At the end of 2016, immediately after the election of President Donald Trump, the stock market rallied strongly on the expectation of a pro-business environment in Washington and hopes for some kind of stimulus to boost the U.S. economy.
From November’s lows through January’s highs, the market added more than 10%.
However, continued gains have been much harder to come by as much of the optimism is already priced into stocks. As of the end of mid-April, the S&P 500 was valued at over 18 times future earnings, and the Nasdaq was even higher with a forward P/E of about 20!
It’s always smart to take what the market gives you. And I’d never ask anyone to give back the hard-earned gains of the last few months.
But I think it’s very important to be realistic about what’s next.
Looking forward, things are going to get much harder. President Trump has already run into some policy snags with his Obamacare efforts and distractions within the White House that could hold back his agenda. Furthermore, while earnings are improving modestly, the World Bank warns that economic expansion in the developed world is painfully small — with just a 1.8% a growth rate expected this year!
Given all this, it may be time to think about going “risk off” as the jubilant attitudes of late 2016 start to fade.
If you’re worried about a brief correction or even simply the market moving sideways, there is one tried-and-true strategy that will provide low-risk returns in any environment …
… a focus on quality dividend stocks that deliver a juicy stream of income.
I’ve exhaustively researched the best options out there for dividend investors, focusing on:
- Stocks that pay at least 3% in annual dividend yield
- Stocks that have sustainable payouts that aren’t at risk and will almost certainly grow in 2017
- Stocks that will at worst hold steady, but likely see shares rise in 2017, too.
If you’re confused by the current market uncertainty and worried about when the other shoe is going to drop, consider this your low-risk playbook for the coming months.
Thanks for your interest in InvestorPlace, and best of luck in 2017!
Jeffery P. Reeves
Executive Editor, InvestorPlace.com
Bulletproof Stock #1 – Realty Income (O)
- Industry: Real Estate
- Dividend: 4.1%
- Buy Below: $65
With dividends paid since 1969, Realty Income Corp. (NYSE:O) should be on every income investor’s radar. But equally compelling is the fact that dividends are paid on a monthly basis instead of a quarterly basis – providing much more regular paydays than your typical dividend payer.
And with a yield over 4% currently, it’s not chump change, either.
The reason Realty Income can offer such nice payouts is because it generates reliable cash flow from 4,600 properties. These sites are occupied by a wide number of industries that include bulletproof tenants such as drugstores from Walgreens Boots Alliance Inc (NASDAQ:WBA), movie theaters under AMC Entertainment Holdings Inc (NYSE:AMC) and shipping facilities for FedEx Corporation (NYSE:FDX) just to name a few.
With stable long-term leases and high-quality clients, you can be sure that your monthly payout will keep rolling in. And with an amazing track record that spans 76 consecutive quarters of ever-higher payouts, you can be sure this dividend growth name will increase its cash dividend across 2017 as well.
If you’re worried about economic tensions or even the possibility of a trade war in 2017, then the long-term leases of Realty Income will provide a hedge against volatility. Furthermore, while there may be winners and losers based on what policies come out of Washington in the coming months, it’s important to remember that Realty Income rents to many domestic-focused companies that are crucial players in the U.S. economy — including retailers, grocers and service providers.
If you want stability, then consider cashing monthly dividend checks from Realty Income in 2017. Shares may never double or triple, but they are sure to hang tough or grind steadily higher … and pay out a nice dividend along the way.
Bulletproof Stock #2 – Teva Pharmaceutical (TEVA)
- Industry: Pharmaceuticals
- Dividend Yield: 4.2%
- Buy Below: $35
With the failed GOP effort at carving up the Affordable Care Act (known to many as Obamacare), many investors have been focused on the winners and losers as changes to healthcare regulations have faltered.
But forget about specifics of Obamacare if you’re a low-risk, income-oriented investor. The idea of broader access to generics and cheaper pharmaceuticals instead of existing big-ticket drugs is a long-term trend that everyone can get behind, regardless of short-term policy changes.
That’s where generic drugs giant Teva Pharmaceuticals Industries Ltd (ADR) (NYSE:TEVA) comes in.
