What are dividend investors looking for? The holy grail of dividend investing means stocks in strong companies that pay out a high dividend yield. The yield can provide a steady source of income every quarter which, investors hope, will increase over time. You can even reinvest the money back into the company to ramp up your shareholding.
Dividend stocks from financially healthy companies can also be a smart way to hedge your risk against more volatile stocks.
I used the powerful TipRanks stock screener to find the best dividend stocks with high yields (above 2.5%) that have a “Strong Buy” analyst consensus rating. The rating is based on the proportion of buy ratings the stock has received over the last three months. I looked across all sectors and at mega, large- and medium-cap companies.
Now let’s delve into the three top dividend stocks that provide the most compelling investment opportunities.
Dividend Stocks to Buy: Gilead Sciences (GILD)
Biotech giant Gilead Sciences, Inc. (NASDAQ:GILD) pays a stunning quarterly dividend of $0.52 — adding up to an impressive $2.08 per year.
GILD’s dividend program is only a couple of years old, but the payments are rising rapidly from the $0.43 starting sum. We can see that the stock has a 2.7% dividend yield — much higher than the healthcare sector average of just 1.5%.
Furthermore, note how the payout ratio is incredibly low at just 20.7% when calculated on GILD’s $2.5 earnings-per-share. In other words, the percentage of the company’s earnings paid out to investors as cash dividends is much lower than for most other dividend stocks. Good news for investors as extra profit can be reinvested in future growth, making this a safe bet for longer-term dividend strategies.
Gilead has seen prices almost halve over the last couple of years due to declining revenues from its flagship hepatitis C virus (HCV) drugs. However, shares are rising once more — and GILD is now up over $10 since the beginning of June. In fact, the stock has a Strong Buy consensus rating from the Street — with predicted upside potential of 9.9% from the current share price.
In particular, top Cowen & Co analyst Phil Nadeau reiterated his Buy rating with a bullish $90 price target (18.7% upside) on July 27. Based on current trends, Nadeau upped his 2017 HIV franchise estimate from $13.2 billion to $13.3 billion, saying:
“We are encouraged by GILD’s Q2 performance, though we suspect it is too early to confidently conclude the HCV business has stabilized. Nonetheless, our DCF analysis continues to suggest that GILD is undervalued.”
Dividend Stocks to Buy: Cypress Semiconductor (CY)
Thriving U.S. semiconductor manufacturer Cypress Semiconductor Corporation (NASDAQ:CY) has a 3% dividend yield, easily beating the 2% consumer goods sector average.
This translates into a quarterly payout of $0.11, so $0.44 per year. Unlike the vast majority of semiconductor stocks, CY has recorded dividend growth for the last six years. Note that the payout ratio is very high at just below 85%, which means that without growth there is a risk the payout will become unsustainable.
However, CY has seen its shares soar by over 25% in the first quarter of 2017. And it seems like further growth is on the cards as over the last four months, CY has received a string of buy ratings from top-ranked analysts. Analysts are excited by the fact that, following an exceptionally strong 1Q17, internet of things revenue hit a new high of $120 million in Q2.
Only six days ago, on July 28, Needham’s Rajvindra Gill reiterated his buy rating and upped his price target from $18 to $20. As the stock is currently trading at $14.16, this translates into huge upside potential of over 41%. TipRanks shows that Gill is one of the best analysts to trust — ranking him at #35 out of 4,625 tracked analysts. Gill comments:
“This quarter Cypress generated record revenue in its three key growth areas: IoT (internet of things), automotive, and USB-C solutions, capitalized on cross selling initiatives and continued to deliver on operational improvements … With an outsized earnings growth in 2018 of 46% we believe that Cypress deserves a 17x P/E multiple on our 2018 Non-GAAP EPS estimate of $1.15.”
Dividend Stocks to Buy: Crown Castle (CCI)
The third pick is major wireless infrastructure provider Crown Castle International Corp. (REIT) (NYSE:CCI). CCI brings in a very high dividend yield of 3.7% versus the sector average of just 2.1%. This means that CCI pays out a quarterly dividend of $0.95 with an impressive dividend growth of three years.
We can also see that Crown Castle, which operates as a real estate investment trust (REIT), has a very high payout ratio of almost 80%.
Top Macquarie analyst Amy Yong says CCI’s dividend payout is on the rise: “Management also expects to increase the dividend by US$0.15-0.20/sh p.a; our US$107 target implies a ~4% yield with the proposed increase. The long-term dividend growth target is now 7-8% from 6-7% previously.” Yong reiterated her buy rating on July 19 with a $107 price target.
And this hot stock certainly has the backing of the Street. In the last three months, CCI has reaped 8 buy and 1 hold ratings. Meanwhile, the average analyst price target of $109.29 suggests big upside potential of 8.2% from the current share price.
Five-star Oppenheimer analyst Timothy Horan has a buy rating and $109 price target on the stock. He praises the company’s Q2 results and acquisition strategy. CCI recently announced that it is snapping up Lightower for $7.1 billion, which should give CCI an extra 32,000 route miles of fiber in the Northeast of the U.S. Horan, who has an incredible 93% success rate and 12.6% average return on CCI specifically, says the deal should close by the end of the year.
Which stocks are the top 25 analysts recommending right now? Find out here.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.