeks ago, the company reported that sales were rebounding, although its breakfast service remains weak. And that makes sense… Lots of people grabbed a coffee and McMuffin on their way to work. Today, with so many people working in their homes, breakfast likely comes from their pantry or refrigerator.

This year, free cash flow is forecast to drop 22% to $4.4 billion from $5.7 billion. The expected payout ratio is too high at 84%.

If the COVID-19 crisis worsens, McDonald’s numbers likely will also. That could put the dividend in jeopardy.

A dividend cut isn’t necessarily imminent, but the company’s dividend is less secure than The Home Depot’s and Johnson & Johnson’s.

Dividend Safety Rating: C

If you have a stock whose dividend safety you’d like me to analyze in an upcoming column, leave the ticker symbol in the comments section.

And be sure to see if I’ve written about your favorite stock by searching for the name of the company in the search box at the upper right part of the Wealthy Retirement website.