Interest rates may be on the rise right now, but they are still near historic lows. So, as it continues to be a near-zero interest rate environment, dividend stocks have become even more important to investors searching for yield.
The problem? Unlike bonds, there’s a lot more risk in depending on equities for income. Bond interest payments are mandatory. Dividend payments? They can be cut at any time. However, that doesn’t mean you should skip dividend stocks entirely if you’re searching for yield. There are still scores of high-quality stocks out there, both with great yields as well as the potential for long-term gains.
Spanning across all sectors, these less-cyclical names could also be a safe harbor in a stock-market downturn. While it’s nearly impossible to time the market, with stocks generally still overheated, it may be wise to consider names that could hold up in a market correction.
So, which dividend stocks should you consider buying for 3%+ yields and possible appreciation? These nine names come to mind:
- Cardinal Health (NYSE:CAH)
- Conagra Brands (NYSE:CAG)
- IBM (NYSE:IBM)
- Kellogg (NYSE:K)
- Kimberly-Clark (NYSE:KMB)
- Lockheed Martin (NYSE:LMT)
- Pfizer (NYSE:PFE)
- Phillip Morris International (NYSE:PM)
- PPL Corporation (NYSE:PPL)
Dividend Stocks: Cardinal Health (CAH)
I have written before on the merits of owning CAH stock — both as a reliable value stock and as a great retirement stock. Now, even as shares have traded sideways for the past year, this is still a great play for investors looking at reasonably priced dividend stocks.
At a forward price-to-earnings (P/E) ratio of 8.66 times, shares in this pharmaceutical distributor remain very cheap. Plus, with a forward dividend yield of 3.73%, it’s a great income play, too.
However, the stock’s weak performance may have you thinking Cardinal Health isn’t doing so hot. That’s not entirely true. Beating both revenue and earnings estimates in its latest quarterly results, things are improving for the company. Not only that, its prior exposure to the Opioid Crisis is now largely in the rearview mirror. The only catch is that this isn’t a growth stock by any stretch of the imagination.
Analyst consensus calls for mid-single-digit sales growth in the coming year. I wouldn’t expect blockbuster returns out of CAH. However, if you’re looking for a solid dividend yield with less risk of heading lower, this is a name to keep on your watch list.
Conagra Brands (CAG)
Currently yielding 3.18%, packaged food giant Conagra Brands is a great consumer defensive stock for dividend investors. In addition, trading for 13.23 times forward P/E, its shares change hands at a slightly lower valuation than many of its peers.
Of course, there’s a reasonable explanation as to why shares are so cheap right now. With the company’s results this past year bolstered by the stay-at-home economy, analysts expect earnings to dip slightly in the coming fiscal year. Yet, as the company discussed in its recent guidance note, that stay-at-home trend — specifically, the shift towards in-home entertainment — could benefit Conagra long-term.
In other words, the pandemic tailwinds that helped keep CAG stock steady in 2020 aren’t as much of a one-time thing as folks might assume. Now, that doesn’t mean shares are ready to breakout from their current price level of around $35. But with enough in motion to keep earnings steady in the coming years, its current payout rate is safe at today’s levels.
On top of that, this name could see another boost in the years to come. Conagra currently pays out 42.11% of its earnings as dividends. For comparison, rivals like General Mills (NYSE:GIS) have payout ratios between 50% and 55%. Add in CAG’s relatively low downside risk if the market corrects and this pick looks like another great play among dividend stocks.
For years, “Big Blue” has had to fight the perception that it’s just a tech dinosaur. However, even as IBM makes the right moves — pursuing opportunities in both blockchain and cloud computing — investors continue to largely avoid this name.
As a result, IBM stock trades at a low valuation, with a forward P/E of 11.10 times. On top of that, shares yield 5.32%, a large amount in today’s low-interest rate environment. Of course, although I’ve talked up its exposure to blockchain and cloud computing, IBM is still being weighed down by its slow-growing legacy businesses. But, as InvestorPlace’s Chris Lau notes, the company is in the process of spinning off these legacy units.
Additionally, with IBM planning to sell its unprofitable Watson Health unit, the company is further streamlining operations. It’s jettisoning what doesn’t work and focusing on future growth. This opens the door to not only satisfying investors with yield, but also potential substantial gains in its price.
Unlike Microsoft (NASDAQ:MSFT) or the FAANG stocks, IBM stock didn’t shoot the moon during the pandemic. This may mean shares have less downside risk than the company’s better-performing rivals. So, with more on its side than just a high yield, consider this pick of the dividend stocks.
Along with Conagra stock, Kellogg stock is another high-yielding dividend play in the packaged-goods space. Also trading with a reasonable forward P/E ratio of 14.63 times, shares of Kellogg currently sport a dividend yield of 3.85%.
Mass stockpiling at the start of the pandemic last March helped to keep this stock steady during the early 2020 market turmoil. However, trading sideways while markets hit record highs, K stock investors who dived in at the start of the outbreak have probably not been happy with their returns.
That said, investors who are looking to enter a position today may see better results. True, as one Motley Fool contributor discussed in January, Kellogg could be more of a “value trap” than a value stock. With the company’s pandemic-bolstered results likely to fall back in 2021 as well as limited ability to raise the dividend, it makes sense why markets are lukewarm about K’s prospects.
