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The recent invasion of Russia in Ukraine has greatly increased volatility in the stock market. This conflict has triggered a steep rally in the prices of many commodities and thus it has raised concerns that inflation, which already stands at a multi-decade high, will surge even further. In addition, the rally of the price of oil to a 13-year high has raised concerns that it may cause a global recession. Due to the extremely high uncertainty that prevails right now, income-oriented investors may want to resort to safe dividend stocks. In this article, we will analyze the prospects of three stocks that offer attractive dividends with a wide margin of safety.

UGI Corporation (UGI)

UGI Corporation is a gas and electric utility that operates in Pennsylvania, in addition to a large energy distribution business that serves the entire U.S. and other parts of the world.

As a utility, UGI has proved extremely resilient to recessions. Even under the most adverse economic conditions, people do not reduce their consumption of electricity and gas. The strength of the business model of UGI has been evident throughout the coronavirus crisis. While many other companies came under great pressure in the last two years, UGI grew its earnings per share by 17% in 2020 and by another 11% in 2021, to a new all-time high.

It is also worth noting that UGI differs from typical utilities in one aspect, namely its highly diversified business model. It has electric and gas utilities, propane distribution that covers a wide geographic area and diverse customer base, as well as a variety of other energy generation and distribution activities. Not only does this business model allow UGI to endure downturns in any particular business, but also provides multiple growth drivers.

UGI has exhibited a remarkably consistent performance record. It does not repurchase its shares but it performs acquisitions on a regular basis. UGI has grown its earnings per share in 9 of the last 10 years and has grown its earnings per share at an average annual rate of 10.9% over the last decade. This is undoubtedly an impressive growth rate for a utility. Even better, the company still has ample room for future growth. Management has provided guidance for 6%-10% annual growth of earnings per share in the long run.

Moreover, UGI is attractive for income-oriented investors. It is currently offering a 4.0% dividend yield with a wide margin of safety. The company has raised its dividend for 34 consecutive years and has grown it at a 6.9% average annual rate over the last decade. Thanks to its healthy payout ratio of 45%, its reliable growth trajectory and its resilience to recessions, UGI can easily continue raising its dividend at a mid-single-digit rate for many more years. Overall, UGI offers a unique combination of solid growth, attractive dividend and enviable resilience to recessions.

Donaldson (DCI)

Donaldson is a manufacturer and distributor of filtration systems and replacement parts worldwide. The company operates in two segments: Engine Products and Industrial Products. The Engine segment produces replacement filters for air and liquid filtration applications, air filtration systems, fuel filtration systems, exhaust and emission sensors and related products. The Industrial segment offers dust collectors, air purification systems and other products. The company sells its products to producers of equipment for construction, agriculture, mining, aerospace, defense and other businesses.

Due to the cyclical nature of the business of its customers, Donaldson has exhibited a somewhat volatile performance record. Nevertheless, it has grown its earnings per share by 3.3% per year on average over the last decade. Even better, Donaldson expects to grow at a faster pace in the upcoming years thanks to its strong business momentum, possible acquisitions, cost-cutting initiatives and meaningful price hikes, which will enhance the margins of the company.

It is also worth noting that Donaldson has proved resilient throughout the coronavirus crisis, despite the cyclical business of many of its customers. Donaldson saw its earnings per share slip only 1% in 2020 and recovered strongly from the pandemic last year, with 14% growth of earnings per share, to a new all-time high.

Moreover, Donaldson has an exceptional dividend growth record, with 34 consecutive years of dividend growth. The stock is currently offering a 1.7% dividend yield, which may seem uninspiring on the surface. However, thanks to its solid payout ratio of 33%, its essentially debt-free balance sheet and its promising growth prospects, the company can continue raising its dividend for many more years. Overall, Donaldson is offering an attractive combination of growth and dividend safety.

Silgan Holdings (SLGN)

Silgan Holdings manufactures and sells metal and plastic containers, as well as packaging closures. Its containers are found in everyday food consumables, such as pet food, fruits and vegetables, and drinks, while its closures are applied to the beverage, garden, and personal care products.

Silgan has exhibited a somewhat volatile and lumpy performance record. Nevertheless, it has grown its earnings per share and its dividend by 12.9% and 9.9% per year, respectively, over the last decade.

Even better, thanks to the work-from-home trend, which has resulted from the pandemic, the demand for packaged and canned foods, as well as sanitization products has jumped to record levels. As a result, Silgan has posted record earnings per share in each of the last two years. It nearly doubled its adjusted earnings per share, from $1.75 in 2019 to $3.25 in 2021, and is expected to grow its bottom line by another 20% this year, to a new all-time high.

Moreover, Silgan has raised its dividend for 18 consecutive years. The stock is currently offering a dividend yield of only 1.5%, which may seem lackluster to most income-oriented investors. However, the company has raised its dividend by 15.5% per year on average in the last two years. It also has an extremely low payout ratio of 16%. Given also its strong business momentum, the company can easily continue raising its dividend at a double-digit rate for many more years. Overall, Silgan has a lackluster current dividend yield but is likely to keep raising its dividend at a double-digit rate for years.

Final Thoughts

During tumultuous periods, it is only natural that income-oriented investors try to resort to safe dividend stocks. The above three stocks are characterized by resilience to downturns and offer attractive dividends, with a wide margin of safety. As a result, they are attractive candidates for risk-averse, income-oriented investors during the ongoing crisis between Russia and Ukraine.