Dividends are distributions that companies make to their shareholders.
These distributions are generally halal if the company’s business is halal.
They can be a great way to get some steady income from your stocks since they tend to be far less volatile than stock prices.
It’s important to note that not all dividends are created equal. Some are simply not sustainable and bound to be cut whereas others have a high likelihood of surviving any market downturns and a solid track record of increasing over time.
In this article I’m going to share 3 dividend stocks that have:
- High dividend safety scores (according to simplysafedividends.com)
- Have businesses that are relatively immune to economic recessions
- High halalness scores
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Now for our list of 3 Halal dividend-paying stocks…
Kimberly Clark (KMB)
Kimberly-Clark was founded in 1872 and is now one of the largest manufacturers of tissue and hygiene products in the world.
It is estimated that one-quarter of the world’s population have used Kimberly Clark products at one point in their lives.
Their products include diapers, wipes, feminine care, facial tissues, toilet paper and paper towels.
The good thing about selling diapers is that regardless of economic conditions, doodoo happens.
As does the other stuff that requires Kimberly-Clark’s products like feminine care and paper towels.
Safety score: 88/100
Dividend Yield: 3.15%
Payout ratio: 57% (meaning of its earnings it pays out 57% in the form of dividends) which is considered healthy for a consumer staples company.
Track Record: Uninterrupted dividends for more than 25 years in a row.
This consistency in dividend payouts is important because it makes cutting dividends harder to do for management since doing so would signal acute financial stress.
KMB’s forward P/E ratio of 18.5 is also about in line with its 5-year average of 19.0 which suggests it is reasonably valued today.
Obviously, there is nothing haram about selling diapers, toilet paper or paper towels.
Kimberly-Clark’s total interest expense when compared to the total expenses of the company’s operations is ~8%. Which is a bit elevated.
Accordingly, I will dock 2 points and give Kimberly Clark an 8/10 halalness score.
Johnson & Johnson (JNJ)
Johnson & Johnson’s 2019 revenue was generated from pharmaceuticals (51% of sales), medical devices (32%), and consumer health products (17%).
Given the nature of JNJ’s products, its sales tend to be immune to economic conditions.
Dividend Safety score of 99/100
Dividend Yield of 2.55%
Payout Ratio: 51%
In its most recent quarterly filing, Management announced plans to raise J&J’s dividend by 6.3%, marking its 58th consecutive year of increases.
JNJ’s forward P/E ratio is ~19, well above its 5-year average of 16.
This means the stock is somewhat expensive compared to how the market has valued it in recent years.
Generally there is nothing wrong with selling pharmaceuticals, medical devices or consumer health products.
Interest expense as a percentage of total expense is less than 1% which is what I like to see.
Accordingly, my halalness score for JNJ is 9/10.
I docked a point off because with a market cap of 400 Billion, there is bound to be something happening in the company that isn’t entirely halal.
Verizon is the largest wireless service provider in the U.S. The company’s 4G LTE network is available to more than 98% of the U.S. population.
Wireless operations, which include voice and data services as well as equipment sales, generate close to 70% of Verizon’s revenue and account for nearly 90% of the company’s EBITDA (a proxy for cash flow).
Most people consider their phone service a necessary rather than a discretionary expense.
This gives Verizon’s revenue resiliency in periods of economic downturn.
Dividend Safety score: 87/100
Dividend Yield: 4.52%
Payout Ratio: 52%
Verizon has paid uninterrupted dividends for more than 20 years in a row.
VZ’s forward P/E ratio of 11.4 is about in line with its 5-year average of 12.1.
This suggests Verizon is fairly priced if you believe in the long-term prospects of the company.
There’s nothing haram about selling phone services.
It’s total interest expense when compared to the total expenses of the company’s operations is ~9%.
Again, more than I like to see.
Accordingly, I’m going to give verizon a 8/10 halaness score.
And there you have it.
3 companies with decent halalness ratings, solid dividend safety scores and business’s that have historically exhibited high levels of immunity to economic downturns.
For a dividend-paying alternative investment, consider BFF Human Capital Fund.