7 Dividend Stocks to Buy Amid This Tough Market Environment

Advertisement

dividend stocks - 7 Dividend Stocks to Buy Amid This Tough Market Environment

Source: Shutterstock

The markets have finally appeared to reassert themselves after suffering several months of wild choppiness. But even with this newfound bullishness, I’m angling for dividend stocks to buy. These aren’t merely empty words, as I’ll demonstrate later in this article.

This summer, my InvestorPlace colleague Vince Martin wrote an excellent piece detailing the nitty-gritty of dividend stocks, including why you want to buy them, what nuances to look out for and real-world examples of various income-paying companies. Before you dive into this sector, I highly recommend learning from Martin’s expertise.

Along with his factors for purchasing dividend stocks, I believe this present juncture provides enormous justification. With an income-bearing asset, you’re not entirely dependent on market performance for shareholder profitability. This is important because this optimism is largely a bull on paper. After all, the Dow Jones Industrial Average is only up 4.5% year-to-date.

Additionally, the markets must absorb significant ambiguities. President Trump and his policies cut multiple controversial lines. Agree or disagree, we have consensus that investors prefer predictability over uncertainty. With Trump, both supports and opponents don’t know what they’re going to get.

If it’s uncomfortable on Capitol Hill, it’s at least doubly so on Wall Street.

Again, this is the reason why I’m bullish on dividend stocks to buy. If things go well, you have the potential for capital returns and passive income. If the markets take an unexpectedly negative turn, dividend-paying companies tend to ride out bearish cycles better than less-generous organizations.

With this in mind, here are my ideas for dividend stocks to buy, ranging from safer options to speculative bets:

Dividend Stocks to Buy: Microsoft (MSFT)

Dividend Stocks to Buy: Microsoft (MSFT)

Source: Shutterstock

At only a 1.55% dividend yield, Microsoft (NASDAQ:MSFT) doesn’t strike most people as a true passive-income opportunity. Admittedly, if you’re purely looking for yield, MSFT wouldn’t rank too highly. Simply put, too many higher-paying options exist.

But among those “superior” generous dividend stocks, few have Microsoft’s social cachet and longer-term viability. After suffering a largely ignominious 2000’s decade, the company started firing on all cylinders under new CEO Satya Nadella.

Several analysts have discussed Nadella transitioning MSFT into a twenty-first century investment. We saw a greater emphasis on the cloud, and innovations such as Software as a Service. But what I’m most impressed about is Microsoft’s ability to turn its supposedly stale legacy business around.

Thanks to great products and effective marketing through popular platforms like the NFL, MSFT made “physical” computing cool again. Beyond that, the company enjoys profound financial strengths.

In other words, MSFT is one of those dividend stocks that’s absolutely not going anywhere.

Dividend Stocks to Buy: Home Depot (HD)

Dividend Stocks to Buy: Home Depot (HD)

Source: Shutterstock

I’ll easily concede that Home Depot (NYSE:HD) is not an exciting name. As a ubiquitous consumer-staple name, HD often comes up as a defensive strategy.

However, with the present ambiguity in the markets, HD suddenly looks much more attractive. Shares are up in double-digit territory since the January opener. In addition, Home Depot offers a 1.93% dividend yield.

As with Microsoft, HD stock isn’t the most generous source of passive income. Having said that, Home Depot features rock-solid financials, including surprisingly dominant profitability and growth metrics. More importantly for the dividends, the company enjoys upwardly rising free cash flow.

Another significant factor favoring HD stock is its moat against Amazon (NASDAQ:AMZN). While Amazon wants to disrupt the home-improvement sector, the e-commerce giant will have a tough time dethroning Home Depot.

I’m not even sure if it’s possible.

Unlike other retail sub-segments, home improvement and renovation places a premium on “try before you buy.” Customers don’t want to wait for deliveries; they need their products now. Moreover, HD provides buyers with an opportunity to know exactly what they’re purchasing.

These and many other factors will buoy Home Depot for many years to come.

Dividend Stocks to Buy: Kimberly Clark (KMB)

Dividend Stocks to Buy: Kimberly Clark (KMB)

Source: Shutterstock

Due to the generally lagging performance of broader benchmark indices, consumer staples have enjoyed more attention. Usually, investors buy these dividend stocks as hedges or as part of a retirement portfolio. But lately, consumer staples have enjoyed powerful capital gains.

Take Kimberly Clark (NYSE:KMB) as an example. While KMB stock suffered a rough first half of the year, it’s turning things around in the second half. Since July 2, KMB is up nearly 11%, more than doubling the Dow.

Sure, that by itself is not a major accomplishment. But you also have to consider that Kimberly Clark pays a robust 3.44% dividend yield. The company also has the financial stability to back up the payouts, including strong and consistent FCF.

Finally, let’s take a look at Kimberly Clark’s main business. KMB features heavily in hygiene products, ranging from diapers to toilet paper. So unless people are going to stop cleaning themselves during the next downturn — gross! — KMB stock is golden.

