The 10 Best Dividend Stocks for Q4 and Beyond

dividend stocks - The 10 Best Dividend Stocks for Q4 and Beyond

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It’s hard to believe, but the fourth quarter is already upon us. 2017 has been a mixed year for many dividend stocks. While the market has been pushing higher since last November, sectors you would traditionally think of as dividend stocks have mostly languished.

The 10 Best Dividend Stocks for Q4 and Beyond

The S&P 500 is up over 15% since the election. But REITs (real estate investment trusts) — a popular income alternative for many investors — are up less than 5%. And MLPs (master limited partnerships), a portfolio staple for many yield-starved retirees, are actually down 6%.

But as we enter the fourth quarter, we don’t necessarily care where the market has been. We care about where it’s going. And with interest rates and inflation both still very low, solid dividend stocks are more attractive than ever.

So, today we’re going to take a look at 10 dividends poised to outperform in the fourth quarter and, with a little luck, well into 2018. It’s an eclectic list, spanning multiple sectors and multiple regions of the world. But every stock that made the cut is one that I consider attractive at current prices, and importantly, I avoided slow-growth sectors such as utilities.

Best Dividend Stocks: General Motors (GM)

Best Dividend Stocks: General Motors (GM)

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Dividend Yield: 3.8%

I would be remiss if I didn’t start with my pick in InvestorPlace’s Best Stocks for 2017 contest, General Motors Company (NYSE:GM). Year to date, GM is up a respectable 16%, which is a decent return to be sure. Though in this year’s competition, that’s only good enough to secure fifth place.

But win or lose the contest this year, I remain wildly bullish on GM stock and expect it to be a standout performer in the fourth quarter and beyond. Even after its 16% move this year, GM is one of the few truly cheap dividend stocks left out there. It trades for just 7 times earnings and 0.35 times sales. And perhaps best of all, it sports a dividend yield of 3.8%

Auto sales are notoriously cyclical, which has historically made them less-than-ideal dividend stocks. But today, GM’s dividend payout ratio is a very modest 24%. So even if GM’s profits hit a rough patch, there is ample room for continued dividend growth.

The auto industry has challenges in front of it, to be sure. Driverless cars, electric engines and ride sharing services like Uber are all changing the industry at a rapid pace. That’s OK. GM is embracing these changes, and is as well-positioned as any major automaker to take advantage of them.

Best Dividend Stocks: Ford (F)

Best Dividend Stocks: Ford (F)

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Dividend Yield: 5.1%

If I’m bullish on General Motors, it only stands to reason that I would also bullish on rival Ford Motor Company (NYSE:F).

Like GM, Ford is one of the few unambiguously cheap stocks left in this market. The stock trades for 8 times expected 2017 earnings and 0.31 times sales. At current prices, it yields 5.1%. making it one of the highest-yielding dividend stocks in the S&P 500.

Investors are unduly bearish on the auto sector right now. Yes, setting aside the expected sales bumps due to Hurricanes Harvey and Irma, auto sales were on pace to be lower this year after last year’s records sales. But remember, sales had been depressed since the 2008 crisis, so there is a lot of pent-up demand that should keep sales higher this cycle. The average age of an American car on the road is now 12 years, so there is a lot of aging inventory due to be replaced in the years ahead.

Investor sentiment towards auto stocks has gotten more favorable following Hurricane Harvey, as there are a lot of autos in car-heavy Houston that now need to be replaced. I expect this momentum to carry Ford through the remainder of 2017 and well into next year.

Best Dividend Stocks: Enterprise Products Partners (EPD)

Best Dividend Stocks: Enterprise Products Partners (EPD)

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Dividend Yield: 6.4%

Midstream pipeline operator Enterprise Products Partners L.P. (NYSE:EPD) is not a sexy stock. In fact, it’s about as far from sexy as you can get. It may very well be the most boring stock in the entire New York Stock Exchange.

Enterprise gets paid to move crude oil, natural gas and natural gas liquids from point A to point B. That’s it.

But its blandness is exactly what makes it so attractive as an income producer. Rain or shine, bull market or bear market, Enterprise continues paying its quarterly distribution like clockwork. At current prices, the stock yields an attractive 6.4%.

And importantly, Enterprise raises its distribution like clockwork, generally about 5%-6% per year. This blue-chip MLP has raised its distribution every year since 1998, and I don’t see that chain getting broken any time soon.

