This week, the S&P 500 broke out to its highest level in nearly a year. With stocks once again near all-time highs, dividend stocks General Motors (GM), Valero Energy (VLO) and LyondellBasell (LYB) all still provide both major value and huge dividends.
General Motors (GM)
When it comes to dividend stocks with limited downside, GM may have the best example of a value floor in the entire market. Even with the market approaching all-time highs, GM currently trades at a forward P/E of just 5.0.
In addition, GM pays a hefty 5.0% dividend. Even if the market (and GM stock) fails to break out to new highs and stays in a sideways range, GM investors will be getting paid 5.0% to wait on the next leg up. That high yield looks even better now that the recent jobs report may have thrown a wrench into the Federal Reserve’s plan to raise interest rates again in June. Quality dividend stocks like GM are hard to find.
GM’s value creates an opportunity for traders outside of its dividend. The 17 Wall Street analysts currently covering GM see an average of 31% upside for the stock.
If you’re looking for a potential catalyst with low market expectations, electric cars could be GM’s next needle-mover. With GM’s Bolt EV set to begin shipping later this year, GM will likely beat Tesla Motors Inc (TSLA)’s Model 3 to the mass electric vehicle market by at least a year.
Finally, like the other two names mentioned below, GM’s stock is now even cheaper than it was a year ago.
Valero Energy (VLO)
Most investments in the oil industry are based on the idea of a long-term recovery in oil prices. However, refiners like VLO actually prefer the current low-price environment. In the past five years, VLO stock has more than doubled, but falling input costs and higher margins have allowed the stock to stay cheap from a value perspective.
Despite the surge in share price, VLO still trades for only 8.1 times forward earnings, one of the lowest multiples in the entire S&P 500. In addition to its cheap valuation, VLO is also one of the more generous dividend stocks, divvying out a 4.3% yield.
Much like GM, VLO investors don’t have to rely on that juicy dividend to make a buck. The 17 analysts currently covering VLO stock see an average upside of 34%.
It’s unlikely that oil prices will stay low forever. But back in March, Goldman Sachs analyst Neil Mehta noted that coastal refiners like VLO are much better-positioned in an environment of compressed differentials than their mid-continent peers.
LyondellBasell (LYB)
LYB is another relatively safe large-cap dividend value play for traders worried that the stock market has become over-extended. LYB currently trades at a forward P/E of only 8.3 and pays out a generous 4.1% dividend.
The 19 analysts covering LYB see an average upside of 17%, but RBC analyst Arun Viswanathan sees even more. RBC currently has an Outperform rating on LYB. Back in February, Viswanathan praised the company’s exposure to the North American shale gas boom, its impressive organic growth, its robust dividend yield and its aggressive share buyback program as major positives for investors.
Last year alone, LYB had $4.1 billion in share buybacks.
Disclosure: As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.
