Financial markets have had a great start to 2019. Through the first two-plus months of the year, all of the major indices are up more than 10%, and they’ve reached this mark with relatively muted volatility, healthy leadership out of the technology group and amid fundamental macroeconomic improvements.
But, there’s reason to believe that this placid and healthy market environment won’t last forever. For starter’s, in the stock market, it usually is calmest just before the storm. Also, stocks have come very far, very fast and are due for a technical pullback. Valuations look slightly stretched. Earnings season wasn’t great, and earnings growth estimates for 2019 are rapidly falling. A trade war resolution seems fully priced in, and the lack of a resolution could have a big negative impact on markets.
Overall, while I’m still bullish on the stock market, I also think that we are due for some near-term turbulence here. What’s the best thing to do to prepare for that turbulence? Buy dividend stocks with big yields, since those stocks tend to weather the storms better than other stocks, and also pay you for waiting.
With that in mind, let’s take a look at seven dividend stocks with big yields that are worth considering here and now.
One could easily argue that telecom giant AT&T (NYSE:T) is the poster child for “best dividend stocks with big yields”.
Although there are concerns regarding the company’s wire-line operations, most of AT&T’s business is supported by exceptionally stable demand. Internet connectivity? Stable demand. Wireless coverage? Stable demand. Streaming services? Stable, and growing, demand. In other words, if you strip out cord cutting from this company’s narrative, you get a bunch of unprecedentedly stable businesses.
Meanwhile, T stock has a 6.5% yield. Part of the reason for the big yield has to do with the company’s large debt load, which investors were scared of in a rising rate, slowing growth economic environment. But, rates are now falling, and growth is stabilizing. As such, pressures on the balance sheet are easing, meaning that T stock’s 6.5% yield is more attractive than before.
Overall, this is a stable stock with a big yield that should head higher in 2019 as rate-hiking and cord-cutting headwinds become less severe.
The yield on Intel (NASDAQ:INTC) stock isn’t great. It’s just 2.3%. But, that is a great yield for a company that has robust exposure to all of tomorrow’s important tech markets, including AI, cloud, data and IoT.
It is this unique combination of stability and growth exposure that makes INTC stock an attractive investment here and now. On one hand, you are buying a semiconductor giant with a long track record of consistent revenue and profit growth, a cheap valuation and a big yield. At the same time, you are buying a semiconductor giant with broad exposure to — and arguably dominance in — some of tomorrow’s biggest growth markets, like cloud.
Where else can you get this combo of stability and growth? Hardly anywhere else, and I’d argue nowhere else at this scale. As such, if you’re looking to increase portfolio stability without sacrificing growth exposure, buying INTC stock is the best way to do that.
International Business Machines (IBM)
Blue chip technology giant International Business Machines (NYSE:IBM) is similar to Intel in terms of uniquely combining stability and growth. It’s just less stable with less growth, but a bigger yield.
Stability in IBM stock is compromised by the fact that a big chunk of the company’s business is in secular decline. Growth is likewise compromised by that. So, this isn’t an Intel. But, the company does have robust exposure to the cloud market, and the stock features a 4.5% dividend yield with a single-digit forward earnings multiple. Thus, it is a cheap stock with good growth exposure, and that’s attractive.
Moreover, IBM’s growth narrative could meaningfully improve this year as the company pivots more aggressively into the hybrid cloud with Red Hat. If cloud growth rates do meaningfully improve, then those improvements will converge on a relatively discounted valuation. That convergence should allow IBM stock to stay in rebound mode.
Overall, IBM stock is a cheap stock with a big yield and healthy growth exposure to the cloud. That combination of characteristics makes the stock a strong addition for investors seeking to stabilize their portfolio at a reasonable price.
For the past several quarters, Target’s comparable sales growth rates have been better than Walmart’s comps, while the company’s digital business has grown at a significantly faster clip than Amazon’s digital business. Sure, some of that has to do with scale. But, more of it has to do with the fact that Target is successfully building out a sustainable omni-channel business to compete at scale with the best of the best in the retail world.
The big takeaway? Target has carved out staying power for itself in the retail landscape, and in so doing, it has become a stable growth giant. Meanwhile, the valuation is attractive (13 forward earnings) and the yield is big (3.3% dividend yield). As such, with Target stock, you have one of the best dividend stocks that’s trading at exceptionally attractive valuation levels.
Ultimately, that combination makes Target stock a great buy here, so long as the U.S. consumer remains healthy and vigorous.
The one fast-casual restaurant chain that has managed to consistently remain top dog across the globe is McDonald’s (NYSE:MCD), and that’s because this company dominates on the only two things that really matter in consumer-facing businesses: price and convenience.
McDonald’s has been, still is, and will continue to be one of the cheapest options across the whole fast-casual space, thanks to things like the Dollar Menu and two for $5. This value proposition attracts a ton of customers, since consumers are naturally inclined to save money. Also, McDonald’s has been, still is, and will continue to be one of the most convenient options across the whole fast-casual space, since the company operates some 35,000-plus locations worldwide. This value also attracts a ton of customers, since saving on time is arguably even more important than saving on money.
As such, McDonald’s dominates on price and convenience. So long as this remains true, McDonald’s will remain the top dog in a global fast-casual food industry characterized by stable demand and growth, implying that McDonald’s is arguably one of the more stable companies in the world today.
To accompany that stability, McDonald’s is actually growing nicely thanks to menu innovations (premium offerings) and technology integrations (self-order kiosks). The stock also has a nice 2.4% yield. Thus, with McDonald’s stock, you get stability, growth and a nice yield. That’s a great combo, which makes it one of the best dividend stocks to buy today.
American Electric Power (AEP)
When it comes to stability, you don’t get much more stable than U.S. utility giant American Electric Power (NYSE:AEP).
American Electric Power is a massive electric utility company that delivers electricity and power services to more than 5 million customers across 11 states. Demand for these services isn’t going anywhere anytime soon — after all, that is the definition of a utility. Consumers need electricity to function in today’s society. Because of this, AEP stock is supported by largely unprecedented stable fundamentals.
Meanwhile, AEP stock also has a track record of growing revenues and profits through price hikes and market expansion, and there’s a 3.4% yield on the board, too. As such, this isn’t just a stock you buy and just sit on to avoid volatility. It’s a stock that rewards you for doing that, through gradual share price gains and a 3%-plus yield.
As such, if you’re looking for stability but don’t want to compromise too much on return, AEP stock could be a great choice.
Smartphone chip giant Qualcomm (NASDAQ:QCOM) has come under pressure recently, mostly due to legal disputes with Apple (NASDAQ:AAPL). That has weighed on investor sentiment, and ultimately resulted in weakness in QCOM stock.
Yet, at the end of the day, Qualcomm still owns the smartphone processor market, and that market is among one of the largest and most stable markets in the world. Sure, growth is tapping out, and we are likely to reach peak smartphone. But, it is highly unlikely that growth across the whole smartphone category goes negative anytime soon, seeing as consumers are only increasingly addicted to the devices.
As such, Qualcomm’s fundamentals — while not great — are largely stable. Stable should be good enough to drive some earnings growth, which in combination with a 4.5% yield, should produce healthy shareholder returns from here.
All in all, Qualcomm is stable, with healthy profit growth potential, and a big yield. That combination implies potential for good upside in QCOM stock, with mitigated downside risk.
As of this writing, Luke Lango was long T, INTC, AMZN, TGT and AAPL.