Investors simply don’t care about this company because it sells boring drugs at low margins. But based on the next fiscal year’s forecasts, Teva stock currently trades at under 7 times forward earnings — and that’s a bargain you shouldn’t pass up. It also has a current debt-to-equity ratio of about 1.0 and trades for less than 1.5 times next year’s revenue.
Sure, there’s only modest growth here since Teva doesn’t have the super-high-margin drugs of some other names in pharma. But it also doesn’t have as much risk, and if you want a value play at a great price that can weather any economic or political environment, TEVA is it.
Throw in a reliable dividend that is less than 30% of earnings, and you have another great value play for the long-term.
The icing on the cake is that you don’t get much more this recession-proof than the healthcare sector, since consumers will cut back on just about anything before they will stop taking medications that improve their quality of life.
Generic drugs are one of the most bulletproof segments of the market you can invest in, and Teva is priced right and offers a great dividend right now.
Bulletproof Stock #3 – AT&T (T)
- Industry: Telecommunications
- Dividend Yield: 4.8%
- Buy Below: $44
Yes, even boring old AT&T Inc. (NYSE:T) makes this list! Of course, if you have been paying attention, you’d know AT&T is anything but boring after gains of almost 20% in 2016.
The ride is far from over, too. While everyone is obsessed with the future of its proposed $85 billion merger with CNN and HBO parent Time Warner Inc (NYSE:TWX), the important thing to remember is that this stock is an income powerhouse that won’t quit regardless of what happens with its content plans.
Sure, AT&T would love to bolster streaming content offerings. But consider that AT&T has forged ahead with a faster 5G network that supports the public’s reliance on mobile browsing. As a result, while rival Verizon Communications Inc. (NYSE:VZ) recently reported weak guidance and anemic wireless growth in January, AT&T improved its “churn” rate and is making headway.
This is not a growth stock where double-digit revenue expansion is necessary. Instead, investors should focus on operating cash flow and free cash flow where the dividend payments come from. AT&T yields an impressive 4.8% as of this writing and pays out just 65% of earnings per share. That all but ensures a reliable dividend — and, more than likely, future increases in that payout.
The Time Warner plans are just a distraction, since they are about the long-term evolution of AT&T into a content provider as well as a distribution network. In 2017, focus on the bulletproof cash flow and the juicy dividend to keep your portfolio steady — regardless of whether the merger ever happens or not.
At a forward P/E of less than 14, this entrenched telecom is a steal here.
Bulletproof Stock #4 – Crown Castle (CCI)
- Industry: Telecommunications
- Dividend Yield: 4.3%
- Buy Below: $98
As long as we’re talking about telecom, let’s explore Crown Castle International Corp. (NYSE:CCI). This under-the-radar play is a great mix of both stability and growth, and yields only slightly less than the big-name AT&T right now.
Crown Castle is the largest provider of shared wireless infrastructure in the U.S. That means it owns and operates the antennas and towers that are used for mobile data in many regions, and gets paid by carriers — including AT&T and its peers — who want to use its network to do business.
With wireless data consumption steadily on the rise in this age of smartphones and tablets, this is about as sure-thing as you’re going to get!
Best of all for dividend investors, the company converted to a REIT structure three years ago, which was a great move for dividend investors. Before that event, the payouts were 35 cents quarterly, but now they have soared to 95 cents a quarter!
With the new structure, it’s harder for Crown Castle to see a big ramp in share price as it allocates lots more capital to shareholders instead of growth. However, the stock did gain about 6% in less than a month from its December 2016 lows through the end of the year, so don’t think CCI can’t deliver some nice share appreciation to go with that juicy dividend stream.
Bulletproof Stock #5 – Brookfield Infrastructure (BIP)
- Industry: Industrials
- Dividend Yield: 4.5%
- Buy Below: $40
In any economic environment, dividend investors should be looking for stable investments with reliable cash flow. And if you really want a bit more security, you should also look for “wide moat” companies that have deep pockets to sustain themselves as well as major barriers to entry in their particular market.
All these things perfectly describe Brookfield Infrastructure Partners L.P. (NYSE:BIP), an industrial player that builds, buys and operates a wide array of infrastructure assets. Just a few areas BIP touches are:
- 2.6 million direct customer electricity and natural gas connections worldwide
- 38 ports in North America, Australia and Europe
- Over 2,000 miles of toll roads in regions from South America and India
- Large rail operations in Australia and South America
Brookfield Infrastructure offers a nice distribution, but also has seen steady share appreciation of about 90% over the last five years vs. about 70% for the S&P 500 in the same period.