However, as InvestorPlace contributor Divya Premkumar discussed in November, you shouldn’t forget this company’s exposure to the “plant-based meat” phenomenon. Owning both the MorningStar Farms and Incogmeato brands, Kellogg could see better-than-expected results if it can grab market share from Beyond Meat (NASDAQ:BYND) and Impossible Foods.
The jury may still be out on further price appreciation, but paying you while you wait with a 3.88% yield, Kellogg is another solid pick for investors in dividend stocks.
Given the heavy amount of toilet paper stockpiling that went on at the start of the outbreak, it’s no shock KMB stock was fairly resilient during last year’s market maelstrom. But, after quickly recovering and hitting prices as high as $160, the stock has sold off substantially since last summer.
Now close to $130 per share, though, this paper-based consumer products company may be a great buy for income investors. Yielding 3.49% with a long history of consecutive dividend growth, this a great long-term income stock. That’s not going to translate into substantially higher prices for Kimberly-Clark in the short-term. But it could help the stock sustain solid long-term gains for investors with a “set it and forget it” approach.
That said, it is far from guaranteed that Kimberly-Clark will continue to produce slow-and-steady returns. As one Seeking Alpha commentator discussed this month, rising pulp prices could mean long-term stagnant share growth for the company.
I agree that rising commodity prices are a concern here. However, while inflation worries are now top of mind, the commodities rally we’ve seen could already be overdone. All in all, it’s too early to tell whether the 2020s will be another decade of surging pulp prices. So, I wouldn’t split hairs too much when considering a position in this one of the dividend stocks.
Lockheed Martin (LMT)
With a yield of 3.04%, LMT stock just makes the cut for this list of great dividend stocks. But this aerospace and defense play offers more to be interested than a dividend.
Sure, this stock has yet to bounce back to its pre-pandemic high-water mark. Plus, with Democrats in majority control of the U.S. government, some folks are concerned that the country’s defense budget could take a hit.
However, fears that President Joe Biden is bad for defense contractors may be overblown. Of course, the new administration could allocate defense funds differently than the previous one. But that may work in favor of Lockheed Martin, which is focused on advanced-weapon systems.
Better-than expected results over the next four years could mean solid returns for LMT going forward. Add in the company’s continued re-upping of its share repurchase program and there’s enough in motion to make this a great opportunity for income and stock-price growth.
Despite news on the effectiveness of its Covid-19 vaccine, investors haven’t been too keen on bidding up PFE stock. In fact, shares are down slightly, at around 9% year-to-date (YTD).
On top of that, Pfizer is trending lower — selling for just 10.15 times forward earnings and sporting a 4.61% dividend yield — despite being a fairly cheap blue chip. What’s driving this? Well, there are a lot of moving parts behind this large pharma company.
Pfizer may have spun off its slow-growing Upjohn business, but with an earnings miss on Feb. 2, the company still needs to prove itself. Is this possible in the coming year? I would say yes. With the company upping its 2021 profit forecast thanks to its vaccine, this pharma blue chip has a better shot of exceeding current investor expectations.
And even if near-term results fail to impress, you can still get paid a decent dividend yield while waiting on this one of the dividend stocks. Pfizer has a payout ratio of just 46.8% and a 5-year average dividend growth rate of around 6.06%. That means there’s room for dividend growth. Bottom line? Consider this another great pick with appreciation potential.
Phillip Morris International (PM)
First things first — I know not all investors are comfortable owning tobacco stocks. However, if you are fine with owning companies that are exposed to this controversial industry, PM stock is a solid name.
Why? I’ve talked quite a bit before about Phillip Morris’ former parent company, U.S.-based Altria (NYSE:MO). This international purveyor of Marlboro cigarettes and other major brands sports a lower dividend yield than MO — 5.55% versus Altria’s 7.71%. However, it hasn’t faced the hurdles that now burden its stateside counterpart.
More specifically, PM has encountered fewer headwinds in pivoting towards modified-risk tobacco products. For example, the company has found success in Europe with its smokeless Iqos brand. Altria, on the other hand, has experienced issues with its ill-timed investment in e-cigarette maker Juul.
That said, with Altria bringing Phillip Morris’ Iqos technology to the U.S. market, prospects look bright for both tobacco companies. This may mean further stock price gains ahead, on top of both dividend stocks paying out above-average yields.
PPL Corporation (PPL)
PPL stock may be one of the highest yielding utilities plays out there. Still, investors seem cautious about buying it. Despite the can’t-miss 6.15% yield, shares have held steady between $25 and $30 for most of the past year.
The company’s planned sale of its U.K. unit may still be in motion. But uncertainty over this segment continues to weigh down the stock. Also, its recent earnings miss isn’t giving investors much reason to dive in, either.
However, with low expectations already baked in, downside risk may be minimal here. It may take a while for shares to move higher. But at least you’re getting a fairly high dividend yield for holding it. Add in the potential for a pop once it finally unloads the U.K segment and there’s plenty of reason to see PPL as one of the best dividend stocks out there.
Granted, don’t expect to get rich off of PPL. It may perform better in the future than it has recently. But, while I see it eventually hitting $35, a move to $40 and beyond may be out of reach.
On the date of publication, Thomas Niel held a long position in MO stock.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.