You’re unlikely to get rich quick in Enterprise Products Partners. But you are likely to enjoy a 6.4% yield right off the bat, as well as inflation-beating distribution growth for years to come. That’s hard to beat.

Best Dividend Stocks: Kinder Morgan (KMI)

Best Dividend Stocks: Kinder Morgan (KMI)

Dividend Yield: 2.5%

Along the same lines, I’d recommend rival midstream operator Kinder Morgan Inc (NYSE:KMI). Kinder Morgan, like Enterprise Products, operates a fundamentally boring business of moving oil and gas across the country. But Kinder Morgan tends to sex things up a little by being more aggressive with leverage and expansion.

When times are good, the gambles pay off nicely. But as shareholders discovered back in 2015, times are not always good. Kinder expanded too quickly and took on too much debt to do so, so when the energy markets went into convulsions in 2015, the company had no choice but to slash its dividend.

Well, two years later, a wiser, humbler Kinder Morgan is finally ready to raise the dividend again. The company announced in July that it planned to raise its dividend by 60% next year and by 25% in each of the following two years. And it’s doing all of this without having to borrow additional funds. The company learned its lesson on aggressive borrowing two years ago and doesn’t want a repeat.

At current prices, KMI yields 2.6%. But this time next year, you’re yield on cost should be around 4.2%. And it only goes up from there.

Kinder may never be the growth dynamo it once was. But it’s still likely to offer better dividend growth than you’re likely to find anywhere else among large caps.

Best Dividend Stocks: Prospect Capital (PSEC)

Best Dividend Stocks: Prospect Capital (PSEC)

Dividend Yield: 10.8%

I have something of a love-hate relationship with business development company (“BDC”) Prospect Capital Corporation (NASDAQ:PSEC). On the surface, it would seem to have everything you want in an income stock. Management makes paying the dividend a major priority and even pays it monthly rather than quarterly. And management definitely eats its own cooking. Over the past few years, the executive team has collectively purchased tens of millions of dollars’ worth of shares on the open market. To say that management has skin in the game would be an understatement.

Yet despite this, management has consistently been unrealistic in its growth assumptions and has been forced to cut its dividend twice in recent years.

Investors hate dividend cuts, so it probably shouldn’t be surprising that the stock trades at a 28% discount to book value.

This is where I get interested. Prospect has proven to be an excellent buy in the past when it has traded at a deep discount to book value. Even if you believe book value to be overstated, it’s hard to argue the overstatement would be more than around 5%. That gives you an enormous margin of safety. It’s hard to go broke buying dollars for 72 cents, which is essentially what we’re doing. And we’re getting paid an attractive 11% yield while we wait for the stock to rise to a more sensible valuation.

My advice here is to buy Prospect when it trades for 80% or less of book value and to consider selling it when it rises to 90% or higher … all while collecting the dividend. I can’t call the strategy foolproof, but it would seem like a sensible bet to me.

Best Dividend Stocks: iShares Emerging Market Dividend ETF (DVYE)

Best Dividend Stocks: iShares Emerging Market Dividend ETF (DVYE)Dividend Yield: 3.8% over the past 12 months

My next recommendation is not a stock, per se, but rather a collection of stocks via the iShares Emerging Market Dividend ETF (NYSEARCA:DVYE). DVYE is a diversified emerging-market ETF, though its greatest exposure is to Taiwan, China, Russia and Thailand.

Emerging markets have been an absolute disaster over the past decade. In dollar terms, the asset class is still down 20% from its 2007 highs. Sluggish consumer demand in the U.S. and Europe, weakness in commodity prices, and political instability have all contributed to a really lousy decade.

But something funny happened early last year. Emerging market stocks started rising again … and they have yet to really slow down. Year to date, DVYE is up about 19%.

I like the emerging market story right now: After a decade in the dog house, the emerging world is finally ready to carry the torch of growth and outpace the American market. But as attractive as the growth story is, I’m still a dividend investor. And DVYE delivers on that count as well. At current prices, the ETF yields a little under 4%.

So, if you think the emerging market growth story has legs, buy DVYE, collect the dividend, and enjoy the ride.

Best Dividend Stocks: Oaktree Capital Group LLC (OAK)

Best Dividend Stocks: Oaktree Capital Group LLC (OAK)

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Dividend Yield: 7.1%

I really hate paying for insurance. If disaster doesn’t strike, I feel like I’ve wasted my money.

Of course, if disaster does strike … well, that insurance policy was the best money I ever spent.

