Near the end of March, the Dow Jones Industrial Average broke its worst losing streak since 2011. Yep, that’s right. If you’re not a frequent trader, you may not have realized the index had fallen for eight straight sessions. But the quiet pullback did have its upside — it gave investors the chance to buy some of the best dividend stocks for a little cheaper than they’d been trading.
But even though we’re past March and the streak has been snapped, the market is still presenting us with value opportunities. A number of high-quality dividend stocks — including several yielding north of 3% — are trading at enough of a discount that you should start considering initiating new positions (or adding to what you already have).
Real estate investment trusts (REITs) and master limited partnerships (MLPs) are especially discounted right now, but we’ve dug through other sectors as well. In this environment, stock-picking can be tough, given the number of stocks trading near or at record highs.
Right now, we’re looking for high yields that will generate return for us in the event that stocks trade flat or lower for the foreseeable future … but without investing in anything that has a high chance of getting clobbered and cancelling out all that income.
This list of the 11 best dividend stocks to buy not only offer good to great yields, but all of them are projected to grow their earnings this year — an indication that each of these picks is headed in the right direction.
Let’s take a look. In no particular order …
Dividend Yield: 4.3%
Self-billed as “The Monthly Dividend Company,” Realty Income Corp (NYSE:O) has become one of the most consistent dividend stocks in most income investors’ portfolios.
That doesn’t need a qualifier such as “among REITs.” Realty Income is a top performer among all kinds of stocks, returning more than 106% over the past 10 years, and more than 582% since its IPO. That’s not via breakneck momentum, but just consistent growth — not only in the price of the stock, but also its dividends.
Consider this: O stock has paid a dividend for 560 consecutive months (46 years) and has raised its dividend for 78 consecutive quarters. With that kind of consistency, who wouldn’t want to own Realty? It would be like getting a consistent quarterly raise at your day job.
Two small negatives to point out: Realty Income’s dividend of 4.3% is below what a number of other REITs pay, and it sports an above-average valuation of 18x price/funds from operations. However, investors should be more than OK with that because Realty Income is one of a very few blue-chip REITs that offer best-in-class earnings and dividend consistency. Translation: It has earned a premium.
Some investors are worried that rising interest rates will be bad for Realty. I would argue the opposite is true. While it may keep pressure on the stock in 2017, rising rates indicate an improving economy. A stronger consumer and growing economy is great news for REITs like O, which already sport can’t-miss tenants like Walgreens Boots Alliance Inc (NASDAQ:WBA) and LA Fitness.
If Realty Income declines a few percent to the mid-$50s, snap it up and don’t look back.
Dividend Yield: 4.5%
General Motors Company (NYSE:GM) leaves a bad taste in many investors’ mouths, as some still regard GM as “Government Motors” and refuse to forgive the automaker for its bankruptcy. Others will consider it a value trap or a company pressured by “peak auto.”
But General Motors is different than Ford.
A few weeks ago, Ford cut its guidance for next quarter, saying it expects weaker earnings. Conversely, GM recently said it expects its full-year earnings to be strong, between $6 and $6.50 per share. General Motors also guided for U.S. light-vehicle sales of 17.5 million units, down only slightly from last year’s record 17.55 million units. While auto sales may not be growing like they have been over the past few years, it doesn’t mean they’re tanking either.
The end result is GM pulling in cash like crazy while becoming outrageously undervalued.
Unless the U.S. falls into a prolonged recession, it’s likely that GM will continue to do well. If that’s the case, its earnings and cash flow will be fine. That will justify the company’s buyback and support its 4.5% dividend yield. Investors looking for a tactical entry could buy General Motors at the stock’s 200-day moving average near $33. But considering GM trades for just 5.5 times next year’s earnings, you don’t really have to wait.
Dividend Yield: 3.2%
Paychex, Inc. (NASDAQ:PAYX) specializes in payroll processing, human resources, insurance and other outsourcing solutions for small- and medium-sized businesses.
It also become a controversial stock after its latest pullback.
While the company beat earnings estimates at the end of March, revenues missed expectations. The CEO says the change in state and federal regulations has caused a pause in hiring. These comments came in late March, which were somewhat validated by the weak jobs report for the month.
However, the CEO also said he expects hiring to pick up pace later in the year. Additionally, rate hikes from the Federal Reserve actually boost PAYX’s bottom line. Increased confusion around regulations should also help the company’s HR business. Although the pause in hiring has a negative impact in the short-term, it should be a benefit longer-term.
Shares have pulled back toward support near $57.50, although the stock has broken below its 200-day moving average. Over the past year, these dips have not lasted long, and a rebound north of the 200-day MA seems likely.
Even traders could consider buying PAYX for a short-term swing with defined support. But considering the stock’s 3.2% yield, it makes for a solid investment — especially if jobs growth re-accelerates going forward.
