A lot happened in financial markets in May. One of the more important things that happened was in the bond market. Fixed income yields plunged in May on concerns that the global economy is slowing and will continue to slow as trade tensions between the U.S. and China remain elevated. Specifically, the 10-Year Treasury Yield has dropped below 2.3% in late May, after peaking right around 3.3% in late 2018, and is now at its lowest level since late 2017.
One implication of plunging yields is that stocks with big dividend yields become more attractive. Why? Because the lower yields go, the higher dividend yields are relative to those fixed income yields. Thus, when yields plunge, investors tend to flock into dividend stocks with big yields.
Because of this dynamic, plunging yields create a good opportunity to buy into dividend stocks with big yields. Which stocks should be on your list of stocks to buy? Let’s take a look at six big dividend stocks to consider as yields plunge.
First, we have telecom giant AT&T (NYSE:T), a company with an unparalleled yield and enormous financial stability.
There are three big reasons to like AT&T here. The first reason is that the stock has a big 6.4% dividend yield, which is nearly triple the yield on a 10-Year Treasury Note and above the yield of most every other notable stock. The second reason is that the company provides telecommunications services with enduring and stable demand, and long-term revenues and profits have significant visibility. And, the third and final reason is that the forthcoming 5G boom in 2019/20 should provide a nice lift to the company’s numbers, which should push estimates higher and drive multiple expansion.
Thus, with a big yield, healthy stability and strong catalysts, AT&T stock looks like it can and should move higher over the next few months. This is especially true against the backdrop of plunging yields, since that dynamic makes AT&T’s 6.4% yield seem that much more attractive.
American Electric Power (AEP)
In terms of big yield coupled with stability, the cream of the crop in the stock market is utility giant American Electric Power (NYSE:AEP).
American Electric Power is an electric utility company that delivers electricity and power services to more than 5 million customers across 11 states. Demand for these services is inelastic relative to economic changes — regardless of the macroeconomic backdrop, consumers will need and pay up for electricity and power services, especially in today’s digitally connected world. Consequently, there is largely unparalleld financial stability inherent to the AEP story.
But, AEP is much more than just stability. The company has a solid track record of growing revenues and profits through price hikes and market expansion. There’s also a 3.1% dividend yield on the stock, too, which is more than 80 basis points above the 10-Year Treasury yield.
All in all, then, if you’re looking for a big yield with a lot of stability, AEP is the way to go.
If you’re hunting for yield but don’t want to compromise on long-term profit growth, a solid option is beverage giant Coca-Cola (NYSE:KO).
Coca-Cola has been on the mountain top of the global beverage market for what seems like forever. That’s because this company has found a winning strategy that keeps Coca-Cola the most relevant player in the market. This strategy includes identifying hot and upcoming beverage trends, acquiring the hottest players in that market, and giving those players global distribution. This strategy broadly ensures that Coca-Cola grows with the global beverage industry by capitalizing on every relevant trend.
This industry will continue to grow at a healthy low to mid single-digit rate over the next several years. Coca-Cola will grow revenues and profits in line with that rate. Meanwhile, there’s a 3.2% yield here, so investors will get slow and steady profit growth on top of a healthy yield.
Overall, KO stock looks good here for investors hunting for yield and growth at the same time.
The retail sector has been getting hammered recently, but one big retail company that has weathered the storm and has a big yield, too, is Target (NYSE:TGT).
To be clear, Target is not mall retail. Mall retailers are getting killed in early 2019 as the entire sector has reported broadly disappointing numbers. But, Target is not a part of that group. Target is an off-mall, off-price, all-in-one retailer with a rapidly growing e-commerce business and rapidly expanding omni-channel presence. Because of this, Target is not being hurt by the e-retail wave. Instead, Target has aligned itself with this trend, and is now firing off decade-best growth numbers.
This will persist because Target is just getting the ball rolling on the omni-channel front. Target is still building out delivery and pick-up options everywhere, and as those capabilities expand, Target’s growth will remain red hot. Margins will stabilize as wage hike initiatives move into the rear-view mirror. Thus, revenue and profit growth project to be healthy for the foreseeable future.
Meanwhile, TGT stock has a 3.2% yield which will help supercharge returns for investors. As such, much like Coca-Cola, Target offers investors a nice mix of yield and growth.
International Business Machines (IBM)
The technology revolution has seemingly moved past International Business Machines (NYSE:IBM), but this company is getting its act together, and the stock has a huge yield and should do well here as yields plunge.
IBM doesn’t exactly have that growth sparkle that many of its faster growing tech peers do. Even the company’s cloud business has stalled out over the past several quarters. But, the company has acquired Red Hat, and in so doing, will add some sparkle into this growth narrative and juice up the growth rates. This extra juice in the growth narrative, coupled with a near 5% yield against the the backdrop of a 2.3% 10-Year Treasury yield, creates a favorable dynamic for IBM stock to head higher from here.
To be clear, IBM stock isn’t the type of stock you want to buy and hold forever. But, with yields on the comedown and the company’s growth rates on the come-up, this stock should do well for the foreseeable future.
Last, but not least, on this dividend stocks to buy list is chip giant Qualcomm (NASDAQ:QCOM).
QCOM stock has been on a roller coaster ride over the past several weeks. First, there was the huge Apple (NASDAQ:AAPL) settlement, which caused the stock to soar on the fact that Apple revenue was coming back into the system for the foreseeable future. But, that rally was ultimately short-circuited by a negative FTC ruling, which basically said that Qualcomm’s patent licensing practices need to change because they violate antitrust law. QCOM stock dropped big on that news.
But, in the big picture, the Qualcomm narrative is improving. The 5G boom is right around the corner, and Apple waving the white flag with Qualcomm basically says that Qualcomm is the only relevant 5G chip supplier. Further, the Apple deal does bring in a bunch of Apple revenue over the next several years. The FTC ruling is a negative, but that story still isn’t finished, and the near term, tangible financial impact is relatively muted.
Consequently, QCOM stock should rebound here, mostly because the fundamentals are improving, but also because the stock’s 3.8% yield looks really attractive next to a 2.3% 10-Year Treasury yield.
As of this writing, Luke Lango was long T, AEP, TGT and QCOM.