5 Dividend Stocks to Buy and Hold for a Rocky Market

Sleep well throughout this market using these stocks for cushions

This year’s rollercoaster action makes it tough to gauge what will happen next. With the S&P 500 down nearly 8% and gas prices and unemployment hitting decade lows, it’s also a market where value-hunting income investors want to have at least some exposure. After all, the economy was strong enough to earn a small interest rate hike at the end of last year.

To enter this market with minimum risk, you need cheap stocks (from a valuation standpoint) that pay you, rather than the other way around. Yes, I’m talking about dividend stocks:

Company Industry Dividend Forward P/E
General Motors (GM) Consumer Goods 5.3% 5.4
Seagate Technology (STX) Tech 8.2% 7.4
Merck (MRK) Healthcare 3.7% 13.5
ConocoPhillips (COP) Energy 7.8% N/A
Blackstone (BX) Financial 13.1% 7.9

If you bought each of the above five stocks, you would have exposure to the six major sectors of the market at a rather significant discount. Valuation is what makes these stocks so attractive, as each are very cheap, but with market-best dividends to boot.

You need something to hedge against loss in a down market, and the two best hedges are cash and dividends. A $20,000 investment into each of these companies would create a yield of 7.6% over the next year, that’s an immediate cushion of 7.6%. In other words, the market would have to fall another 7.6% over the course of the year before you would end up with a loss.

Given that the market has already fallen by such a significant degree, this is rather good bet.

Dividend Stocks to Buy: General Motors Company (GM)

Dividend Stocks to Buy: General Motors Company (GM)Dividend Yield: 5.3%

Beyond valuation and yield, there are specific reasons that each of these six stocks are superior to others.

General Motors and Ford (F), for instance, are both solid automakers with similar dividend yields. Therefore, it comes down to preference.

I choose GM over F because of Ford’s outlook, which involves a $5 billion investment in electric cars and a plan to have 40% of its lineup electric by 2020. In my opinion, that may be too big of a bet on what is currently a niche market.

GM, however, recently invested $500 million in ride-sharing service Lyft and launched a car-sharing program called Maven. I think GM’s investments in car-sharing, ride-sharing and mobility in general are superior and safer than Ford’s larger investment in electric cars.

Dividend Stocks to Buy: Seagate Technology PLC (STX)

Dividend Stocks to Buy: Seagate Technology PLC (STX)Dividend Yield: 8.2%

While Seagate’s core HDD market is deteriorating due to the decline in PC sales, it is still one of two major players in a high-margin industry.

Furthermore, Seagate has continuously diversified its business with new types of storage products, and what I like about STX is the company’s ability to reinvent itself.

Remember, Seagate used to create essentially all of its revenue from PC-related applications, six to seven years ago. But today, it creates about 40% of revenue from PC apps. That ability to innovate, and reinvent itself is why I like STX, along with its valuation and dividend.

Dividend Stocks to Buy: Merck & Co., Inc. (MRK)

Dividend Stocks to Buy: Merck & Co., Inc. (MRK)Dividend Yield: 3.7%

I don’t like how biotech is performing, but Merck is Big Pharma, and it’s expecting $40 billion in revenue this year to back that claim up.

After suffering patent losses last year, Merck is once more expected to achieve revenue and earnings per-share growth this year.

Given its very attractive multiples relative to the sector, MRK is a safe bet for even the most wary investor.

Dividend Stocks to Buy: ConocoPhillips (COP)

Dividend Stocks to Buy: ConocoPhillips (COP)Dividend Yield: 7.8%

I recently explained why I don’t like energy stocks right now, comparing the crisis in oil prices to that of the housing collapse of 2008/2009. However, I’ll make an exception for COP because its capital expenditures and total debt has actually trended lower over the last 10 years.

Unlike most large energy companies, ConocoPhillips has kept its spending in check, and has chosen not to bull rush the debt markets during an era of historically high oil prices. This bodes well for COP now in a low oil price environment.

And while COP has a business model that clearly struggles with low oil prices, I think it can weather the storm for longer periods of time. Further, if in fact oil prices have reached a bottom, COP should recover nicely.

ConocoPhillips is obviously nice for its massive dividend, but there’s also a great business model beyond the high payout.

Dividend Stocks to Buy: Blackstone Group LP (BX)

Dividend Stocks to Buy: Blackstone Group LP (BX)Dividend Yield: 13.1%

Blackstone is a $30 billion global, investment manager, much like a bank without the consumer banking business. During its last quarter, assets under management rose 14% to $246 billion, which is quite impressive given the current environment and the preference toward online brokerages.

Blackstone’s expertise in providing credit investments to businesses (along with private equity and real estate investments) make it diverse, but also gives it exposure to the opportunities within the financial markets.

When coupled with a 13% yield trading at just eight times forward earnings, BX is a top financial stock.

As of this writing, Brian Nichols owns shares of General Motors and Seagate Technology.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/dividend-stocks-gm-cop-bx/.

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