3 Best Dividend Stocks to Buy in April

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The best dividend stocks provide dependable, rising income each and every year.

3 Best Dividend Stocks to Buy in April

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These blue-chip dividend stocks typically maintain reasonable payout ratios, keep low amounts of debt, generate consistent free cash flow and dominate their markets.

The best dividend stocks offer strong potential for current income and long-term income growth, and we own each of the following three stocks. Two of them are even in our Top 20 Dividend Stocks portfolio.

After the market’s surge since mid-February, it has been hard to find high-quality dividend stocks trading at reasonable prices.

However, we believe each of the following businesses is a potentially appealing investment opportunity for long-term dividend investors to consider.

Best Dividend Stocks: Wells Fargo & Co (WFC)

Best Dividend Stocks: Wells Fargo & Co (WFC)Stubbornly low interest rates have caused bank stocks to remain largely out of favor during the past year. Low interest rates reduce the amount of profits banks can make from their lending operations.

The best time to buy stocks that benefit from higher interest rates is when the market is pessimistic about rates rising, which makes Wells Fargo & Co (WFC) an interesting dividend candidate today.

The bank was founded in 1852 and was the third-largest bank in the country as measured by assets at the end of 2015. The company’s business is split nearly down the middle between traditional loan-making operations and noninterest income in the form of brokerage advisory services, credit card fees, mortgage originations, commissions and other services.

We believe Wells Fargo is one of the best dividend stocks for several reasons, beginning with its massive base of low-cost deposits used to fund many of its loans.

Wells Fargo’s annual reports show that the company’s total deposits have grown from $3.7 billion in 1966 to $1.2 trillion in 2015, representing consistent growth of approximately 12.6% per year.

Importantly, the company was paying just 8 basis points on its deposits as of the last quarter of 2015, virtually guaranteeing the company’s ability to generate a positive return on its loan portfolio despite today’s low interest rates.

As one of the biggest banks in the country, Wells Fargo also enjoys economies of scale that allow it generate a higher return on equity compared to its peers.

Another notable fact is that Wells Fargo is Warren Buffett’s largest position, and the Oracle boosted his stake in the business during the fourth quarter of 2015 at prices above where Wells Fargo’s stock currently trades.

Wells Fargo increased its dividend by 7% in 2015 and will likely announce another increase within the next month. With a payout ratio below 40% and capital ratios that exceed regulators’ requirements, we think the bank is poised for continued dividend growth.

WFC stock offers a dividend yield of 3.1% and trades for 10.6 times forward earnings estimates. For income investors looking for a hedge against rising interest rates, Wells Fargo could be a high-quality idea to consider.

Best Dividend Stocks: Cummins Inc. (CMI)

Best Dividend Stocks: Cummins Inc. (CMI)Cummins Inc. (CMI) is a manufacturer of diesel and natural gas engines that are primarily used in the truck market and in off-highway vehicles.

Despite its cyclicality, we think Cummins is one of the best dividend stocks and possesses several competitive advantages.

The company owns an arsenal of patents surrounding its engine technology, has built a strong brand and owns one of the biggest distribution networks in the industry. Engines are very expensive purchases, and customers need a supplier that can quickly and efficiently provide aftermarket services to keep its equipment up and running.

While Cummins is dealing with several near-term macro challenges that are weighing on its business, the company’s dividend continues to look very safe.

Cummins has more cash on hand than debt and maintains a dividend payout ratio below 50%. Even if earnings were unexpectedly cut in half, the company appears to have plenty of financial strength to keep paying its dividend, which management has increased for six straight years.

CMI’s stock trades at a forward price-to-earnings multiple of 13.3 and has a dividend yield of 3.6%.

Best Dividend Stocks: Abbott Laboratories (ABT)

Best Dividend Stocks: Abbott Laboratories (ABT)Abbott Laboratories (ABT) is a member of the dividend aristocrats list and has been in business for more than 125 years. The healthcare company operates across four segments — nutritionals, generic drugs, medical devices and diagnostics — and owns a number of well-known brands.

Healthcare is one of the best stock sectors for dividend income because of the non-discretionary nature of many of its products. Abbott should also benefit over the long term because it derives 50% of its sales from faster-growing emerging markets, which should see per capita healthcare spending rise over time.

Many of Abbott’s markets are also highly fragmented, require substantial investments in research and development, are protected by patents and require global distribution networks for success.

With an earnings payout ratio below 50% and a healthy balance sheet, Abbott is primed for continued dividend growth. Management last boosted the dividend by 8%, and we expect at least mid-single-digit dividend growth going forward.

ABT’s stock has a dividend yield of 2.5% and trades for 18 times forward earnings estimates.

At the time of this writing, the author was long WFC, CMI and ABT.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/best-dividend-stocks-buy-april/.

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