While the market looks like it’s going to end the first calendar quarter of 2016 with a gain, it’s also pretty clear a valuation headwind is starting to blow again.
As such, investors looking to for stock-price appreciation are going to find little worth owning at this time. The smart-money move right now headed into the second quarter is seeking out high-dividend stocks to generate income and avoid the struggle growth stocks are apt to find in a low-growth environment.
But which high-dividend stocks are the best ones to own?
There are several quality names out there, but these eight — which range in yields from 3% to nearly 7% — should be at the top of any list of high-dividend stocks to consider before we get too deep into Q2, and too deep into a lethargic time of year.
Here they are, in order of yield …
High-Quality, High-Dividend Stocks to Buy: Wal-Mart Stores, Inc. (WMT)
WMT Dividend Yield: 3%
Walmart (WMT) isn’t a name too often included on a list of dividend stocks to buy, let alone a list of high-dividend stocks. In fact, last quarter’s disappointing results were a reminder that the world’s biggest retailer continues to face problems, not the least of which is the distinct possibility that the company is approaching a market-penetration plateau.
But, although it’s going through some serious overhaul pains, Walmart is reshaping itself to compete in 2016 and beyond. The centerpieces of that overhaul are a serious e-commerce effort, and an investment in employees.
In the meantime, with a current dividend yield of only 3%, it’s not like WMT is a real head-turner. Just bear in mind the company has a long, reliable history of dividend increases, and if Wal-Mart’s revamp efforts take hold, those increases may well be bigger than the market presently anticipates.
High-Quality, High-Dividend Stocks to Buy: Wells Fargo & Co (WFC)
WFC Dividend Yield: 3.1%
Wells Fargo (WFC) may not be a show-stopper with a dividend yield of 3.1%, but it’s a solid payout, and more important, it’s a payout that has been on the rise. Wells Fargo has steadily upped the dividend since the 1980s, and while that did get interrupted by the 2008-09 financial crisis with a cut to the payout, WFC resumed increases in 2012 and now has a payout greater than its pre-crisis peak.
It’s a quality dividend too, only taking about a third of the company’s typical net earnings, leaving plenty of room for turbulence, and payout growth.
Where WFC really shines, though, is in its quality of earnings. Its return on assets for each of the past three years was well over 1%, versus the industry norm of right around 1%. It’s a sign of just how well the company is run.
High-Quality, High-Dividend Stocks to Buy: AbbVie Inc (ABBV)
ABBV Dividend Yield: 4.1%
Those who know the AbbVie (ABBV) story well will know it’s exceedingly reliant on its flagship drug Humira, which accounts for more than 60% of its revenue. Although it recently won a patent victory against potential a potential rival drug from Amgen, Inc. (AMGN), other players like Germany’s The Merck Group are still forging ahead with biosimilar versions of the drug. The legal battle will almost certainly be waged against AbbVie again in the future.
So why has ABBV been added to a list of high-quality dividend stocks to buy? Because, since a 20% pullback from June’s highs, the worst-case scenario has already been priced in … and then some.
While Humira has competition brewing, AbbVie is much more than just Humira, even if the current revenue mix doesn’t reflect it yet. The pipeline is impressive, with venetoclax and ABT-494 standing ready to make waves.
Point being, the company has plenty of firepower to keep paying — and increasing — its dividend. It’s presently paying out 57 cents per quarter, translating into a yield of 4.1%.
High-Quality, High-Dividend Stocks to Buy: Weyerhaeuser Co (WY)
WY Dividend Yield: 4.1%
Weyerhaeuser (WY) isn’t exactly a household name, though odds are good every household has something in that ultimately came from Weyerhaeuser. The company grows timber that’s eventually turned into building lumber or turned into paper.
It’s not been an easy business to be in lately. Paper and timber prices have been under the same pressure most other commodities have been under for a while, and WY hasn’t been immune to that headwind. Weyerhaeuser shares are down nearly 20% from their early-2015 highs, and that’s with the 36% bounce since the February low.
Nevertheless, the errant pullback has beefed up the dividend yield to a healthy 4.1%, and though WY is still the victim of some doubts, most investors are now starting to realize the wood and paper industry is a little more resilient than it’s been given credit for.
