Dividend stocks have not fared very well in the market recently, but that creates very attractive opportunities for long-term investors who are looking for steady income. In particular, some very large household names are yielding over 6% a year.
How did these yields get to these levels? As interest rates have risen this year, the no-risk treasuries have created competition with dividend stocks. Two years ago, treasury yields were so low that they really were not generating much income at all. Now, however, you can get 3+% risk free return from the treasury market. So, some investors that might have previously owned high dividend stocks for income in the past, are now investing in treasuries instead. As the market demand for high dividend stocks fall, their stock prices fall as well.
But, there is a benefit to the recent falls in these stocks, price falls increase their yields even higher. The dividend is a fixed dollar amount (although they often go up each year), so when you can pay less for a stock, you get that same dividend stream for less money. That phenomenon has happened this year, and has led to some very tasty dividend stocks available for a discount!
If you are an income investor, there are several best practices to adhere to, in order to get a smooth dividend stocks flow. They are:
Don’t put all your eggs in one basket—diversify in multiple companies and multiple industries.
Look for companies that can afford to pay the dividends currently
Look for growth—both dividends and earnings.
I have put together some of these companies that are paying great dividends right now, and listed them below. These are not recommendations, but each stock is worthy of a look. All of these companies are at least rated Neutral or above by Chaikin Analytics, and each has a 4% or higher dividend payment. Remember, dividend stocks often are not high growth companies. Rather they are the tortoise that may win the race!
AT&T (and Verizon and CenturyLink)
The telecommunications sector has been hard hit. While they do pay high dividends, their earnings are no longer growing based on wireless adoption, and the continued attrition of landlines. There has been a trend for these firms to start acquiring content firms (think AT&T buying Time Warner, and Verizon buying AOL and Yahoo) to restart their growth engines. With growth being factored out of AT&T’s stock, the price has languished for several years. This has made it both a value stock and one of the high dividend stocks. Currently, you can get a 5.86% yield and a low P/E of 10. This may be a stock to hold for income rather than price appreciation. In the same sector both Verizon and CenturyLink also sport very high dividends. My advice is ONLY take one.
Remember, we want to diversify!
Similar to the telecoms, Ford has had a rough year (see chart below), but it does sport both an attractive P/E and Dividend Yield. Let’s tackle P/E first. A low P/E will tell you that this is a value play, but it also indicates that Earnings DO exist, and are substantial. Chances are, with a P/E this low, it shows that the earnings are not growing, and investors may be afraid that they are decreasing in the future. These fears are not unfounded with Ford. The Auto Industry is highly cyclical, and it has been riding the economic wave since the 2008 recession. These recession fears and product saturation fears have investors worried about Ford’s long term prospects.
On the other hand, Ford has won the Analysts over. They are not forecasting sales going off the cliff, and it has solid financials. If you want a dividend yield of almost 7% – Ford is your company. Stock Price may be under pressure if a recession hits, but in fact, it looks like the market may have already priced in an industry-wide drop. GM also has a high dividend yield, but Ford’s yield is higher, and prospects are brighter.
Prestige Brands (PBH)
Not as well-known as the first two, but with intriguing potential, and a high dividend. This is one of the top dividend stocks with potential to grow in the future, and analysts are liking the potential of the firm’s core brands.
This is a stock that has almost no debt, and tremendous free cash flow. So it can afford the current dividend and, with some decent growth, could actually continue to boost its dividend payment. I like that it is in a completely different industry, and will provide your portfolio great diversification.
At Chaikin Analytics, we have toted up all of these factors and more to give it an overall rating of Bullish. This means that it has a good chance to outperform the market in the next 3 to 6 months. So, not only will you get a roughly 5% yield, you have growth potential both on the price and dividend stocks front.
Dominion Energy (D)
You can’t put together a high yield portfolio without adding a utility stock. The good news: their prices have gotten cheaper as treasury rates have increased. That means that you now get a higher yield for your investment dollar.
Dominion Energy is an interesting utility. Primarily down South, it focuses on electricity and natural gas distribution. Like many utilities it does have some debt, but it also shows strong cash flow and earnings.
Unlike other companies in this article, Dominion has shown a little life in the market recently. It basically is in a little uptrend with positive money flow, and relative strength. One area of a concern though is that some of the financials are looking a little dicey. So this would be factors that I would keep in mind. Long-Term Debt looks high, and some valuation ratios look like they are expensive.
Top Dividend Stocks Summary
Investors in dividend stocks always look for an opportunity to add stocks with great dividend streams into their portfolio. Here are four stocks to explore—obviously you need to make sure that they fit your criteria for investing. But in diverse industries, we are now seeing dividend stocks that look attractive.
Seize the opportunity.