There's a lot of uncertainty in the world today. Higher interest rates have many investors growing worried that the economy could slow down considerably over the next year and potentially experience a recession. On top of that, there's increasing global geopolitical tension and an upcoming presidential election. These unknowns are likely making many investors feel less confident.
However, instead of sitting on the sidelines, you can confidently invest in stocks that should have no problem navigating the current uncertainty. Southern Company (SO 0.98%), Johnson & Johnson (JNJ -0.29%), and Williams (WMB -0.37%) offer investors a compelling combination of visible growth and attractive dividend income, and they trade at a low valuation. You can confidently invest idle cash into this trio right now.
Turning on the switch to a powerful cash flow generator
Southern Company is a low-risk investment. The utility generates very predictable cash flow backed by stable demand and government-regulated rate structures. That gives it the cash to pay an attractive dividend yielding 4%, meaning it can turn a $1,500 investment into $60 of annual dividend income.
That income stream should rise in the future. Southern has increased its payout for 22 straight years. That steady upward trend should continue.
A big power source is the Vogtle nuclear energy plant. The company is investing over $10 billion to build two nuclear generating units (Vogtle 3 & 4). Unit three came online earlier this year, while unit four should enter commercial service early next year. The company expects this project to add $700 million to its annual cash flow from operations.
Despite that heavy investment, Southern has one of the strongest and best-positioned balance sheets in the utility sector. That gives it lots of financial flexibility to continue expanding its utilities and commercial renewable energy business while increasing its dividend. Meanwhile, investors get this high-quality, steadily growing, income-producing business for a fair price. Southern trades at about 19 times adjusted earnings, a little cheaper than the S&P 500's valuation (currently over 20 times earnings).
Elite in many ways
Johnson & Johnson is a financial fortress. The healthcare behemoth is one of only two companies with an AAA bond rating. It generates significant free cash flow, giving it money to pay dividends, invest in its continued growth ( and acquisitions), and repurchase shares. It has invested $10.6 billion in R&D through the third quarter, paid $8.9 billion in dividends, and repurchased $2.5 billion in shares. The company also closed its $16.6 billion acquisition of Abiomed late last year.
At its current dividend yield of 3.1%, Johnson & Johnson could turn a $1,500 investment into nearly $50 of annual dividend income. That income should rise in the coming years. Johnson & Johnson has increased its dividend for 61 straight years, including by 5.3% in early 2023. Johnson & Johnson's new products and other organic drivers should continue growing its earnings and allow it to keep pushing its payout higher.
Premier companies like Johnson & Johnson typically trade at premium valuations. However, that's not the case for the healthcare giant. The company currently trades at about 15 times earnings. That makes it look like a bargain compared to the broader market.
A great company for a dirt cheap valuation
Williams is a cash flow machine. The natural gas pipeline giant expects to produce more than $5 billion of adjusted funds from operations (FFO) this year. That's enough money to cover its big-time dividend by a very comfy 2.3 times. At its current yield of 4.9%, Williams could turn a $1,500 investment into almost $75 of annual dividend income.
Williams uses the cash it retains to maintain a healthy balance sheet and invest in expanding its operations. The company expects to invest $1.6 billion to $1.9 billion into growth capital projects this year. They're part of a growing backlog of projects that should come online through the end of 2027. These investments drive Williams' view that it can grow its earnings by 5% to 7% annually over the long term. It also recently agreed to buy Cureton Front Range and its partner's 50% interest in Rocky Mountain Midstream for $1.3 billion, enhancing its near-term growth profile.
Those growth drivers should give Williams the fuel to continue increasing its dividend. It has grown its payout at a 6% annual rate since 2018.
Investors get this financially strong, income-producing, and growing company for a bargain price. Williams trades at less than nine times its adjusted FFO. That low valuation is why Williams offers such a high dividend yield.
High-quality investments
Southern Company, Johnson & Johnson, and Williams are ideal investments in the current environment. The companies have excellent track records of growing their earnings and dividends, which should continue. Meanwhile, they currently trade at attractive valuations. You can confidently add these companies to your portfolio right now. They're highly likely to continue growing value for their shareholders, even in an increasingly uncertain future.
Matthew DiLallo has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
