In a year where the S&P 500 grew by nearly 30%, dividend stocks often receive less attention. Despite this, with bank depositors often struggling to earn 1% per year in interest income, they remain attractive stocks to buy.
Moreover, anyone who has followed the stock market for any length of time knows that some years bring higher returns than others. In a time where stock price growth lags, dividend stocks can both mitigate losses and provide a more reliable income stream. Furthermore, because of that income stream, investors tend to sell them off less often.
Also, due to the massive returns in 2019, the market could struggle to deliver equivalent returns in 2020. However, dividend stocks could rescue some investors. Furthermore, as we move forward into the 2020s, some of these equities could also produce not only high-yielding payouts, but potentially considerable stock-price gains as well.
AbbVie (ABBV)
AbbVie (NYSE:ABBV) is one of the dividend stocks that may have finally begun its long-awaited recovery. Investors sold it off throughout most of 2018 and 2019 as patents on Humira started to expire across the world. It fell further when the company issued more shares to finance its purchase of Allergan (NYSE:AGN).
The Allergan buy now appears to have served as the low point of ABBV stock. Since that announcement, it has steadily risen. AbbVie now trades at about $89 per share. This represents a considerable run-up from the summer low of just under $63 per share. However, it remains far below the early 2018 highs of almost $126 per share.
Furthermore, new investors can still profit. Despite recent increases, ABBV trades at a forward price-to-earnings (PE) ratio of 9.1. Also, with clarity as to what will replace revenue from Humira, Wall Street predicts earnings increases of 12.9% in 2019 and 9.2% next year.
Moreover, next year’s annual dividend will rise to $4.72 per share, a yield of about 5.3%. Including its time as part of Abbott Laboratories (NYSE:ABT), it has hiked payouts for 46 consecutive years. As the company absorbs Allergan and new drugs replace the revenue from Humira, ABBV stock should continue its march higher.
Altria (MO)
Despite facing challenges that may have sunk other businesses, Altria (NYSE:MO) continues to pay off for dividend investors. Those who bought the stock as late as 2003 and reinvested the dividend in more MO stock now earn their initial investment back in payouts alone.
The current payout stands at 6.6%. Since it does not rise every year, it is not a dividend aristocrat. However, it has gone up in most years, and now maintains a ten-year streak of annual increases. Also, at a forward PE ratio of 11.4, it remains reasonably-priced for new investors. This happened partially as a result of the vaping controversy surrounding Juul, which hurt MO stock this year. However, this can also serve as a buying opportunity for new investors.
Moreover, the 20s could see it diversify into a new industry. In 2018, Altria announced that it would invest $1.8 billion in Canadian marijuana producer Cronos (NASDAQ:CRON). This bought Altria a 45% stake in the company.
The cannabis industry continues its March toward legalization. Once the hype in weed stocks dies down, they will likely become slower-growth, dividend-producing equities, similar to tobacco stocks. Hence, as tobacco use continues to fall, this gives Altria a segue into a new industry that should continue to serve as one of the better-paying dividend stocks throughout the 2020s.
AT&T (T)
AT&T (NYSE:T) has positioned itself to become one of the more notable beneficiaries of 5G. As only one of three nationwide 5G providers, it will again become one of the few providers of a needed communications service.
AT&T stock suffered for years as customers dropped landlines and cable TV plans. Investors also sold off T stock as heavy debt loads and the massive costs of building a nationwide 5G network weighed on the stock. Now, with smartphone makers releasing 5G phones, the investment will start to pay off soon.
Moreover, AT&T’s board just passed the 35th annual dividend increase. This means investors will earn $2.08 per share in payouts in 2020, up from $2.04 per share the previous year. Since dividend aristocrats such as T stock tend to suffer for years when they cut payouts, investors can likely expect continued increases in future years.
T stock also enjoyed a prosperous 2019, with the stock rising by close to 30%. However, despite the increase, it remains one of the better-paying dividend stocks. Even with the higher stock price, the dividend still yields over 5.3%. Moreover, the forward PE has only climbed to around 10.8. While it has risen from last year, it remains well below historical averages. At these levels, buying AT&T should not only bring huge payouts but also continued stock price gains.
