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5 Top Dividend Stocks to Cast Out a Sell-in-May Spell

Market returns justify the popular “Sell in May” adage. Broader markets traditionally post meager returns in the May-October period, thanks to lower trading volumes in summer, while the November-April period witnesses a substantial increase in investments.

5 Top Dividend Stocks to Cast Out a Sell-in-May SpellOf late, stock gains have been muted by a series of tepid U.S. economic reports, with the only exception being tech stocks. The tech-laden NASDAQ Composite closed at a record high, crossing the 6000 barrier.

However, we shouldn’t expect things to be as rosy as in 1999, when the index had gone beyond the 5000 mark buoyed by the tech bubble. Sadly, it had taken just a few years for the index to plunge to a low of 1,108.49 after the bubble burst.

Since the election, the markets have been riding high on President Trump’s tax reform policies. The White House rolled out the opening salvo of Trump’s massive tax cut plan, but, the one-page set of bullet points lacked specifics, a sheer disappointment for investors.

At the same time, there are two primary factors plaguing the stock market. Oil prices look weak, a major drag on energy shares, while U.S. treasury yields losing all of its post-election gains aren’t looking beneficial for banking stocks right now. In the wake of this, investing in companies that pay consistent dividends can make for wonderful investments. Such companies are financially stable and mature, and can even generate steady cash flow irrespective of market conditions.

A Slew of Weak Economic Reports

Stock gains may have been muted by a series of tepid U.S. economic reports. The economy saw the slowest growth in the first quarter in over three years, while construction spending slipped from record highs in March and U.S. factory activity cooled off a bit in April. To top it, consumer confidence lagged last month levels as Americans lost faith in the economy.

US Economy Saw Weakest Growth in 3 Years

U.S. economy in the first quarter pointed to weakest growth in three years, owing to the slightest increase in consumer spending since the end of 2009 and a slowdown in the pace of inventory investment. As per the Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 0.7% in the first quarter of 2017, less than the consensus expectation of 1.2%. The last quarter of 2016 recorded real GDP growth of 2.1%.

The slowdown in first-quarter GDP growth is primarily attributable to sluggish consumer spending. Consumer spending increased 0.3%, marking the smallest increase since the last quarter of 2009. Number of purchases of durable goods, including big-ticket items, such as cars and refrigerators declined. Spending on services also recorded the slowest growth in four years. Government spending at state and local levels also declined 1.7%, marking its steepest fall in four years.

Construction Spending Slips, Manufacturing Expansion Slows

Pause in construction investment after five straight months of increases led to decline in construction spending in March. Less spending in the nonresidential and government sectors led to the decline. According to the Commerce Department, construction outlays slipped 0.2% in March, in contrast to analysts’ expected increase of 0.4%.

Economic activity in the manufacturing industry didn’t expand as much as economists had anticipated for the month of April. The nation’s factory activity dropped to 54.8 in April, the weakest since December, as per the Institute for Supply Management. U.S. manufacturers scaled back hiring while demand for new products ebbed.

Consumers Lag Confidence

The degree of optimism that consumers feel about the overall state of the economy and their personal financial situation also took a beating last month. The consumer confidence index fell to 120.3 in April, while economists were expecting the index to fall to only 122.9.

Consumers’ assessment of current economic conditions dipped in April as lesser number of investors believed that business conditions are “good”. Individuals that believe that business conditions are “good’ declined to 30.2% in April from 32.4%, while those who deemed conditions as ”bad’ increased to 13.8% from 13.1%. Consumers’ outlook for the labor market also declined to 23% from 23.8%.

Trump’s Tax Plan Lacks Detail

The highly anticipated Trump’s tax plan missed a number of important details. This bothered investors and also led to weakness in the broader markets. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn laid out the plan that calls for three new income-tax brackets, with rates of 10%, 25% and 35%, down from the current seven brackets. But, it does not specify the income levels associated with each bracket.

Another vital detail miss is pertaining to the repatriation tax. The one-time tax will permit companies to bring overseas profits back into the U.S. at a lower tax rate. In this regard, the new plan does not provide any detail, unlike the earlier proposal that levied a 5.25% tax on money returning to the country.

5 Safe Dividend Stocks for May

Dealing with dividend stocks is the best practice during uncertain times. Top dividend stocks pay out a healthy yield and have strong prospects, and are less susceptible to market downturns. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.

While finding companies that offer these traits isn’t easy, they certainly do exist. To help you find such businesses, we have selected five dividend payers who have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

AllianceBernstein Holding LP (NYSE:AB) is engaged in providing research, investment management and related services to a range of clients. The company has a Zacks Rank #1 and a VGM score of ‘A’. AllianceBernstein has a dividend yield of 11.7%, while its five-year average dividend yield is pegged at 11.75%.

The company is likely to yield a return of 7.1% this year, higher than the Financial – Investment Management industry’s estimated gain of 7%.

Potlatch Corporation (NASDAQ:PCH) is a real estate investment trust. The company has a Zacks Rank #1 and a VGM score of ‘B’. Potlatch has a dividend yield of 3.33%, while its five-year average dividend yield is pegged at 11.75%.

The company is likely to yield a return of 44% this year, more than the Building Products – Wood industry’s projected increase of 5.27%.

Unitil Corporation (NYSE:UTL) engages in the distribution of electricity and natural gas in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘A’. Unitil has a dividend yield of 2.97%, while its five-year average dividend yield is pegged at 0.83%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is likely to yield a return of 7.7% this year, better than the Utility – Electric Power industry’s estimated gain of 5.4%.

Best Buy Co Inc (NYSE:BBY) is a provider of technology products, services and solutions. The company has a Zacks Rank #2 and a VGM score of ‘A’. Best Buy has a dividend yield of 2.62%, while its five-year average dividend yield is pegged at 14.22%.

The company is likely to yield a return of 3.8% this year, in contrast to the Retail – Consumer Electronics industry’s projected negative return of 3.5%.

Lazard Ltd (NYSE:LAZ) is a financial advisory and asset management company. The company has a Zacks Rank #2 and a VGM score of ‘A’. Lazard has a dividend yield of 3.54%, while its five-year average dividend yield is pegged at 16.55%.

The company is likely to yield a return of 8.3% this year, better than the Financial – Investment Management industry’s estimated rise of 7%.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 “”Strong Buys”” free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 “”Strong Sells.”” Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market.

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UNITIL Corporation (UTL): Free Stock Analysis Report

Potlatch Corporation (PCH): Free Stock Analysis Report

Lazard Ltd. (LAZ): Free Stock Analysis Report

AllianceBernstein Holding L.P. (AB): Free Stock Analysis Report

Best Buy Co., Inc. (BBY): Free Stock Analysis Report

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