For investors who crave volatility and high-risk investing … well, 2015 was your year. Risk-thirsty investors ran wild as momentum stocks like Netflix (NFLX) and Amazon (AMZN) more than doubled while Lumber Liquidators (LL) and GoPro (GPRO) tanked.
2015 wasn’t so great for investors looking for slow, reliable returns in dividend stocks.
The most notable story of all was how energy prices’ fall throughout the year knocked down the typically reliable oil and gas stocks, many of which not only lost value, but cut away their payouts. In addition to that, anticipation over the Federal Reserve hiking interest rates (which was finally green-lit late last year) helped knock down various yield-bearing assets as well.
But with the new year comes new opportunity.
The following three stocks didn’t really do too well in 2015, but they offer pretty good dividends, as well as a few compelling reasons why they should fare a little better in 2016.
Dividend Stocks: Dominion Resources, Inc. (D)
Dividend Yield: 3.8%
Utility companies are virtually legal monopolies that sell the most essential essentials: electricity, water and gas. The downside is that they’re basically capped on how much they can charge. The upshot of this is that they can very accurately predict future revenues and earnings.
Besides, that amount usually goes up a few percent each year, and because earnings are so predictable, many utilities can (and do) pay out large portions of their profits in the form of a dividend.
Take Dominion Resources (D), which pays out nearly 85% of its earnings as a dividend.
Dominion actually just hiked its dividend a few weeks ago, by 8% — an annual dividend growth total that Dominion is committed to for the rest of this decade.
Dominion is also one of the nation’s largest producers and transporters of energy while also operating one of the nation’s largest natural gas storage systems. Its three business units further help D reduce investor risk.
D shares — and most other utilities — faced hardships as the market priced in an eventual Fed rate hike. But the pain is priced in. After a double-digit loss in 2015, Dominion should experience a much more stable 2016, allowing investors to sit back and collect income without as much worry.
Dividend Stocks: HCP, Inc. (HCP)
Dividend Yield: 5.8%
HCP (HCP) is a real estate investment trust that only invests in healthcare-related buildings. Because of its REIT tax status, it must pay out 90% of its earnings in the form of a dividend — one that currently yields close to 6%.
REITs were another yield-bearing asset class that took a hammering in 2015. HCP ended the year off only a couple percent, but got there in shaky fashion — including declining about 10% off its 2015 highs.
Still, HCP should be fine in 2016 now that the rate hike is baked in.
HCP is a dividend aristocrat, meaning it has not only paid but increased dividends for at least a quarter-century without interruption. (HCP specifically has upped the ante on its payout for 30 straight years). It has done so through economic thick and thin, so there’s a reason to have a little confidence.
Plus, HCP is set up to benefit for decades to come as the baby boomers continue to retire by the thousands. HCP is diversified, owning buildings which house life science offices, nursing facilities, hospitals, other medical offices and senior living facilities. These properties are currently in demand — and that demand is rising — helping HCP produce high occupancy rates, high lease rates and long-term lease contracts.
An aging population and a nice, big dividend should make HCP a fine holding in 2016.
Dividend Stocks: The Coca-Cola Co (KO)
Dividend Yield: 3.1%
The Coca-Cola Company (KO) had a middling 2015, finishing flat despite its many gyrations. It has struggled as America’s war on sugary drinks has hampered its namesake brand, but perhaps 2016 will be a little kinder.
For one, Coca-Cola is a dividend aristocrat, with payout increases dating back to 1963. And we’re not talking about small, ceremonial hikes — the KO payout has improved by 50% over the past five years to its current 33 cents per share quarterly.
And despite the difficulties with its main cola brand, Coca-Cola has its fingers in so many other names, including Dasani, SmartWater, Honest Tea and Nos energy drinks — a diversified portfolio that should allow KO to pivot as both American and international tastes change.
Besides, for as unexciting as that flat finish was, KO still managed to beat out the broader market, and paid out more in dividends as a percentage, to boot.
Not the most explosive performance, sure — but boring and resilient amid broader-market troubles are traits you want in your dividend stocks.
As of this writing, Matt Thalman did not own shares of any company mentioned above. Follow him on Twitter at @mthalman5513.
