One of the fears of the Presidential election has been that the process would be prolonged and perhaps involve unrest. But as seen by the powerful bullish moves in the markets this week, it looks like this scenario will not play out. But this does not imply that things will be smooth either. This is why it is a good idea to consider dividend stocks to provide more stability in the portfolio.
For the most part, the next few months will likely not see much action from the federal government — which is fairly typical after an election. But this could mean a delay of a stimulus package. In other words, the slowdown in the economy may deepen, as the Covid-19 worsens. After all, there continues to be high levels of unemployment claims.
So what are some dividend stocks to consider? Let’s take a look at seven that look interesting:
- IBM (NYSE:IBM)
- Johnson & Johnson (NYSE:JNJ)
- Coca-Cola Co (NYSE:KO)
- AT&T (NYSE:T)
- JPMorgan (NYSE:JPM)
- Blackstone Group (NYSE:BX)
- H&R Block (NYSE:HRB)
Something else: it’s still unclear how big a future stimulus package might be. After all, GOP senators have returned to deficit-hawkishness and been more restrictive with spending.
Dividend Stocks To Buy: IBM (IBM)
It’s extremely difficult for a tech company to remain competitive over the long-term. There is a long list of once-dominant firms that have since become also-rans, such as Nokia (NYSE:NOK) and BlackBerry (NYSE:BB).
But there is one tech company that has certainly beat the odds: IBM. Keep in mind that this company has been around since 1911.
Now, it’s true that the past few years have been a slog. But then again, this has resulted in a compelling valuation, with a forward price-to-earnings ratio sitting at 9X. There is also a juicy dividend of 5.7%, one of the highest yields in the tech industry.
So why might IBM stock be ready for a turnaround? One reason is that the company has been restructuring its operations, cutting costs and unloading non-core divisions. For example, the company recently announced a spin-off of its managed services business, which should help focus the organization.
Next, IBM has been making aggressive moves to pursue a hybrid cloud strategy. At the center of this has been the transformative acquisition of RedHat, which is a leader in enterprise open source software.
And finally, IBM has been investing on cutting-edge technologies like quantum computers and AI.
Granted, it will still take time for these moves to make a difference. But the good news is that IBM has a good strategy in place.
Johnson & Johnson (JNJ)
The origins of Johnson & Johnson go way back to 1886. The company is also one of the marquee dividend stocks. Note that Johnson & Johnson has increased its payout for 58 consecutive years.
It certainly helps that the company has a diverse set of businesses. That ranges from consumer products (Aveeno, Sudafed, Nicorette, Pepcid and so on) to pharmaceuticals (for areas like immunology, oncology and infectious diseases) and medical devices (such as for eye health and surgery).
As seen with the latest quarter, the company is experiencing a pickup in momentum. The net earnings more than doubled to $3.55 billion and pharmaceutical sales rose by 5%. There was also some improvement in the consumer segment, which has lagged over the past few years.
A potential catalyst for JNJ stock is the company’s Covid-19 vaccine. While the Phase 3 clinical trial was paused because of an ill patient, it will resume soon. This is the largest Covid-19 clinical trial at 60,000.
Note that JNJ has a long history with vaccines, and the additional benefit of massive scale. The company believes it can ramp production for up to one billion vaccine doses by the end of next year.
Despite inflation, recession and war, KO stock has been a bedrock of stability. Of course, the company is the world’s largest non-alcoholic beverage maker, with more than 500 brands and over 3,500 beverages. Twenty of its brands generate at least $1 billion each.
The Covid-19 pandemic has naturally weighed on the company. But KO has been making strides in getting back to growth. This has been especially true in China and other parts of Asia such as South Korea and Singapore.
But KO has been realigning its overall cost structure. A big part of this has been via reducing the number of master brands like Tab cola. But the company has also been changing its marketing strategy, with more emphasis on digital approaches.
KO is certainly one of the best records for consistency for dividend stocks. Consider that the company has increased the payout for 58 consecutive years.
Among those dividend stocks representing large companies, AT&T has one of the highest yields, currently at 7.7%.
True, whenever a dividend gets to this level, there is always the risk of a cut. But AT&T has a long history of protecting its dividend. It definitely helps that the company has a lucrative mobile phone business that generates substantial cash flows.
The transition to 5G will also be a catalyst for growth. This will not just be about consumer offerings but also enterprise business opportunities like IoT (Internet-of-Things).
Of course, the major issue with T stock is its entertainment business, WarnerMedia. The novel coronavirus made things much more difficult for feature films as theatres closed down.
But things should start to improve next year. In the meantime, AT&T has been showing promise with its streaming service HBO Max. Next year, the company plans to have an ad-supported version, plus further expansion into global markets.
The banking sector has had a rough time this year. Rock-bottom interest rates have put pressure on margins. But there have also been concerns about loan losses because of the Covid-19 pandemic.
But the situation is presenting interesting value opportunities for investors. Just look at JPM stock. Shares trade at only 11 times earnings, with a dividend yield around 3.6%.
The latest earnings report has shown the underlying strength of the company. JPMorgan was actually able to post a 4% increase in profits, which was much better than expected. There was also a lower amount — $611 million – reserved for future losses.
Then again, JPM’s diverse platform has been able to offset some of the problems. One of the bright spots is its investment bank, which has seen a surge in new public offerings and debt issuance. Then there has been the strength from the trading business.
JPM also is leveraging its scale to capitalize on fintech trends. For example, the company recently launched a payments services for businesses. It’s a fast-growing market, as seen with companies like Square (NYSE:SQ) and PayPal (NASDAQ:PYPL).
Blackstone Group (BX)
Blackstone is one of the top alternative investment firms, boasting $584 billion in assets under management. The company has dominant positions in areas like private equity, real estate, non-investment grade credit and secondary markets.
Interestingly enough, the slowdown in the global economy will likely benefit BX stock. The reason? Well, in such environment, there are opportunities to invest in restructuring opportunities, which could lead to strong returns. And BX has one of the best track records for type of work.
But the firm has also been getting more aggressive making venture investments — and these could provide a nice boost to the bottom line as well. Some of these investments, such as Bumble (a leading dating app) and Refinitiv (a data analytics company), may come public in the next year.
Another benefit is that the company has been a top payer of dividends. Note that the current yield is 3.5%.
H&R Block (HRB)
There won’t necessarily be major changes to the tax code, as the Senate could remain in the GOP hands. But there will still likely be changes. With higher budget deficits looming, it wouldn’t be surprising to see changes in deductions and credits.
This will certainly bode well for H&R Block. The company has a trusted brand and an extensive footprint in the U.S. market.
But H&R Block has also been investing heavily in technologies. The result is that the company has a omni-channel platform. In other words, customers have a myriad of choices on how to prepare their taxes — whether by visiting a location, setting up a video conference call or using a mobile app or web site.
Another catalyst for H&R Block growth is the small business market. Over the past few years, the company has been adding more services and software for those customers, such as for accounting and finance.
So what about HRB stock? The valuation is definitely attractive now, with the forward price-to-earnings ratio at 5X and the dividend yield of 6%.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.