3 Beaten-Down Dividend Stocks Set for Outsized Total Returns

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The latest commentary from the Federal Reserve helped soothe the market’s anxiety about the impending rate hike, but it wasn’t enough to let dividend stocks off the hook.

high yield dividend stocks
Source: iStock

Happily, the general downdraft in dividend stocks has unduly punished a number of high-quality names with generous payouts. There’s nothing quite like a beaten-down dividend stock for outsized total-return potential, so it usually pays to hunt for any names on sale.

As much as rate-hike pressure might tamp down performance in the shorter term, that headwind will eventually pass, unleashing market-beating returns for any number of dividend stocks.

Besides, it’s not automatic that dividend stocks must drop on a rate hike. Indeed, dividend payers in pro-cyclical sectors like industrials and materials tend to rise. Don’t forget: The central bank raises rates because the economy and prices are picking up steam — two things that are good for corporate revenues.

With all that in mind, we scoured the S&P 500 for beaten-down dividend stocks with compelling fundamentals and valuations. True, these names may suffer in the intermediate term because of the rising-rate environment, but they also look like bargains. Between rising share prices and generous payouts, these dividend stocks are set for outsized total returns if held long enough.

Dividend Stocks for Total Returns — Kimberly-Clark (KMB)

Kimberly-Clark Corp. (NYSE: KMB)

Okay, Kimberly-Clark (KMB) has more problems than it knows what to do with these days — impending rate hike, strong dollar, market-share loss — but it’s held up pretty darn well considering. Besides, all those issues are temporary if you take the long view.

KMB gets about half its revenue from overseas, so the strong greenback is pressuring the top line. Furthermore, its Huggies diapers business is getting squeezed by both higher-priced and cheaper competition.

But organic sales have actually been very solid, thanks to favorable pricing, higher volumes and double-digit growth in places like China and Brazil.

KMB stock is off 6% for the year-to-date, leaving it trading at a discount to peers. Add in a 3.3% yield on the dividend, and KMB should return to market-beating form in the not too distant future.

Dividend Stocks for Total Returns — ExxonMobil (XOM)

Exxon Mobil XOM

Yes, it has been a terrible year for stocks in the energy sector, and ExxonMobil (XOM) is no exception. Indeed, XOM is off nearly 18% over the last 52 weeks. But energy prices won’t remain at current levels forever, and as a diversified oil major, XOM is less vulnerable during this period of cheap oil.

The market likes that about XOM on a comparative basis, as well as some company-specific strength. Plot XOM stock against other oil giants — both U.S. and domestic — and it has easily outperformed all comers. Heck, it’s not hard to find international oil majors off more than 30% in the trailing 12 months.

Meanwhile, the fundamentals, balance sheet and cash flow statement are too good to ignore, as InvestorPlace’s Lawrence Meyers explains in his write-up on XOM stock’s long-term potential.  

With the XOM pumping out a dividend with a a yield of 3.5%, this stock has the goods to be a longer-term total return hero.

Dividend Stocks for Total Return — Prologis (PLD)

prologis-pld-stock-185

The Federal Reserve is set to raise for the first time in nine years, and that’s a headwind for just about any asset that has some yield. In addition to utilities, real estate investment trusts (REITs) have been hit particularly hard, and you’ve got to worry about even more downside to come.

At least one REIT, however, looks to have been unduly punished by the market-wide downdraft. Prologis (PLD) has lost about 11% for the year-to-date, but a yield of 3.8% and a specific competitive advantage make it hard to ignore.

PLD owns warehouses — a property sector that’s growing in both square footage and investor popularity because of the inexorable expansion of e-commerce. Indeed, demand for this niche in the property market far outstrips supply.

Take the generous dividend, add in the supply-demand imbalance — as well as the potential for industry consolidation — and you’ve got a compelling bull case for PLD.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/dividend-stocks-total-return/.

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