Bear markets aren’t a lot of fun to live through. In fact, I’m actually losing a little sleep over the current one. For whatever reason, this bear market just feels nastier than some of the others I’ve been through.
But the nice aspect of a bear market is that dividend stocks you might normally have considered too expensive to buy suddenly look like a bargain. If you’re brave enough, you can buy your favorite dividend stocks at bargain basement prices and effectively “lock in” very solid dividend yields.
I have to write “lock in” in quotation marks, of course, as there is really no such thing as a guaranteed dividend. Dividends can get cut in a hurry, and an exceptionally high yield is often a prelude to exactly that. So, common sense rules apply here. We’re looking for quality companies that are suddenly a bargain, not cheap garbage that gets cheaper.
So, with no more ado, let’s take a look at seven dividend stocks that have gone on sale of late. I would consider all of them viable options for a diversified dividend portfolio.
Dividend Stocks: StoneMor Partners (STON)
There is nothing certain in life but death and taxes. Well, Stonemor Partners (STON) seeks to profit from the first and avoid the second.
That needs a little explaining: StoneMor is a publicly-traded cemetery. And while that might be somewhat morbid, it’s a fantastic business model. Funeral and burial services (including cremation) are unavoidable expenses, and not ones that heirs are likely to skimp on. Furthermore, with the aging of the baby boomers, business is about to get kicked into overdrive. The number of annual deaths in America is expected to grow by about 80% between now and 2035, meaning that StoneMor has two decades of growth practically baked in.
We’ve covered death; now for taxes. StoneMor is structured as a master limited partnership (“MLP”), a structure that is somewhat rare outside of the oil and gas sector. Being an MLP means that StoneMor is required to pass on nearly all of its profits in the form of distributions in order to escape taxes at the company level. As a result, StoneMor pays a fat yield of just over 10%.
Despite its low-volatility business, StoneMor has been a high-volatility stock. Its price has sagged from more than $32 to just $26.25 today. Don’t sweat it; this is the sort of volatility that comes with the turf when you buy smaller-cap stocks. Just keep cashing the distribution checks, and ride out the price swings.
Dividend Stocks: STAG Industrial (STAG)
Up next is one of my favorite REITs, STAG Industrial (STAG). STAG stands for “Single Tenant Acquisition Group,” and this is pretty good synopsis of what the REIT does. STAG primarily buys stand-alone light manufacturing and logistical centers and then mostly just sits back and collects the rent checks.
Continuing to sink toward $16, STAG is trading close to its 52-week low. At one point last year, it was trading for more than $27 per share. The selloff in STAG’s shares has been brutal to say the least. They also appear to have very little to do with developments in STAG’s business. Since its 2011 IPO, STAG has managed to grow its funds from operations (FFO), an earnings measure favored by REITs, by a full 9% per year.
No, the selloff has more to do with STAG’s smaller size. STAG’s market cap is just $1.1 billion, and small caps in general have gotten smashed over the past year. Some of this is fear of the Fed’s tightening, and some of it is just a matter of investors shunning risk by avoiding smaller companies. But as a result of STAG’s share price dip, its dividend yield has now soared above 8%.
You want another bonus? STAG’s dividend is paid monthly rather than quarterly, making it a nice retirement stock.
Dividend Stocks: Enterprise Products Partners (EPD)
I’m probably risking an actual fist fight by having the audacity to recommend a midstream master limited partnership. These have become the proverbial red-headed stepchild of the stock market. Long touted for their high distributions, tax efficiency and lack of exposure to energy prices, they were supposed to be bulletproof.
But then we had a proper energy crisis, and we found out that these had a lot more sensitivity than we all realized. They were also overleveraged after years of easy money policy by the Fed.
The sector has been in a tailspin ever since Kinder Morgan (KMI) cut its dividend late last year. Well, I can confidently say that Enterprise Products (EPD) will not be cutting its distribution any time soon. In fact, it recently hiked its distribution … just as it has every single quarter since 2004.