Dividend Yield: 3.2%
General Electric Company (NYSE:GE) is another dividend stock that has irked some for its past transgressions, but it also should be on investors’ go-to list regardless. GE has traded roughly flat over the past 12 months — a lull that’s giving investors time to buy in while Wall Street catches up with the improving operational picture.
General Electric was bogged down by regulations and sluggish growth tied to its financial banking business. But once the company spun off Synchrony Financial (NYSE:SYF) and made some other moves, it gained breathing room. Not only is SYF up 44% since the atypical spinoff, it’s also up 18% over the past year. This alone has created plenty of value for shareholders who participated.
Meanwhile, GE has been able to refocus its efforts on growth.
The industrial giant is returning to its roots, putting its time and money back into aerospace, energy, power, water, healthcare and more. Not only do these businesses present better growth, but they also allow for higher margins.
GE stock looks expensive at 33 times last year’s earnings, but it’s expected to grow earnings per share by 9.5% this year and 16.5% next. Thus, it only trades at 15 times 2018 EPS. And while revenues are forecast to grow just 1.3% this year, analysts are looking for sales to expand by 6.6% in 2018.
I expect shares to lull over the next few months. But as investors start to look toward forward catalysts and the buyback picks up speed, GE could be one of the best dividend stocks that nobody (well, almost nobody) saw coming.
Distribution Yield: 5.9%
Enterprise Products Partners L.P. (NYSE:EPD) manages natural gas processing plants and transports natural gas and oil, among other businesses. And at a roughly 6% yield, this MLP should throw off enough in distributions to satisfy most income investors.
These pipeline stocks are the type that investors own for the yield. But when buying high-quality properties, investors increase the odds that their investment will also generate a gain. EPD is one of those very high-quality companies.
First consider that in 2016, EPD recorded a roughly 15% drop in revenues. However, its net income was virtually unchanged, whiled its distributable cash flow actually increased.
For 2017 and 2018, analysts expect roughly 12% sales growth. On the earnings front, forecasts call for 15.8% growth in 2017 and 11.5% growth in 2018. EPD can easily raise its dividend over the next few years, even if growth were to slow to a crawl.
Throw in the relaxed regulatory environment, and the path forward for MLPs is about to become even easier.
Love Trump or hate Trump, a pro-pipeline president is good for EPD.
Distribution Yield: 4.4%
In fact, the outlook for MLPs is so promising, we’re including another high-quality pipeline operator — Magellan Midstream Partners, L.P. (NYSE:MMP).
Like we said before, many investors are drawn to MLPs for their hefty payouts. But going with high-quality partnerships — even if their yields, like Magellan’s, aren’t as robust as EPD’s — has many advantages. For starters, swoons in the energy market are better-weathered by these high-quality players. Second, when the storm comes, these are the companies most likely to maintain their lofty payouts (or at least not cut them by as much).
Finally — and maybe this is an easy one — high-quality MLPs give investors the best chance at turning a profit. It may be tempting to chase a high yield of around 8% or 9%. But premium MLPs have more secure payouts and have a better chance at generating long-term gains.
When it comes to high quality, not many top MMP. Its refined products segment (like gasoline) accounts for almost half its revenue and diversifies it away from oil. That’s not to say oil isn’t a valuable product to move via pipe. Instead, it gives Magellan a product mix that helps shield it from the ups and down of the oil market.
As the U.S. becomes more dependent on domestic oil, that’s sure to benefit MMP and other pipelines. But in a similar manner, as traveling picks up pace, that too will benefit Magellan and its refined products business.
And not to sound like a broken record, but a pro-pipeline, pro-domestic-oil president gives MMP even more appeal.
Dividend Yield: 4.9%
Can you really talk about the best dividend stocks without mentioning AT&T Inc. (NYSE:T)? Most income investors are plenty familiar with AT&T, what with its generous yield and a history of consistency.
In fact, AT&T really is all about the dividend, which the company has paid through thick and thin. Over the past 30 years, T has increased its quarterly payout 12-fold and never skipped a payment.
Naturally, there’s not a ton of growth in what is a very saturated U.S. telecommunications market. Shares are up just 3% over the past 10 years, though a more respectable 31% over the past five. They’re not monstrous gains, but throw in (conservatively) 400 basis points of annual performance in the dividend, and the returns start to look more impressive.
The point is that buying AT&T isn’t about squeezing out big-time capital gains. This is the quintessential slow-and-steady stock for the long term. Set it up as a DRIP stock or pocket the dividends each quarter. It’s up to you.
Don’t give up on the idea of growth entirely, though. The acquisitions of Time Warner Inc (NYSE:TWX) and DirecTV are all meant to drive growth going forward. The wireless business is a good one. But given AT&T’s conglomerate nature, management felt it was best to expand. With a $250 billion market cap, that meant M&A time.
Despite the burdensome load of debt it used for these deals, T remains a solid pick. Although investors wouldn’t be faulted for waiting for a pullback in order to get a 5% yield.