The risks aren’t zero for this stock, to be honest, since it is so globally connected and there are a lot of local issues that can affect operations — everything from damage caused by a hurricane to local trade disputes. However, the diversification across sectors and around the globe helps mitigate those risks.
There are many pieces in the global economic puzzle, but key infrastructure like roads and rails and power grids are some of the most important parts — in both good times and in bad. That means Brookfield Infrastructure is one of the safest bets out there for 2017.
Bulletproof Stock #6 – Target (TGT)
- Industry: Retail
- Dividend Yield: 4.5%
- Buy Below: $58
Target Corporation (NYSE:TGT) has had its ups and downs in recent years, but it’s dividend has gone nowhere but up. In fact, the big-box retailer has managed to increase dividends for 49 years in a row.
Over the past decade, TGT has increased its dividend five-fold from 12 cents quarterly in 2007 to 60 cents at present. Of course, bears will latch on to recent management missteps from the past few years that include a massive data breach at the end of 2015 and an ill-advised foray into Canada that resulted in the closure of 133 underperforming locations. But that’s all old news, and the damage has been done both in regards to share price and restructuring costs.
Looking forward, TGT stock is a bargain for roughly 13 times forward earnings — well under the average of about 18 for the S&P 500. Even better, it yields over 4% at current pricing despite an attractive valuation and that payout is less than half of next year’s earnings.
Profits may be a bit pressured in 2017, but Wall Street has already baked that into the equation both with their estimates and with the cheap valuation of shares. But what will really be interesting to watch is how Target fares if economic pressures heat up. In recent years it has made significant moves to source products from the U.S., including its Target Collective initiative that focuses on American-made fashion, which should help insulate it from trade pressures. Also, as a slightly more upscale retailer than Wal-Mart Stores Inc. (NYSE:WMT), Target customers may not suffer as much from sticker shock if prices move higher or if times get tight.
To be honest, all retail is risky in the age of Amazon — so I wouldn’t chase Target past the $58 buy below. But as long as it remains under that mark, I’ll take an undervalued pick paying a juicy dividend vs. the latest fashionable name in the space.
Bulletproof Stock #7 – Abbvie (ABBV)
- Industry: Pharmaceuticals
- Dividend Yield: 4.0%
- Buy Below: $65
AbbVie Inc (NYSE:ABBV) is another bulletproof healthcare play that won’t be susceptible to cyclical trends in the global economy.
ABBV was spun off of parent Abbott Laboratories (NYSE:ABT) at the end of 2012 in an effort to separate the drug research arm of the company from the existing portfolio of legacy treatments and medical devices. AbbVie is the far more attractive option of the two, both in terms of its research potential and its performance for investors; since the split, ABBV is up about 90% to almost double the performance of the S&P 500, while ABT is up only 30% or so.
AbbVie isn’t a risky development-stage biotech, however, with its blockbuster Humira arthritis treatment driving billions of dollars in annual revenue even as it continues to forge ahead with new drugs of the future. And despite an attractive dividend and strong stock performance, ABBV is currently trading for only about 10 times forward earnings!
Headquartered in Chicago and focusing on the American market with treatments for conditions ranging from HIV to Hepatitis C, you can be sure this company can ward off any political or economic turmoil in 2017 by leaning on its robust portfolio of treatments and its impressive research pipeline.
What’s more, the juicy dividend will offer you nice returns even if shares remain stuck in a challenging market.
Bulletproof Stock #8 – Philip Morris (PM)
- Industry: Tobacco
- Dividend Yield: 3.7%
- Buy Below: $109
Philip Morris International Inc. (NYSE:PM) has long been written off by many investors as a struggling tobacco giant that will eventually fade away. Well, it’s time to wake up and smell the Marlboros because PM stock is doing just fine — and so are its investors.
Think Philip Morris is sleepy and can’t move higher? Well, shares jumped about 12% in the first eight weeks of 2017. PM also has improved by 16% since January 2016 vs. about 14% for the S&P 500 in the same period — and that’s not even counting the big-time dividends either.
Philip Morris has been a consistent dividend growth machine, too, with payouts more than doubling for 46 cents quarterly a year ago to $1.04 to start 2017.