Enterprise Products is a champion among dividend stocks, and today it yields 7.3%. Enterprise Products isn’t nearly as aggressive as a lot of its peers, and its leverage is low enough to ride out whatever might happen next with the prices of oil and gas. It’s getting dragged down by negative sentiment towards the entire sector … which creates a spectacular opportunity for the rest of us.
Dividend Stocks: General Motors (GM)
I really don’t know what investors want to see from General Motors (GM). The company had one of its best years in history in 2015, and yet the stock finishes the year down sharply from its highs. GM traded as high as $38.99 last year. Today, it trades for $30 and yields a fat 4.8%. Early this year, GM raised its dividend by about 6% and massively increased its share repurchase plan.
Looking at operations, GM is going through a major overhaul of several popular car models, which is generally a prelude to higher sales.
Yet GM stock gets no love. It seems that investors are fixated on the risks posed by a slowdown in China.
Well, this is my view: GM is priced to deliver decent enough returns no matter what happens in China. The shares trade hands at 5 times this year’s expected earnings and 0.3 times sales. At that price, it’s hard to imagine really losing money here. GM is a dividend bargain.
Dividend Stocks: Apple (AAPL)
Consumer electronics leader Apple (AAPL) might seem like a strange addition on a list of dividend stocks given that its yield is just 2%. But given Apple’s reputation as a dividend grower, I’d say it can hold its own on any dividend stock list. And you certainly can’t argue that it’s not a bargain. At one point last year, the stock fetched $134 per share. Today, it doesn’t even trade for $100.
In a nutshell, a lot of investors are worried that the day we feared — the day that iPhone sales started to sag — is finally here. For all of Apple’s efforts to create popular new products, it is still first and foremost an iPhone company.
I’m not too worried about it, though. In a broadly overpriced market, Apple is one of the few truly cheap stocks out there. It trades at just 9 times next year’s expected earnings. And that says nothing of Apple’s massive cash hoard, which was more than $200 billion as of last reporting period. Nearly 40% of Apple’s market cap is cash in the bank.
I don’t know when sentiment will turn friendly to Apple again. But I do know that the company is ridiculously cheap at these levels.
Dividend Stocks: Telefonica (TEF)
It seems like so long ago, but there was a time when Spanish telecom giant Telefonica (TEF) could do no wrong. It was one of the leading mobile phone and internet companies in Europe and Latin America, a serial dividend raiser and a generally great stock to own.
Well, after a European debt crisis, major political and economic upheaval in Latin America, and a seizing of the capital markets that forced the company to suspend its dividend for a time, there aren’t too many investors that are keen on Telefonica these days.
That’s a mistake. At today’s prices, Telefonica trades for just 0.8 times sales while yielding almost 8%.
Sure, mobile phones are largely a saturated market at this point, and competition is fierce. But there is no justifiable reason for Telefonica to trade at a more than 30% discount to AT&T (T).
The perfect storm that sapped Telefonica — a strong dollar, emerging market chaos and political woes in Europe — won’t last forever. And while we’re waiting, we’re getting paid quite handsomely.
Dividend Stocks: Energy Transfer Equity (ETE)
And finally, I’ll leave you with a more speculative recommendation, midstream MLP Energy Transfer Equity (ETE). Energy Transfer was the growth dynamo of the MLP space going into last year, and its merger with rival Williams Companies (WMB), expected to be completed within a quarter, will make it the largest midstream pipeline company in North America — even bigger than Kinder Morgan and Enterprise Products.
The issue is financing. Energy Transfer has never had difficulty accessing the debt and equity markets, but this is a truly nasty time for the MLP space, and financing on reasonable terms is hard to come by. This has spread fears that ETE might have to temporarily lower or suspend its dividend in order to finance the Williams takeover.
My take on this?
If that is what it takes, so be it. As I’m writing this, the yield is a gargantuan 15%. At this point, ETE could slash its dividend in half and still have one of the highest dividend yields amount large-cap companies. And once the merger with Williams is consolidated, the combined entity will be a midstream powerhouse. Patient investors will be glad they waited it out.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL, EPD, ETE, GM, TEF, STAG and STON.