SPECIAL REPORT The Top 7 Stocks for 2024

Forget Bonds, Buy These 7 Dividend Rock Stars Instead

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  • Realty Income (NYSE:O): Realty Income is known as “the monthly dividend company” for a reason.
  • Exxon Mobil (NYSE:XOM): XOM is subject to a significant acquisition that could lead to a temporarily lower stock price.
  • DRDGold (NYSE:DRD): A favorable cost structure paired with elevated gold prices gives DRD ability to reward its shareholders.
  • Continue reading for the complete list of dividend stocks to buy.
Dividend stocks to buy - Forget Bonds, Buy These 7 Dividend Rock Stars Instead

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Dividend assets and fixed-income investing generally provide similar functions to a diversified investment portfolio. Although one might argue that fixed-income has the added benefit of diversification, it doesn’t help diversifying for the sake of it. In fact, I would say that the current state of the bond market dictates a shift away from fixed-income and toward high-quality dividend stocks to buy.

What’s my justification for that mindset? Well, the yield curve and credit spreads are pin-balling around, meaning the outlook for bonds is uncertain. As such, I believe the idiosyncratic risk embedded in dividend stocks is a better option for now. Moreover, many dividend stocks present value amid a sharp drawdown in recent months.

Whether you share a similar view as me or not, here are seven dividend rock star stocks to buy!

Realty Income (O)

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Realty Income Corporation (NYSE:O) is branded as “the monthly dividend company” due to its consistent monthly dividend distributions. As a matter of fact, Realty Income has declared 639 consecutive monthly dividend payments accompanied by 104 straight quarterly dividend hikes.

With a trailing dividend yield of 6.03% and a forward price-to-funds from operations ratio of 12.19x, I believe O stock presents solid prospects. However, its fundamentals must be considered to consolidate the argument.

Even though I suspect a few short-term wobbles from Realty Income Corporation, its long-term fundamentals are intact. For example, Realty Income recently raised over $2 billion in debt to bridge its interim operations. However, on a positive note, the company concurrently acquired lucrative assets by completing transactions of $2.75 billion worth of brownfield units in its second quarter. In line with its existing business model, these units are primarily single-tenanted retail properties with an average capitalization rate of 6.9%.

Furthermore, Realty Income recently agreed to buy partial interest in The Bellagio Las Vegas for $950 million. The deal enhances its footprint in the hospitality business via a flagship asset that hosts the ability to present long-term value.

In summary, Realty Income is making some big moves that could play into its dividend yield for years to come. Sure, O has its risks. Nevertheless, its salient features suggest it is among the excellent dividend stocks to buy for income-based investment.

Exxon Mobil (XOM)

Exxon Mobil logo outside of a corporate building
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Exxon Mobil (NYSE:XOM) has made headlines once again. The American energy giant reached a definitive agreement to acquire Pioneer Natural Resources (NYSE:PXD) in a deal worth more than $58 billion.

In my opinion, XOM stock offers a strategic opportunity. If measured on a month-weighted average price basis, Exxon’s Pioneer deal is likely to close at a premium of around 9%, which, according to merger arbitrage theory, means XOM stock will likely dip in tandem. However, a dip in XOM’s stock price could enhance its existing dividend yield of 3.42%. In addition, an acquirer’s stock price usually ticks back up to its previous level after shedding its initial value. Although not guaranteed, the subsequent mean reversion occurs due to realized synergies and the intervention of technical traders.

Suppose XOM stock’s trajectory follows a merger-arbitrage trajectory. In that case, investors will be presented with a stellar opportunity to buy into the dip, concurrently locking in a higher-than-usual dividend yield and potential capital gains. Moreover, sustained energy prices and the stock’s respectable P/E ratio of 8.52x add additional substance to my argument.

XOM stock is a risky bet as it is a cyclical asset with significant event-driven features pending. However, it is a bet that could reward shareholders for years to come.

DRDGold (DRD)

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The uncertain interest rates environment probably means that a bullish scenario for Gold holds true. Even though an argument exists that Gold’s approximate 12% year-over-year (YOY) surge is overdone, Gold still provides solid diversification benefits to most investment portfolios.

As for gold stocks, my pick of the bunch is DRDGold (NYSE:DRD).

For those unaware, DRDGold specializes in surface recoveries. The firm drifted out of deep gold mining a while back and opted for a leaner business model. In my view, surface recoveries such as tailings businesses are the ‘new in’ for gold mining companies. I base this on the fact that many gold mines have been dug very deep, especially in Sub-Saharan Africa, where DRDGold operates. Thus, gold mining companies’ cost structures are rising. However, surface recovery firms run on low-cost business models while still benefiting from elevated gold prices.

DRDGold released its full-year earnings in June, revealing scintillating form. The firm achieved 5.5 billion Brazilian Real (approximately $290 million) in revenue, reflecting a 7% YOY increase. In addition, DRDGold’s EBITDA margin grew to 29.84%, providing it with the necessary leeway to declare a 16th consecutive dividend payment.

DRD stock’s trailing dividend yield of 7.88% is supplemented with an enticing P/E ratio of 10.91x, illustrating the stock’s potential to deliver solid total returns.