I look at Oaktree Capital Group LLC (NYSE:OAK) as an insurance policy of sorts. Except rather than paying for insurance coverage, I’m actually getting paid.

That requires a little explaining. Oaktree is an alternative investments manager that specializes in distressed debt. When most investors are running for the exits, Oaktree sees its best opportunities in companies that have temporarily fallen on hard times. So, were we to have a rough patch in the economy, Oaktree would actually stand to benefit.

Of course, the economy is looking healthy these days, so this isn’t an ideal environment for Oaktree. Yet that hasn’t stopped the firm from paying $3.30 in dividends over the past year, amounting to a 7.1% trailing yield.

The way I see it, Oaktree should continue to throw off a decent yield even if the economy stays strong. But if … just if … we actually hit a rough patch, Oaktree should do even better.

Now that’s an insurance policy I like.

Best Dividend Stocks: VEREIT (VER)

Best Dividend Stocks: VEREIT (VER)

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Dividend Yield: 6.5%

I mentioned in the introduction that REITs haven’t performed particularly well this year, and that is certainly true of unloved retail REIT VEREIT Inc. (NYSE:VER). Excluding the juicy 6.5% dividend, VEREIT is essentially flat for the year.

This is a company that has problems, but none that I consider insurmountable. The first is its reputation. VEREIT’s predecessor company, American Realty Capital, was embroiled in an accounting scandal in 2014 that resulted in its dividend being temporarily eliminated. It also destroyed the company’s image to the point that they believed a new executive team and even a new company name was necessary.

The way I see it, wounds heal with time, and VER’s new management team has proven to be capable and honest. The stigma due to the accounting scandal is already fading and will continue to fade.

This brings me to the second issue: VEREIT is a retail landlord at a time when brick and mortar retail is under attack from, Inc. (NASDAQ:AMZN) and other online retailer. But here, the risk is really overstated. Some of VEREIT’s biggest tenants are Family Dollar, Dollar General, Walgreens and CVS, all of which are are retailers that are only minimally affected by the rise of Amazon.

I’m not crazy about the 7% of the portfolio that is allocated to Red Lobster properties, but management has been gradually reducing this position to make it more manageable.

I consider VER’s 6.5% dividend to be safe, and frankly, you’re not likely to find a comparable yield too many other places without taking a lot more risk.

Best Dividend Stocks: Omega Healthcare Investors (OHI)

Best Dividend Stocks: Omega Healthcare Investors (OHI)

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Dividend Yield: 7.9%

While we’re on the subject of REITs, I also consider health and senior living REIT Omega Healthcare Investors Inc (NYSE:OHI) to be an absolute no brainer at today’s prices given the demographic changes we face with the aging of the Baby Boomers.

Omega primarily owns skilled nursing and assisted living facilities. That might sound risky in an era of shrinking Medicare and Medicaid reimbursements. But it’s important to remember that Omega does not actually run those facilities. That’s the responsibility of its tenants. Omega is just the landlord collecting the rent. So, so long as reimbursements don’t sink so low that they drive Omega’s tenants out of business, the REIT should be just fine.

Omega is also one of the very best dividend stocks you can buy. At current prices, it yields just shy of 8%, and it grows its dividend at about 8% per year. If that doesn’t make it a good dividend stock for the fourth quarter, I don’t know what would.

Best Dividend Stocks: Northstar Realty Europe (NRE)

Best Dividend Stocks: Northstar Realty Europe (NRE)

Dividend Yield: 4.8%

And let’s finish this off with one last REIT, European landlord Northstar Realty Europe Corp (NYSE:NRE).

As its name suggests, Northstar owns properties across Europe, primarily in Germany, the United Kingdom and France. Northstar isn’t a large REIT — it currently holds a portfolio of 27 properties worth a combined $2.2 billion — but it’s one of the best options available for Americans looking for access to prime office properties in Europe.

Pockets of the U.S. property market are looking overheated today, which you might expect after nearly 10 years of bull markets. But European property is still much earlier in the cycle, as the Old World’s recovery was set back by the sovereign debt crisis of 2010-2013. Northstar gives us access to these relatively cheap markets, and it pays us handsomely while we wait. At current prices, Northstar yields an attractive 4.8%.

Northstar’s share price has been pretty flat thus far in 2017. But if the REIT sector rebounds as I expect, it should prove to be a solid dividend stock for the fourth quarter.

Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management, a registered investment advisor based in Dallas, Texas. As of this writing he was long GM, F, EPD, KMI, PSEC, DVYE, OAK, VER, OHI and NRE

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