Yield-hungry investors don’t have a ton of options nowadays. Forget about money market accounts and CDs. And sure, Treasury yields are on the rise, but even now, a 10-year T-Note yields just 2.4%.
Right now, income investors’ best play remains the stock market. While stocks might not offer the same degree of safety you’ll find in government bonds, you probably can’t expect any appreciation in Treasuries (in fact, if yields keep rising, you can expect losses).
So why not allow yourself the best of both worlds — some dividend yield, and some capital gains?
Of course, everybody and their mother knows about Coca-Cola (KO), Johnson & Johnson (JNJ) and Procter & Gamble (PG), and for good reason. But there are other, less-known or less-loved stocks that aren’t so crowded now despite being attractive holdings … once you get to know them.
So, if you’re looking for the best dividend stocks to buy, explore a little and check out some of these names that might get a little less attention thanks to their sub-3% yields, and are seemingly unloved for one reason or another, but offer a decent mix of both income and growth potential.
Dividend Stocks You’ll Hate Yourself for Ignoring: China Mobile (CHL)
CHL Dividend Yield: 2.9%
YTD Return: +12%
China Mobile (CHL) is the world’s single-largest mobile carrier, and with a 4G coverage area that already reaches a sprawling 1 billion people, you might wonder exactly how CHL qualifies as one of the best “overlooked” dividend stocks in the stock market today.
After all, China Mobile is a company that even the almighty Apple (AAPL) needed for its 2014 iPhone 6 launch to run smoothly. It’s not often you see Apple in a situation where it’s not dictating the terms at the negotiating table.
OK, China Mobile is far from some underground stock that no one’s ever heard of before, but clearly the market doesn’t appreciate it enough. CHL is one of the best dividend stocks to buy because of its dirt-cheap valuation to its peers — at a price-to-earnings ratio of just 15, CHL trades at a 25% discount to leading American telecom Verizon (VZ) and a 50% discount to AT&T (T), which trade at multiples of 20 and 30, respectively.
Dividend Stocks You’ll Hate Yourself for Ignoring: Qualcomm (QCOM)
QCOM Dividend Yield: 2.8%
YTD Return: -8%
Qualcomm (QCOM) is in the same boat as CHL in that it isn’t exactly the most under-the-radar stock on the planet either. Still, for whatever reason, most investors don’t think of QCOM as one of the best dividend stocks on the market today.
Qualcomm recently fell off the list of the top 20 holdings by institutional investors. Just a year ago, it was the sixth-most popular stock among institutional investors.
Qualcomm has raised its dividend for 13 consecutive years, including its most recent hike this spring — a 14% bump to 48 cents quarterly. And with the chipmaker paying out less than half its net income in the form of dividends, QCOM has plenty of room to keep raising its payout into the foreseeable future. Qualcomm also has a booming business behind it — sales have grown by an average of 20% annually over the past five years.
But here’s the real kicker: Qualcomm has zero long-term debt on its balance sheet, giving it far more flexibility with its cash. That’s one investor perk of owning shares of a company that doesn’t have to shell out a ton of interest expense.
Qualcomm also is an early investor in Xiaomi, which despite being founded just five years ago is now the top smartphone seller in China.
Dividend Stocks You’ll Hate Yourself for Ignoring: Cullen/Frost Bankers (CFR)
CFR Dividend Yield: 2.8%
YTD Return: +5%
Now we start to fall into the realm of the more obscure.
Shares of regional bank Cullen/Frost Bankers (CFR) are up only modestly this year, but the most impressive thing about CFR stock isn’t its steady appreciation — it’s the consistent dividend. The southwest bank has boosted its dividend payout for 22 consecutive years.
Founded way back in 1868, Cullen/Frost Bankers has successfully weathered its fair share of economic downturns. The company offers both commercial and consumer banking services but also dabbles in investment banking, mutual funds, wealth advisory, insurance, and more.
In May, Cullen/Frost boosted its dividend by roughly 4%, and also approved a plan to buy back as much as $100 million worth of CFR stock over the next two years. And even though CFR trades at a P/E of just 17 — a significant discount to the S&P 500’s multiple of 21.5 (as well as the industry’s average P/E north of 20) — some skeptics have boldly taken to selling the stock short.
I certainly wouldn’t bet against CFR, especially considering the days-to-cover ratio, which currently sits above 9, implies there could be a rather ugly short squeeze in the not-so-distant future.
Dividend Stocks You’ll Hate Yourself for Ignoring: Axis Capital Holdings (AXS)
AXS Dividend Yield: 2.2%
YTD Return: +6%
No one’s itching to hear about what Axis Capital Holdings (AXS) did last quarter. That much is quite apparent from the stock’s dirt-cheap valuation; AXS trades at a P/E of just 7.
The insurer and re-insurer, which has raised its dividend every single year since coming public in 2003, is essentially being ignored by the market.
And so, ironically, the fact that no one realizes how attractive AXS stock is simultaneously makes it one of the best dividend stocks to buy.
Why on earth would an insurance company paying a modest dividend — with plenty of room to raise it going forward — trade almost right at book? To give you some idea of exactly how cheap a ~1 price-to-book value is, consider this: Berkshire Hathaway (BRK.A, BRK.B) is also in the insurance and reinsurance business. And Warren Buffett has declared that any time Berkshire’s P/B ratio dips below 1.2, Berkshire will aggressively repurchase its own shares.
The Oracle of Omaha himself thinks a P/B ratio of 1.2 for an insurance and re-insurance company is foolishly low.
Now, I understand AXS is no Berkshire Hathaway, but it’s consistently profitable, and with a payout ratio of just 15%, it has plenty of room to raise its dividend. AXS also is pushing for a merger with fellow re-insurer PartnerRe (PRE), so if that goes through, this dividend stock might become even more powerful.
Dividend Stocks You’ll Hate Yourself for Ignoring: Prosperity Bancshares (PB)
PB Dividend Yield: 2%
YTD Return: Flat
Lastly, shares of another southwest regional bank Prosperity Bancshares (PB) offer an attractive income option. Shares are cheaply valued, and PB has been raising its dividend for more than a decade.
Among its favorable stats include a 13 P/E ratio and a 1.2 P/B.
It’s not so much that investors are ignoring PB stock — they just don’t even know about it. The roughly $4 billion company has fewer than 250 locations, all located in Texas and Oklahoma. Meanwhile, ;ess than 400,000 shares change hands daily; for comparison’s sake, 74 million shares of Bank of America (BAC) stock trade every day on average.
PB pays out roughly a quarter of its profits in dividends, and it has a very favorable valuation, so while Prosperity might fly under the radar, it’s not lacking for quality.
On top of all the redeeming qualities already mentioned, shareholders enjoy an added bonus: There’s a very real chance the company will be bought out at a premium by a larger bank as the industry continues to consolidate.
Not such a bad opportunity, especially considering the stock pays you 2% a year to sit back and look pretty.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.