We’re quickly approaching the end of 2018. That’s got most investors reminiscing about the year that was in the markets while also pondering which stocks to buy in the year ahead.
I know I sure am.
This year volatility returned to the markets making the average investor’s job picking winners that much more difficult.
Right now, it’s hard to say if 2018 will go down as a winning year for the markets or not. Case in point, S&P 500 stocks were up 5.1% year to date through November 30, while this would have been the lowest annual return since 2015, and the second worst over the past seven years, it still would’ve been positive. Just two sessions later, the S&P 500 is essentially flat on the year — up .16%.
One area that’s always going to attract investor interest are dividend stocks. That’s especially true when returns are meager like they were in 2018 and investors fear they will be again in 2019.
Dividend Aristocrats, those stocks increasing their annual payment for 25 consecutive years, are the cream of the crop for dividend investors and some of the best stocks to buy for 2019.
Currently, there are 53 Dividend Aristocrats in the S&P 500. Here are seven stocks to buy in 2019, all of them yielding at least 3% or more.
Stocks to Buy for 2019: AbbVie (ABBV)
Current Yield: 4.6%
The great thing about all 53 of the Dividend Aristocrats is that you know they’re consistently going to pay a dividend to keep that title — even when their businesses aren’t performing at 100%.
AbbVie (NYSE:ABBV) hasn’t had a bad year. Adjusted net revenues are up 17.8% on an operational basis in the first nine months of the year to $24.4 billion. This is mostly due to impressive growth from Humira, its anti-inflammatory drug for treating several types of arthritis as well as Crohn’s disease and several other conditions.
On the bottom line, AbbVie earned $9.4 billion, or $6.01 a share in the first nine months of 2018 — 42% higher than a year earlier.
Nothing about that is second rate, yet ABBV stock’s is down 8% year-to-date through December 3.
Not to worry.
The company upped its adjusted full-year 2018 EPS guidance November 2 to $7.90 a share on the low end from $7.76 previously, a 41.3% increase over last year.
Regarding free cash flow, AbbVie’s generated $9.5 billion through the first three quarters of the year, $2.5 billion higher than in the same period last year.
Also, AbbVie’s repurchased 94.1 million of its shares so far in 2018, an outlay of $9.8 billion. In total, AbbVie’s returned more than $14 billion to shareholders.
AbbVie’s 4.6% yield is very attractive.
Stocks to Buy for 2019: Leggatt & Platt (LEG)
Current Yield: 3.8%
One of the reasons for a high yield is a lower share price. That’s precisely the case for Missouri-based Leggatt & Platt (NYSE:LEG), a company that got its start by creating a patented bedspring in 1885, going public in 1967.
LEG stock is down 19.8% year-to-date with most of the damage inflicted in September and October.
On November 7, Leggatt & Platt announced that it would pay $1.25 billion for Elite Comfort Solutions (ECS), a Georgia company specializing in foam bedding. In its latest fiscal year, ECS generated $611 million in revenue from its 16 facilities spread across the U.S.
Leggatt & Platt expects that ECS will generate double-digit sales growth in the next few years with accretive earnings by 2020.
“ECS is uniquely qualified to provide e-commerce, retail and OEM customers the most advanced technology solutions in specialty foams today,” stated CEO Karl Glassman. “With our best-in-class manufacturing capabilities and ECS’s proprietary and patented technology, we plan to capitalize on current and future trends in the market.”
Generating as much as $550 million in annual cash flow as a result of the acquisition, Leggatt & Platt plans to use its increased cash flow to pay down debt quickly.
The online foam mattress market is exploding — I bought one earlier this year. And ECS provides the company with a leadership position in this growing segment of the bedding industry.
Enjoy the 3.8% yield while you wait for one of the lesser-known Dividend Aristocrats to rebound.
Stocks to Buy for 2019: Chevron (CVX)
Current Yield: 3.7%
I’m not a fan of oil and gas companies, big or small, but when it delivers a 3.7% yield, I’m willing to make allowances.
Chevron (NYSE:CVX) is a stock I compared to Exxon Mobil (NYSE:XOM) a little over a year ago. At the time, I suggested that XOM’s dividend was better because of its ability to generate higher free cash flow.
Over the past year, CVX is down 2.3% — 180 basis points less than XOM. Heading into 2019, I’m reversing my opinion of the two companies despite Exxon Mobil’s yield of 4.0%, being higher than CVX.
InvestorPlace feature writer James Brumley wrote a piece in mid-November recommending CVX stock as the best of a troubled bunch. Citing several analysts who’re bullish on Chevron, it probably never hurts to have an energy company in the mix.
“Credit Suisse’s William Featherston largely agrees, upgrading Chevron stock to ‘Outperform’ in response to the company’s third-quarter numbers,” Brumley quoted Featherston November 19. “‘Chevron continues to execute on its already superior growth outlook, which should translate into better than expected capital efficiencies into 2019 and sets up for continued robust free cash flow.’”
Free cash flow growth is the key to consistently increasing dividends. Although the energy sector continues to take its lumps, I have to agree with my colleague: If you’re going to invest in Big Oil, Chevron’s the better buy heading into 2019.