Dividend Stocks to Buy: AMC (AMC)

Dividend Stocks to Buy: AMC (AMC)

Source: Shutterstock

Among dividend stocks, AMC (NASDAQ:AMC) is a tough one to classify. I can’t speak for others, but I believe most people would consider AMC stock a value trap. The company suffered a horrible 2017 when it looked like the market boogeyman ripped the floor underneath it.

The other reason why critics blast AMC? The company’s core business. In the streaming era where tech-centric organizations like Netflix (NASDAQ:NFLX) dictate terms, AMC appears anachronistic. Netflix is a true Generation-Z firm. The cineplex industry, on the other hand, arrived between the lost and GI generations.

But don’t let the age statistics fool you: AMC stock is incredibly relevant. Sure, I’m a shareholder, but that’s primarily because I believe in the company’s turnaround efforts, which are simultaneously occurring during an industry revival.

With Disney’s (NYSE:DIS) buyout of Twenty-First Century Fox’s (NASDAQ:FOXA) entertainment assets, Hollywood will focus exclusively on movies that work. That means a healthy dose of Star Wars and comic-book franchises.

This trend stinks for film aficionados, but it’s great for the wallet. AMC pays out a 4% dividend yield.

Dividend Stocks to Buy: International Business Machines (IBM)

Dividend Stocks to Buy: International Business Machines (IBM)

Source: Shutterstock

As boring as it is, International Business Machines (NYSE:IBM) paradoxically arouses controversy among investment-analysis circles. Look around the internet and you’ll find several stories advising against buying IBM stock for its dividends.

I don’t entirely disagree with their arguments as IBM is far from a perfect opportunity. Plus, after years of disappointing performances in the markets, shares appear on the verge of yet another lagging year. The positive news that the iconic firm does generate meet an uninspired, apathetic audience.

While acknowledging this pedestrian trend, I also find it a classic contrarian investment. IBM stock isn’t fatally flawed; it just needs to shore up its next-gen technologies, while limiting exposure to its legacy businesses.

Efforts such as the company’s Blockchain World Wire should prove viable over the longer-term. Similar to the Ripple blockchain project, IBM claims that their new platform can “can simultaneously clear and settle cross-border payments in near real-time.”

Such innovative tech could, potentially, upend the banking system in a positive way. Ripple originated the concept of using cryptocurrencies for mainstream institutions. However, IBM has the mainstream credibility to pull it off decisively.

Dividend Stocks to Buy: National CineMedia (NCMI)

Dividend Stocks to Buy: National CineMedia (NCMI)

Source: Shutterstock

I’m pounding the table on the cineplex industry because news about its demise are greatly exaggerated. And if you want a more speculative exposure to this sector, consider National CineMedia (NASDAQ:NCMI) and its 8% dividend yield.

I know what you’re thinking. Something that yields significantly more than the current return on the Dow Jones is an extraordinary risk. Certainly, if NCMI stock was a no-name institution, or if it had a flawed business, I’d agree wholeheartedly. While I can’t deny that risks exist — NCMI has just OK financials and some concerning metrics — opportunity abounds as well.

Specifically, I’m talking about the underlying sector. The movie-going experience remains a distinct and desirable piece of Americana, and it’s relatively cheap. A family of four going out to watch a professional sports game would set them back a pretty penny. But going to the movies? Even assuming an exorbitant $20-average-ticket-price and concessions, it’s still a comparative bargain.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

That bodes well for NCMI and its cineplex-advertising business. What else is positive for NCMI are box-office sales. We saw record numbers over the summer, and we still have a quarter remaining to close out 2018 strongly.

Dividend Stocks to Buy: General Electric (GE)

Dividend Stocks to Buy: General Electric (GE)

Source: Shutterstock

I’ll end my list of dividend stocks to buy with my craziest idea: General Electric (NYSE:GE). I think it’s fair to say that GE falls under two camps: those who hate it (which is most folks), and those who feel it has a chance for a comeback.

Please don’t misunderstand what I’m trying to say. I realize that GE stock has been a train wreck, and chances are, this won’t be an easy road. I’m well aware that this idea can get ugly very quickly. But at the same time, GE stock has the potential to surprise in a big way.

My thinking is that General Electric is perhaps more relevant than you might initially believe. I was happy to hear that analysts downgraded the stock recently, specifically citing its laggard power business. Why? Because the power business is woefully underappreciated, whereas the rival renewable-energy sector is overhyped junk.

This dynamic makes GE stock a double-edged speculative play: It has a high 4.84% dividend yield, and it could spark a massive rally in the markets. Again, it could go the other way too, which is why I saved General Electric for last.

As of this writing, Josh Enomoto is long AMC and ripple (XRP).


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/7-dividend-stocks-to-buy-amid-this-tough-market-environment/.

©2024 InvestorPlace Media, LLC