Income investors should focus on stocks that pay solid yields, but also those that have sustainable payouts and strong business models. The safest dividend stocks can raise their dividends each year, even during recessions.

The following 3 dividend stocks have low dividend payout ratios and recession-proof business models, meaning their dividends are well-covered even during a recession.

Ameriprise Financial (AMP)

Ameriprise Financial is a financial services company with more than $1 trillion in assets under management. The company’s operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection (insurance products). 

On April 24th, 2023, Ameriprise Financial increased its quarterly dividend 8% to $1.35, extending the company’s dividend growth streak to 19 consecutive years. In the 2023 third quarter, revenue grew 16.2% to $4.1 billion, beating estimates by $230 million. Adjusted earnings-per-share of $7.68 compared very favorably to the prior year’s result of $6.43 and was $0.08 above estimates. Total assets under management, or AUMs, increased 12% to $1.2 trillion due to strong client net inflows and market appreciation. Client assets for the Advice & Wealth Management grew 15% to $816 billion. 

Adjusted operating revenues increased 13% while pretax adjusted operating earnings grew 23% due to growth of client accounts and a higher investment return from cash products. Ameriprise Bank assets improved 37% to $35 billion. Asset Management’s AUMs grew 7% to $587 billion. Total segment net outflows of $3.8 billion compared to net outflows of $5.3 billion in the prior year. Adjusted revenue and operating earnings both were up 4% year-over-year. For the Retirement & Protection Solutions segment, adjusted revenue grew 12%, but pretax adjusted operating earnings decreased by 69%. However, excluding unlocking, pretax adjusted operating earnings were up slightly from the prior year. 

Ameriprise Financials’ key competitive advantage is that it is a well-known and respected financial firm with a massive amount of AUM. The company has more than 10,000 agents. AMP has increased its dividend for 19 consecutive years. AMP has a dividend payout ratio of 18% for 2023.

Johnson & Johnson (JNJ)

Johnson & Johnson is a global healthcare giant. The company currently operates three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. The corporation includes roughly 250 subsidiary companies with operations in 60 countries and products sold in over 175 countries.

On October 17th, 2023, Johnson & Johnson reported results for the third quarter for the period ending September 30th, 2023. For the quarter, revenue grew 6.8% to $21.35 billion, which was $300 million above estimates. Adjusted earnings[1]per-share of $2.66 compared favorably to $2.55 in the prior year and was $0.14 higher than expected. Pharmaceutical revenues grew 5.1% on a reported basis. Infectious disease fell nearly 34%, mostly due to reduced Covid-19 vaccine revenue. Oncology was higher by 11.5% as Darzalex, which treats multiple myeloma, continues to increase market share.

Johnson & Johnson’s key competitive advantage is the size and scale of its business. The company is a worldwide leader in several healthcare categories. Johnson & Johnson’s diversification allows it to continue to grow even if one of the segments is underperforming.

Johnson & Johnson has a reasonably low dividend payout ratio below 50%. This gives the company ample room to raise its dividend, even in a prolonged recession. One of Johnson & Johnson’s key competitive advantages is the size and scale of its business. The company is a worldwide leader in a number of healthcare categories.

The company has increased its dividend for 60 consecutive years, making it a Dividend King. The stock is owned by many well-known money managers. For example, J&J is a Kevin O’Leary dividend stock.

Deere & Co. (DE)

Deere & Company is the largest manufacturer of farm equipment in the world. The company also makes equipment used in construction, forestry & turf care, produces engines and provides financial solutions to its customers. 

In late November, Deere reported (11/22/23) financial results for the fourth quarter of fiscal 2023. Sales slipped -1% over the prior year’s quarter as the benefit from strong demand for farm and construction equipment was offset by a decrease in the sales of the Production & Precision Ag and Small Ag & Turf segments. Deere grew its earnings-per-share 11%, from $7.44 to $8.26, and beat the analysts’ consensus by $0.85.

There are many factors that could fuel growth for Deere. For instance, acquisitions such as the takeover of Wirtgen Group in late 2017. In addition, long-term global economic growth and share buybacks could add to the growth thesis. The company reduced its share count by -25% between 2008 and 2016 so it could ramp up buybacks in the future.

Finally, Deere will benefit from the long-term trend of the rising global population, and the increasing demand for food. Deere is the largest player in the agricultural machinery manufacturing industry. This means that it is hard for new competitors to steal market share from Deere, especially since it is difficult to replicate the company’s global sales and dealership network. Deere has also been growing its presence in the higher-growth construction machinery market, both organically as well as via acquisitions.

With a 2024 expected dividend payout ratio below 20%, Deere’s dividend payout is highly secure with lots of room for dividend growth.