UnitedHealth Group (UNH)

The UnitedHealth (UNH) headquarters in Minnetonka, Minnesota.
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I wanted to throw UnitedHealth (NYSE:UNH) into the mix of dividend stocks to buy as it is a non-cyclical option. Moreover, although its dividend yield of 1.43% might seem tame, the Invesco Dividend Achievers ETF (NASDAQ:PFM) reckons UnitedHealth is an emerging dividend stock. Thus, collectively, it can be argued that UnitedHealth blends low volatility and dividend growth to provide an ideal income-based stock to long-term investors.

Let’s drift into a summation of UnitedHealth’s second-quarter earnings, which I believe illustrates its robustness.

UnitedHealth beat estimates when it released its second-quarter earnings. Despite suffering from a systemically-driven rising cost base, the firm achieved a revenue beat of $1.94 billion paired with an earnings-per-share bet of 16 cents. Much of the company’s progress stemmed from its hypergrowth digital segment, Optum, which delivered $56.3 billion in quarterly revenue. In addition, UNH’s UnitedHealthcare segment tabled $70.2 billion in quarterly revenue, reflecting the continuous support deriving from commercial and public contracts.

As things stand, life and health insurance prices within the U.S. keep rising. In my view, UnitedHealth might benefit from such price rises, given its substantial cross-segment market share of 30.75%. Moreover, U.S. inflation numbers may drop soon, providing UnitedHealth with a reduced cost structure, lending it the opportunity to widen its existing net profit margin.

As previously mentioned, UNH stock’s dividend yield of 1.43% might seem underwhelming. However, its dividend payout’s 16.43% compound annual growth rate suggests UNH stock presents a dividend growth opportunity to patient investors.

Lockheed Martin (LMT)

A Lockheed Martin (LMT) Space Systems sign in Sunnyvale, California.
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Lockheed Martin (NYSE:LMT) is on today’s list of dividend stocks to buy, as I see it as an incredible dividend growth opportunity. In fact, the company recently increased its quarterly dividend by 5% to manufacture a forward dividend yield of 3.14%. Moreover, Lockheed approved additional stock repurchases of $6 billion, upping its total planned share buybacks to $13 billion. As such, Lockheed provides an opportunity to benefit from solid income while phased-in share buybacks allow for a gradual decline in investment cost basis.

Anecdotally speaking, global conflict is rising amid growing tensions between global powers. Thus, I anticipate nations to sure up their defense systems in the coming years, allowing Lockheed access to high-profile contracts. In fact, the firm secured numerous contracts of late, including a $1.2 billion missile contract from the U.S. Navy and a $746.27 million F-35 fighter jet contract from Switzerland. I would be very surprised if Lockheed’s pipeline dries up soon, as I foresee sustained demand for national defense equipment.

Dialing in on Lockheed’s capital market prospects conveys positivity. I already mentioned LMT stock’s dividend prospects. However, additional factors to consider are the stock’s respectable P/E ratio of 15.09x and Citigroup’s (NYSE:C) recent claim that defense stocks are “still attractive” after their recent rally.

So, the question beckons: Is LMT stock a dividend rock star? In my view, the answer is a resounding yes.

Sociedad Química y Minera de Chile (SQM)

Sociedad Quimica y Minera logo displayed on a mobile phone with the company's web page on it. SQM stock
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Sociedad Quimica Y Minera DE Chile (NYSE:SQM) is the second-largest lithium producer in the world.

A strong value proposition of SQM is its low production costs, stemming from favorable regional input costs and shallow mines. The firm’s EBITDA margin of 50.88% reflects SQM’s sublime cost structure as it stands far above the sector median of 13.53%. Moreover, the company anticipates a 14% annualized capacity increase until 2025. As such, we might see a surge in SQM stock’s dividend payouts if these two factors coalesce in the coming years.

SQM stock has a dividend yield of 5.53%. However, its 5-year yield-on-cost of 20.46% suggests the firm’s dividend profile is below its cyclical midpoint. Thus, there is a strong likelihood that Sociedad Quimica Y Minera DE Chile’s dividend distributions might surge in due course.

Sibanye-Stillwater (SBSW)

Mining cart in a silver, copper, and gold mine representing VOXR Stock.
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Josh Enomoto of Investorplace recently covered Sibanye-Stillwater (NYSE:SBSW) in a comprehensive analysis of gold stocks to buy. However, there is more to add to Josh’s analysis, especially regarding Sibanye’s core business and its dividend profile.

Sibanye-Stillwater’s core business is platinum group metals (PGMs) mining. The company’s PGM operations are situated in South Africa and the United States. In addition, Sibanye mines lithium in Finland.

PGM prices have collapsed since the turn of the year. In addition, Sibanye faced significant operational disruptions in the U.S. as its Montana mines flooded, impairing regional operations until early 2023. However, the latter seems to be solved while PGM prices look set to recover amid growing manufacturing activity in China.

Sibanye is in a dip, and there is no doubt about it. However, the good news is that its stock’s more than 35% YOY decline has opened up a dividend yield of 3.74% paired with a compressed P/B ratio of merely 0.8x. Thus, I believe alluring total return prospects exist if the firm’s underlying operations stabilize.

If you’re willing to onboard its inherent risks, you’re definitely looking at a strong buy here!

On the date of publication, Steve Booyens did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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