BP p.l.c. (BP)
A stagnant stock price and a generous dividend have defined BP (NYSE:BP) in the 2010s. The Deepwater Horizon oil spill in 2010 hurt BP stock for years. However, with this tragedy nearly ten years behind the company, it has almost worked through the liabilities that came from this accident. Moreover, CEO Bob Dudley, whose tenure began soon after the oil spill, will step down in February.
Throughout Mr. Dudley’s tenure, BP became a dividend stocks that did not see significant stock price gains. Its yields have remained generous and have seen slow growth since soon after the accident. Today, its payout of $2.46 per share offers investors a return of around 6.5%.
Now with Bernard Looney taking over as CEO, the stock may finally see some gains. Admittedly, fewer regulations and massive output from the Permian Basin have helped to put a lid on oil prices. Despite the state of energy prices, analysts expect profit growth to resume next year. They also believe earnings will increase by 14.6% in 2020.
Over the next five years, Wall Street forecasts profit growth to average 31.5% per year. If this holds, BP stock, and possibly the payout, could see significant increases in the 2020s.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) does not attract the attention of many other dividend stocks. As a real estate investment trust (REIT), payouts can vary since REITs must pay out at least 90% of their net income in dividends. Even among REITs, it stands out for its niche. IIPR specializes in properties designed for the growth of cannabis.
However, since 33 states have legalized medical marijuana, it can operate in most parts of the country. Moreover, since it merely provides property and facilities, it does not have to contend with the Schedule I restrictions on cannabis.
Interestingly, the drop in weed stocks has helped Innovative Industrial Properties. In some cases, struggling marijuana firms have sold their properties and leased them back to keep their doors open. In many cases, IIPR has bought that property. As a result, Wall Street expects profits to grow by 124% this year and 140.5% in fiscal 2020. Even better, the forward PE ratio is now at around 18.3.
This has bolstered the dividend, which now stands at $4 per share, a yield of about 5.4%. Due to REIT rules, this dividend should continue to move substantially higher. As more jurisdictions move toward legalization and more failing cannabis companies sell out to the company, IIPR stock should continue to produce increasing dividends and gains for the foreseeable future.
Omega Healthcare Investors (OHI)
Omega Healthcare’s (NYSE:OHI) real estate holdings have and will continue to benefit from demographics. The aging of baby boomers continues to add an estimated 10,000 people per day to the Medicare rolls. Fortunately for Omega, it owns 855 skilled nursing and assisted living facilities in the U.S. (and 55 in the U.K.) that can address the needs of seniors.
Like with IIPR, the dividend requirements of REITs will work in favor of investors. Wall Street forecasts earnings growth of 13.6% this year. On average, they believe these increases will remain in the double-digits over the next five years. At 25 times forward earnings, this growth will not come cheap, but demographics strongly indicate it will happen nonetheless.
The current annual payout of $2.68 per share takes the yield to around 6.4%. Also, thanks to a growing Medicare population and REIT dividend requirements, payouts have increased for nine straight years.
Moreover, stock price gains should add to the returns. OHI stock has risen by more than 23% in 2019, an impressive performance for an equity focused on income. As long as the Medicare population continues this massive growth, OHI should move higher along with it.
Qualcomm Incorporated (QCOM)
Most investors know Qualcomm (NASDAQ:QCOM) stock best for its chipsets that power smartphones. The upcoming 5G upgrade cycle, as well as the settlement of their long legal battle with Apple (NASDAQ:AAPL), have solidified its dominance in this industry.
However, in recent years, Qualcomm has become one of the more noteworthy dividend stocks. At $2.48 per share in payouts, its yield now stands at about 2.8%. Moreover, its streak of annual payout increases has grown to eight years. Even though the legal battle with Apple depressed QCOM stock, it continued hiking the dividend throughout this time.
Now QCOM stock appears set to produce massive price and dividend gains. Thanks to 5G, analysts forecast chipset revenue to grow from $2.12 billion in 2020 to $22.93 billion by 2026. As the dominant maker of chipsets, most of the benefit should accrue to Qualcomm. This likely explains why Wall Street expects profit growth to increase from 18.4% this year to 45.8% in 2020. At a forward PE of around 14.5, the earnings increases also come at a low price.
QCOM stock saw a massive run-up in 2019, rising by more than 57% on the year. Hence, investors might want to wait. However, as consumers and businesses across the world upgrade to 5G, investors should see massive benefits over the next few years.
As of this writing, Will Healy is long ABBV stock. You can follow Will on Twitter at @HealyWriting.