Dividend Yield: 4.8%
You can’t mention AT&T without talking about Verizon Communications Inc. (NYSE:VZ). And while both stocks have many similarities — including their core business and near-5% yields — they do have important differences.
For instance, while T has put together mega-deals for Time Warner and Dish, Verizon’s M&A has been decidedly less exciting … on the surface.
VZ acquired AOL for $4.4 billion in 2015 and is in the process of buying Yahoo! Inc. (NASDAQ:YHOO) for what should be roughly $4.5 billion. In a less-publicized deal, Verizon also acquired Fleetmatics for $2.4 billion in 2016. A combined total of $11.3 billion is nothing to sneeze at, though it’s nothing compared to the $85 billion-plus AT&T spent on Time Warner, or the $48.5 billion it doled out for DirecTV.
While Verizon is playing it conservatively (a plus for most dividend investors), there are a couple things to watch.
First, remember that the Federal Reserve is trying to raise interest rates. Historically, rising rates are bad for dividend-paying stocks as they now have to “compete” against bonds for investors’ dollars. Second, T-Mobile US Inc (NASDAQ:TMUS) and others aren’t making life easy. The unlimited data offers have forced VZ and T into the same game, which could hurt their margins in the short-term.
But that doesn’t mean you should avoid Verizon or AT&T. If anything, you should consider buying in chunks throughout the year, which will allow you to lower your cost basis on declines — and get yourself better yields on costs.
One final note: Verizon is the exception to our rule in that analysts expect a slight decrease in earnings to 0.8%. But that’s a trend that should reverse soon, and Verizon’s dominant position in telecom makes it bulletproof regardless.
Distribution Yield: 5%
Here’s a fun one (pun intended).
Cedar Fair, L.P. (NYSE:FUN) operates amusement parks (including thrill park Cedar Point), water parks and hotels around the country. It’s a hot destination for families, teens and young adults and surely during students’ summer break.
And while FUN seems like fun and games, its financials are no joke. Net income soared in 2016, climbing to $177 million, up 58% from the $112 million in the year prior. As a result, earnings per share climbed 45% to $3.30 last year. But don’t worry, a decline isn’t in the forecast. Analysts expect Cedar Fair to grow earnings another 14% or so this year, then 7.8% growth in 2018. Revenues are expected to grow ~5% in 2017 and ~4% in 2018.
Cedar Fair’s valuation of around 18 times next year’s earnings is a little less attractive. So here, I’d prefer waiting on a pullback before buying. Specifically, a 10% decline in shares would satisfy me from a value standpoint … and bump the yield up to 5.5% on cost.
One note on timing: The stock tends to top around late spring to early summer. That doesn’t mean FUN will tank without question, but it is something to be aware of. That’s why, without a pullback, this one is hard to chase without better risk-reward.
On a dip, though, FUN is one of my favorite dividend stocks to buy and hold.
Dividend Yield: 3.4%
Shares of Altria Group Inc (NYSE:MO) are still 16% above their November lows. But the stock’s recent 8% pullback has investors paying attention. It’s hard to say which way it goes next, as MO sits right between its 50-day and 100-day moving averages.
That doesn’t mean we should avoid it, though. MO currently sports a 3.4% dividend yield and has been a consistent payer. Shares fell off a cliff in 2008. But over the past eight years, MO has climbed some 434% — and that doesn’t include the dividend!
Analysts expect MO to grow earnings 9% this year and 8% next year on 2.3% and 1.9% revenue growth, respectively. While somewhat un-extraordinary, the expectations are quite consistent. There are stocks to own for growth and there are stocks to own for consistency. MO fits the latter.
However, just as smoking can be a turnoff in real life, it can be in investing too. Altria produces smokable products, smokeless products and wine. It’s a tobacco stock and for some investors, that will make it a no-touch.
Altria isn’t for everybody, there’s no fault or doubt in that. But if you can look through the smoke, investors will see a consistent earner with a consistent dividend.
Dividend Yield: 4%
Admittedly, Chevron isn’t the prettiest-looking stock in the world right now. But the company does have a few things going for it.
For one, there are the charts — strong support sits between $102 and $105. That’s about 5% away from current prices. However, if oil regains its mojo — and for the moment, it has — then this could propel CVX higher. Some have even called for new highs north of $120 if Chevron can pick up momentum and clear resistance. The two mostly go hand in hand. Still, if CVX can breakout from its downward trend, it could rally hard.
More fundamentally, though, an oil company is one of the many likely to benefit in a world where regulations are falling left and right. The fact that its CEO is still looking at the Permian for more growth is good too.
While admittedly buying Permian assets has definitely become more expensive, investors are sure to cheer a move into this region. Meanwhile, you have a comfortable 4% dividend to keep you in regular income.
Bret Kenwell is the manager and author of Future Blue Chips. He can be contacted on Twitter via @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.