The kicker: WY is doubly undervalued because in addition to the commodity rout sending shares lower, the expected implosion of construction activity also never materialized.
High-Quality, High-Dividend Stocks to Buy: Ford Motor Company (F)
F Dividend Yield: 4.6%
In mid-January, the idea of “peak auto sales” was first floated, suggesting that 2015’s record auto sales was as good as it’s going to get.
The logic of the premise made sense, more or less, save one facet… auto sales are linked to the economic cycle, and are not cyclical in and of themselves. If the U.S. and the world has yet to enter a recession, this year should be as strong for the auto market as 2015 was. Indeed, there’s a good chance the global economy — and China in particular — wiggles its way back into a mode of economic strength after a recent lull.
Enter Ford (F). Already in a downtrend from its mid-2014 peak, Ford shares fell 27% from their October high to their early February low, with the last segment of that pullback spurred by the idea of peak auto sales.
Big mistake. The end result is Ford shares valued at a trailing price-to-earnings ratio of 7.4 and a plausible forward-looking P/E of 6.6.
The dividend yield over 4% is just a little extra gravy.
High-Quality, High-Dividend Stocks to Buy: AT&T Inc. (T)
T Dividend Yield: 5%
In the shadow of its 16% gain since early January, it would be easy to assume the yield on new purchases of AT&T (T) would be too low to bother with.
But that’s not the case.
Even with the recent rally and foray into new multi-year-high territory, T is paying out dividends at a pace of 5%, arguably qualifying it as one of the market’s highest-quality high-dividend stocks.
The case against AT&T starts with posing the possibility that the wireless market is already crowded and highly competitive, with four key players all jockeying for the same (mostly) stagnant number of customers.
It’s an incomplete argument, however.
While it is true that stiff competition and a limited number of customers is forcing prices from all providers lower, AT&T simply has the size and funding to keep its lead in the wireless market, keeping it positioned to monetize those subscribers in other ways …
… which it seems like it is. The company is signed up for the upcoming FCC bandwidth auction, which it may well need to serve as the digital highway for a new 5G device. If AT&T can be one of the early names in 5G, it will cement its place as king of the hill.
High-Quality, High-Dividend Stocks to Buy: Monmouth R.E. Inv. Corp. (MNR)
MNR Dividend Yield: 5.6%
No good list of high-yielding dividend stocks would be complete without a real estate investment trust. The challenge is in finding a REIT that’s also a high-quality name; REITs have demonstrated they’re more than capable of finding their own special brand of headache over the course of the past year or so.
Monmouth Real Estate Investment Corp. (MNR) seems to be the exception to that norm. Even as other REITs have been struggling, MNR has been on the rise, up 8% year-to-date, and up 245% since its September low. Yet, even with the big gain, Monmouth is still offering a yield of 5.56%. It’s paid reliably too, going on 17 years now.
But what makes MNR different? It’s an industrial REIT, renting space to business rather than people. Like residential, it’s a cyclical business, but the ebbs and flows aren’t nearly as wild as they are for individuals.
Just to paint a picture of the caliber of tenants Monmouth Real Estate Investment Corp. attracts, as of earlier this month it’s leasing another 125,000 square feet to none other than General Electric Company (GE).
High-Quality, High-Dividend Stocks to Buy: British American Tobacco PLC (ADR) (BTI)
BTI Dividend Yield: 6%
Finally, income-seekers on the hunt for high-quality, high-dividend stocks may want to take a closer look at British American Tobacco (BTI).
It’s cliche to tout a cigarette maker as a way to secure reliable revenue. Nicotine is addictive, and besides, the war on smoking has been taken up a notch by the advent of e-cigarettes. Yet, there it is… British American Tobacco continues to ramp up its net income, even as revenue dwindles.
The company is fighting a losing battle, of course; there’s no justifiable (net) reason anyone should smoke, and even smokers know it. It’s going to be a long while before that headwind actually starts to crimp the current dividend yield of 6%.
Only two-thirds of its net income is currently passed along to shareholders as dividends, and the company has been hyper-reliable about upping its payout for decades now.
As of this writing, James Brumley held a position in T.