It’s been a difficult market for value investors over the past few months. But that doesn’t mean there aren’t bargains to be had. And even better, these value stocks are also great dividend plays.
Several big name stocks have been on the decline as investors question whether or not their businesses are headed in the right direction. However, a closer look at their future potential — coupled with sizable and relatively secure dividend payments — makes these 3 stocks all worth considering. Especially if you’re looking for value stocks that will also deliver income.
Here are 3 value stocks for income investors:
Value Stocks for Income Investors: IBM (IBM)
If you’re a value investor, IBM stock is almost certainly on your radar. Following the company’s recent plummet after its first-quarter results, the company is looking like a good long-term play for both value and income investors.
At just $142 per share IBM stock is miles below its previous 52-week low. And although I’ll admit the company isn’t exactly thriving right now, I don’t think its exodus was deserved.
IBM is in the throws of a turnaround. But because of its size and business, it’s taking longer than expected to right the ship. However, the tech firm is moving in the right direction– albeit slowly. The company’s Q1 results showed “strategic imperatives” now make up 47% of the business. And that figure should continue growing over the next few years.
Strategic imperatives are essentially all the things that IBM is doing right — cloud computing, blockchain, cybersecurity and AI. All of those arms are growing at IBM and should continue to grow in the future. However, progress on that side of IBM’s business has been offset by its less-profitable, antiquated hardware and operating systems business, which is a concern for traders.
While it’s certainly going to take some time before IBM stock is able to turn in the kind of growth investors are looking for, the company offers a compelling income play with a 4.33% dividend yield. This is a relatively high payout for the sector. And IBM’s operations generate more than enough cash to make it reliable. The company also has a track record of consistently raising its dividend and management is expected to continue with its share repurchase program this year.
Value Stocks for Income Investors: AbbVie Inc. (ABBV)
Biotech firm AbbVie Inc. (NYSE:ABBV) is another stock whose recent nosedive makes it a compelling long-term play for both value and income investors. After reaching highs of $125 per share in January, the ABBV stock came crashing down to just $100 per share after some bad news regarding its Rova-T drug studies.
Rova-T, a lung cancer treatment, was meant to be a growth engine for ABBV. But its Phase 2 clinical trials indicated that the drug may not be as effective as management was hoping. That’s certainly a setback for ABBV, but the company still has a pipeline of drugs that look promising.
The firm has three new drugs in various states of clinical trials that treat rheumatoid arthritis, psoriasis and certain types of leukemia. All three have performed well so far in clinical trials, particularly upadacitnib which could be used treat up to six different conditions making its addressable market huge.
Unlike IBM, ABBV stock looks likely recover sooner rather than later. Positive news from the firm’s other clinical trials would probably take the stock near its previous levels. However, even if you do have to wait out a lull, ABBV pays a respectable 3.76% dividend yield, making it a compelling income play as well. With a payout ratio of 47.52%, that payment looks very secure and makes ABBV stock worth considering.
Value Stock for Income Investors: Kimberly-Clark (KMB)
Like IBM, consumer products maker Kimberly Clark Corp (NYSE:KMB) has been stuck in a rut, and its slow recovery has caused investors to turn their backs on the stock. KMB stock is trading near 52-week lows as management works to make the necessary changes to get the business back on track. But investors who are willing to wait it out could be pleasantly surprised.
Sales growth at KMB has been disappointing for the past five years but the most recent quarter bucked the trend. Net sales were up 5% from the previous quarter, a vast improvement from the company’s Q4 fail. Full year sales are also expected to rise between 2% and 3%, suggesting that the firm’s turnaround efforts are finally taking hold.
Management has been aggressively cost cutting as part of its new strategy as well. And those improvements have helped offset pricing challenges. The firm’s restructuring plan — which includes getting rid of weak brands, shrinking its physical footprint and reducing its workforce — marks a huge shift for the company and it will take time to set in. KMB is planning to use its savings in order to grow its most profitable brands like Kleenex and Huggies.
The benefit to owning KMB is that it makes items that consumers consider ‘essential’. That means the company is more likely to survive poor economic conditions should they arise. Not only that, but the company’s new leaner, more focused organization should translate into better profits in a few years’ time.
KMB’s most recent earnings report suggests that the firm is on track with its new initiatives, but like any turnaround story there are likely to be more bumps in the road. However, while you’re waiting for the turnaround to fully materialize, the firm’s 3.88% dividend yield can tide you over.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
