Dividend stocks as a group have started to trade in a range as investors contemplate the effect that the upcoming interest rate hike will have on their valuation.
From our perspective, the decision on whether dividend stocks are a good hold in a rising-interest-rate environment is a moot point — as long as we’re looking for the right stocks.
The “right” dividend stocks in our book not only pay healthy dividends, but also have strong growth prospects.
Focusing on strong balance sheets and growing revenue helps to avoid investing in companies that may be at risk of decreasing or cutting their dividends.
We’ve scanned our database to identify companies that have strong dividend and earnings growth that are also trading in technically strong patterns. This combination built a list of three dividend stocks that should produce ironclad payouts … and some capital appreciation.
Dividend Stocks That Can Grow: Cisco Systems, Inc. (CSCO)
CSCO Dividend Yield: 3.2%
Cisco (CSCO) is benefiting from a revival of demand for networking appliances as the cloud continues to grow. While CSCO shares are down more than 5% for the year to date and are looking technically weak in the very-short term, our models still rank Cisco stock a “buy” based on the larger technical shift that’s building. Namely, the 50-day moving average is close to breaking above the 200-day, and a break above $29 will collect more momentum.
That all should carry shares higher through 2016.
Cisco stock is currently trading at $26.16; however, our models and analysis suggest that CSCO is ready to make a move to $32 during the first half of 2016 — a 20%-plus move. This strong performance will be bolstered further by Cisco’s 3.2% dividend yield.
Among tech stocks, Cisco Systems sets itself apart from the pack as a healthy dividend payer with serious upside potential.
Dividend Stocks That Can Grow: Altria Group Inc (MO)
MO Dividend Yield: 4%
Known as one of the more tried-and-true dividend stocks, Altria (MO) is also set up as a bullish growth play. The company is known as one of the bellwethers of the consumer staples sector as cigarette sales remain pretty robust in all types of economic conditions.
What also makes Altria stock attractive today is that all of their sales are made in U.S. dollars, meaning that the strengthening dollar (as a result of higher interest rates) won’t mute their quarterly results.
Altria stock’s charts are very impressive, as MO remains a relative strength leader in the market while forging a distinctly bullish medium- to long-term trend that looks to continue into 2016.
With a dividend yield of 4%, the Fed would have to raise rates considerably before Altria stock begins to lose the interest of yield-foraging investors.
Our models suggest a $64 midyear target for Altria stock on top of the strong dividend yield.
Dividend Stocks That Can Grow: Paychex Inc. (PAYX)
PAYX Dividend Yield: 3.2%
Considered an information technology company, Paychex (PAYX) automates and processes payroll and other employment services for companies.
With a dividend yield of 3.2%, PAYX is also one of the better-yielding stocks in the Nasdaq-100.
Paychex is benefiting from a number of fundamental catalysts as their product lines flourish in a strong employment market. Paychex stock is showing this, as shares are trading more than 13% higher year-to-date.
Our model currently ranks PAYX a “strong buy,” as the stock is in a strong bullish trend and only 10% of the analysts covering the stock have it ranked a “buy.” This combination usually results in a string of upgrades that will force prices even higher as we move into 2016.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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