These days income seekers have to reach far up the risk ladder for even the tiniest morsel of return. Market forces have savings account yields pinned near zero and bond yields submerged beneath 1% out to 20 years. The barren landscape requires pushing into equities or starving. We’re talking about dividend stocks.
There are hundreds to choose from—each with varying risks and rewards. Many have seen their yields zip higher during the crisis due to plunging stock values. Such is the silver lining of bear markets. The inverse relationship between price and yield means that snagging a dividend stock at a steep discount generates a hefty boost to the yield.
The dirty little secret, however, is that not all dividends can survive the deteriorating economic conditions. Just ask General Motors (NYSE:GE) or Ford (NYSE:F), which suspended dividends to shore up their rapidly-weakening balance sheets. One quick way to determine if the dividend is at a high risk of getting slashed is if it is abnormally high. Though tempting, these payouts are usually a mirage, destined to disappear.
Here are the dividend stocks we’re focusing on today.
Let’s take a closer look at each.
Verizon (VZ)
Dividend Yield: 4.25%
Verizon shareholders have to be pleased with its performance during the recent drama. It held up far better than the rest of the market and has since reclaimed the lion’s share of its losses. The price trend is back above the 20-day and 50-day moving averages, with volume patterns flashing healthy participation.
Last week’s earnings came and went with nary a misstep in the stock, confirming that investors are comfortable and confident in Verizon’s performance right now. Their income stream is largely immune to any of the fallout to the global pandemic. No one is canceling their cell phone plans when that lovely little gadget is their only link to the outside world.
The downside to VZ stock not getting crushed is that we didn’t see its dividend yield balloon. But at 4.25%, it’s still more than double what you’re getting paid in the S&P 500.
Coca-Cola (KO)
Dividend Yield: 3.47%
You might be surprised to learn that Coca-Cola shares fell 40% during March’s bloodbath. Irrational traders were treating the soda king more like a cruise line stock than a consumer staple giant. Fortunately, the wrong has since been righted, at least in part. KO stock regained much of the lost ground, but still offers enough of a discount to its highs to make it a tempting dividend stock.
Its yield of 3.47% is smaller than Verizon but still qualifies as one of the biggest payouts among blue chips. I’d prefer to see KO rise back above the 50-day moving average and overhead resistance at $50 to further validate its recovery. You could buy shares now and bask in the cheaper entry or wait for the additional confirmation. Either way, KO stock is one of the top dividend stocks in the market right now.
AT&T (T)
Dividend Yield: 6.65%
AT&T qualifies as the riskiest of today’s dividend stock selections. In its defense, Verizon and Coca-Cola are about as safe as you can get. T stock is the most volatile of the three and has seen heavy losses this year.
From peak-to-trough, AT&T shares fell 34%, almost matching the decline of the S&P 500. The lack of relative strength was undoubtedly a disappointment to shareholders expecting the telecom titan to live up to the reputation of its defensive sector.
If you’re seeking a silver lining to the carnage, then look no further than the dividend yield, which now sits at 6.65%. Like Verizon, AT&T reported earnings last week. Thus far, its share price is holding up well despite underwhelming Q1 numbers. If you want more evidence that the stock is recovering before buying, you could wait for a push above $31.50 resistance.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! As of this writing, Tyler didn’t hold positions in any of the aforementioned securities.