Stocks to Buy for 2019: Target (TGT)
Current Yield: 3.5%
Last November, I wrote an article about Target (NYSE:TGT) entitled Can Target Corporation Stock Get Back to $80? It emphasized how important the holiday season was to regain its position within retail.
“A lot is riding on this holiday season for CEO Brian Cornell. With a good showing, TGT stock is off to the races. With a bad performance, he could be out the door,” I wrote November 15, 2017. “If it’s the latter, you can forget about TGT stock hitting $80 in 2018. However, the former almost certainly guarantees revisiting $80 or possibly $100 by the end of next year.”
Well, it’s going to have to sprint if it wants to make $80 by the end of the year — it hit $90 in September before falling back — but long-time shareholders can be thankful Cornell has the company headed in the right direction after a big failure in Canada.
Sure, Target missed its Q3 2018 earnings per share estimate by two pennies — it reported adjusted EPS of $1.09 — but it also had excellent same-store sales growth of 5.1% in the quarter, 30 basis points ahead of its guidance.
In the fourth quarter Target expects same-store sales of 5%, well ahead of analysts, who’re expecting 4.4% SSS growth.
With physical stores growing by 3% a quarter and online sales experiencing growth of 40%-plus, a 3.5% yield is a great way to pay yourself until TGT stock makes its next leg up to $100.
Stocks to Buy for 2019: Kimberly-Clark (KMB)
Current Yield: 3.4%
Kimberly-Clark (NYSE:KMB) is not a growth investor’s dream stock, I’ll grant you, but if you’re an income investor, you might want to consider it. Here’s why: toilet paper
Toilet paper is one of the world’s most useful items. Everybody uses it, and it’s available everywhere at a reasonable price. Plumbers especially love it because it clogs up pipes requiring a service call.
Of course, Kimberly-Clark doesn’t just sell Kleenex and Cottonelle, it also sells Huggies baby diapers, Depend adult diapers and Kotex feminine care products.
In its third quarter ended September 30, KMB had revenues of $4.6 billion, 2% lower than a year earlier, with adjusted earnings per share of $1.71, 7% higher than a year earlier.
The company’s in the middle of a global restructuring that will it see it generate annual savings of at least $500 million by 2021. As part of this restructuring, Kimberly-Clark sought a buyer for its European tissue business. However, the bids received were lower than the $1.2 billion expected, so it’s pulled the sale.
Through the first nine months of 2018, KMBs generated $1.5 billion in free cash flow or $2 billion on an annualized basis. It’s used a billion of that to pay out dividends and another $596 million to repurchase its shares.
KMB stock might not be a home run, but if you’re looking for safe income above a high-interest savings product, this is it.
Stocks to Buy for 2019: Coca-Cola (KO)
Current Yield: 3.1%
The Dow Jones Industrial Index is basically flat on the year. Meanwhile, old, stodgy, Coca-Cola (NYSE:KO) is up 8.9% with less than a month to go in the year. If it holds up, 2018 will be only the second year out of the past five that’s outdone the index.
This dividend aristocrat has been through some tough times in recent years as consumers have moved away from soda to other alternatives including coffee.
It’s for this reason Coke paid $5.1 billion in August to acquire UK coffee-shop chain Costa Coffee and its 4,000 stores around the world. Previously Coke had no hot-drink offerings to provide customers. And so Costa Coffee is a relatively cheap solution to any growth issues investors might have with the company.
“Hot beverages is one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand,” Coca-Cola CEO James Quincey said in a statement about the Costa Coffee acquisition.
Imagine, Coca-Cola products in 4,000 coffee shops around the globe. A strategic acquisition if there ever was one.
Now, it’s looking into cannabis-infused drinks and already has an alcoholic drink on the market in Japan. It seems old stodgy Coca-Cola has come alive.
At a 3.1% yield, you can join Warren Buffett on the ride higher.
Stocks to Buy for 2019: Procter & Gamble (PG)
Current Yield: 3.1%
It seems like forever ago when Procter & Gamble (NYSE:PG) was considered a powerhouse in the consumer products industry. It’s long enough to make investors forget that it’s still the world’s largest consumer products manufacturer with 21 brands generating $1 billion or more in annual revenue.
As the world continues to grow — in 2007, the global population was 6.1 billion; in 2028 it’s expected to be 7.6 billion — the dividend aristocrat will continue to provide the everyday products we all use and take for granted.
If you’ve followed P&G in recent years, it’s been on a quest for simplification, narrowing the categories it competes in and the number of brands it brings to that competition. If you’ve seen those Tide Pods commercials, you know what I mean.
As a result, it’s generating as much cash as it did in its so-called heydays. In fiscal 2018, its adjusted free cash flow was $11.2 billion. In the first quarter of fiscal 2019, P&G generated adjusted free cash flow of $2.7 billion, 8% higher than a year earlier.
If it keeps up high-single-digit growth, it will generate more than $12 billion in free cash flow in fiscal 2019, its highest level since 2010.
Like Kimberly-Clark, income investors ought to be all over PG stock.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.