When price gains are hard to come by, it’s absolutely critical to have some of the best dividend stocks among your holdings. Indeed, the market is currently down more than 2%, but the dividend yield on the S&P 500 essentially offsets that loss to produce a breakeven total return.
The point is that you can’t count on price appreciation alone to drive upside. That’s especially true when market strategists expect 2016 to look much like what we’ve seen this year.
However, if you own some of the market’s best dividend stocks, at least you’re assured of getting at least something for your money.
True, plenty of dividend stocks are sitting on negative total returns because price losses more than erased the benefit of dividends, but that also means yields are more attractive. That means the best dividend stocks will disproportionately juice returns if (well … when) the market turns up.
And if a stock has a history of regular dividend hikes, so much the better. Stick around long enough, and regular raises will lead dividend winners to develop eye-popping yields on an original cost basis.
With low oil prices, a strong dollar and higher interest rates poised to weigh on the broader market next year, it’s time to look for the best dividend stocks to buy for 2016.
Here are six names that investors can trust to carry positive total returns next year:
Best Dividend Stocks to Buy Now: AbbVie Inc (ABBV)
ABBV Dividend Yield: 4.1%
In addition to a dividend yield of more than 4%, AbbVie Inc (ABBV) looks ready to bounce back after a rough 2015.
AbbVie is off more than 15% for the year-to-date, largely because investors fear ABBV overpaid when it acquired Pharmacyclics earlier this year for $21 billion.
That’s short-sighted.
AbbVie is overly dependent on its Humira blockbuster drug treating arthritis, psoriasis and other ailments. The addition of Pharmacyclics solves that problem. At its peak, the company’s Imbruvica cancer drug should generate annual revenue of $7 billion after ABBV splits the take with Johnson & Johnson (JNJ).
Analysts at Jeffries named ABBV as their top pick globally thanks in part to the company’s strong pipeline and earnings per share growth. Indeed, Wall Street anticipates EPS rising 17% next year, which makes it among the best dividend stocks to buy if you want the potential for capital appreciation as well.
Best Dividend Stocks to Buy Now: AT&T Inc. (T)
T Dividend Yield: 5.6%
In good times and bad, AT&T Inc. (T) is a dividend champion. No other mega-cap stock can rival the combination of a whopping yield and dependability.
AT&T has hiked its dividend for 31 consecutive years — with a 32nd hike likely later this month — and the telecommunications giant could also be a difference maker if the market puts up another year of lackluster returns.
Few stocks are as good at playing defense when the broader market is struggling. AT&T is essentially half as volatile as the S&P 500, and greater volatility is one thing most forecasters expect in 2016.
Lastly, AT&T generated a positive total return this year and should build on it next year.
After all, value stocks typically outperform growth stocks in a rising rate environment.
Best Dividend Stocks to Buy Now: Ford Motor Company (F)
F Dividend Yield: 4.4%
Anyone holding Ford Motor Company (F) stock had a frustrating 2015. The car company had impressive results as the new-vehicle market continued to boom, but F stock was down 13% by mid-December.
Happily, the sour sentiment should lift in 2016 as the company picks up market share and delivers enviable growth in EPS.
Ford is enjoying record results in North America, but a bigger catalyst could come from overseas. The European segment is starting to get frisky and looks poised to swing profitability. That should allay some concerns about the potential impact of rate hikes on domestic sales.
Wall Street expects Ford to generate EPS growth of 18% next year, yet shares go for just 7 times forward earnings. That has Ford stock looking like one of the best dividend stocks to buy now if you’re interested in sheer value, too.
Best Dividend Stocks to Buy Now: General Motors Company (GM)
GM Dividend Yield: 4.2%
Ford isn’t the only generous dividend stock among vehicle manufacturers. General Motors Company (GM) boasts a yield of more than 4% and has price upside to boot.
Everyone knows that the U.S. vehicle market is cruising along, but GM is also seeing strength overseas. The economic slowdown in China had been bad news for virtually all multinationals, but not General Motors. Heck, it’s tallying record sales and solid profits in the Middle Kingdom.
It also helps greatly that GM’s costs for faulty ignition switches are in the rear-view mirror. That removes headline risk and sets the company up for easy comparisons.
With next year’s EPS forecast to rise 13% on a price-to-earnings ratio of well less than 7, you can bet value investors will kick the tires on GM too.
Best Dividend Stocks to Buy Now: The Coca-Cola Co (KO)
KO Dividend Yield: 3.1%
The upcoming year promises to offer an inflection point for The Coca-Cola Co (KO) after several years of slack growth.
Analysts figure that margins will improve this year because of flagging price pressure, but the big boost to profitability will come from deep cost cuts.
Indeed, KO is heading to the first anniversary of massive restructuring intended to squeeze $3 billion out of its cost base. The company intends to plow the saving into marketing in a bid to slow the decline is sales of fizzy drinks.
The beverage maker expects sales to go back to a mid-single-digit range after falling as low as 3% over the last few years.
The market’s outlook is brightening, too. Shares are up 10% over the past three months.
Best Dividend Stocks to Buy Now: McDonald’s Corporation (MCD)
MCD Dividend Yield: 3.1%
McDonald’s Corporation (MCD) had a fantastic 2015, and yet the dividend yield still offers more than 3% for new money. Besides, even after rising nearly 25% YTD, MCD is just getting started.
MCD struggled for three long years, squeezed by competition from so-called fast casual chains like Chipotle Mexican Grill (CMG), Panera Bread (PNRA) and Shake Shack (SHAK).
And then MCD came up with a recipe for a turnaround. Among the welcome changes, the hamburger chain curbed the use of antibiotics in its chicken, relaunched the Egg McMuffin using butter rather than margarine, and added a buttermilk crispy-chicken sandwich to the menu.
Add in the benefit of all-day breakfast, and you can bet on MCD delivering accelerating top line growth next year, and putting it among 2016’s best dividend stocks to buy.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