And while you may think this is just a sleepy play that has no future, it’s important to remember that PM is pretty aggressive about its new products including innovative “heat not burn” technology that cuts out the need to inhale tobacco smoke and reduces some of the health concerns, as well as forays into “vaping” and other smokeless options.
Those won’t pay off in the near-term, of course, but they are cheering up investors and keeping shareholders firmly in the buying mood. I have a pretty tight buy below on this pick, so don’t chase it, but feel free to jump in on any pullbacks and lock in a great dividend machine at a fair price.
Bulletproof Stock #9 – Digital Realty (DLR)
- Industry: Real Estate
- Dividend Yield: 3.4%
- Buy Below: $114
Digital Realty Trust, Inc. (NYSE:DLR) is a real estate investment trust, or REIT. This special designation of company is well-known by most dividend stock investors because REITs get favorable tax treatment from the IRS and in exchange must deliver 90% of taxable income directly back to shareholders.
That means a mandate for big-time dividends.
What makes DLR unique among other real estate investment trusts is that it owns and manages technology-related real estate, primarily data centers that provide much-needed server capacity for a wide range of businesses.
You may think only tech startups need flexible data storage, but DLR clients include financial service firms, healthcare companies and energy companies. After all, in a digital age, information technology is key to just about every business. The company’s portfolio is modest, consisting of only about 140 properties. But DLR is growing briskly — and so is its dividend and its share price. Current payouts of 88 cents per share each quarter add up to a nice yield. What’s more, 10 years ago that payout was only about 29 cents, meaning distributions have tripled in the last decade.
Whatever happens to the global economy in 2017, the importance of technology in all manner of businesses will not go away. And rather than spend big bucks on upgrading their own IT infrastructure, companies can simply rent data storage and cloud computing solutions from DLR — making it perfect both for startups looking to scale up as well as big companies looking to save on capital expenses during lean times.
Throw in the reliable payout from this REIT and shares up against a new 52-week high, and It’s hard not to like Digital Realty as a bedrock part of any portfolio.
Bulletproof Stock #10 – Oneok Partners (OKS)
- Industry: Energy (MLP)
- Dividend Yield: 5.9%
- Buy Below: $56
Oneok Partners LP (NYSE:OKS) is an energy MLP that stores and transports natural gas in the U.S. It is not an explorer or distributor, but rather a “middle man” in the supply chain that charges a modest fee to move natural gas from extraction to market.
That’s a great place to be for a host of reasons.
For starters, it’s insulated a lot from price fluctuations in energy since Oneok doesn’t care what the natural gas is worth at the time nor what it will ultimately be sold for at a later date. Also, with the domestic natural gas booming in the age of fracking and with a desire to move America off its dependence on foreign energy, you can be sure business will keep booming in 2017.
And when you throw in the prospect of a possible trade war disrupting supply chains overseas, it makes OKS stock a slam dunk for low-risk dividend investors. And the fact that shares have doubled in the past year on the hopes of easier regulations for pipelines under President Trump and a Republican Congress should show you that Wall Street is expecting big things from this company in the future.
And, of course, as an MLP, any gains made by Oneok must be delivered right back to shareholders via larger quarterly distributions.
There admittedly is not a lot of growth here, so don’t expect fireworks from shares. But if you’re looking for bulletproof income, there are few better options than Oneok.
Bulletproof Stock #11 – Blackstone Group (BX)
- Industry: Asset Management
- Dividend Yield: 5.2%
- Buy Below: $33
Blackstone Group LP (NYSE:BX) is a global asset management company. In addition to offering mutual funds and hedge fund services, BX has a very successful private-equity arm that snaps up value plays and squeezes cash out of them at a steady rate.
Some big prior investments in the Blackstone portfolio included a stake in the once-trendy footwear company Crocs, Inc. (NASDAQ:CROX). With its help, Crocs turned around and became a cash cow for the firm. More recently, it acquired a $13 billion firm that focused on distressed-debt investing — doubling down on the notion that it can find value in beaten-down segments of the market.
If you’re worried about a downturn in 2017, then Blackstone is the perfect long-term play because this investment firm is very shrewd about snapping up undervalued assets at great prices. Sure, there’s always a chance that Blackstone could stumble if its underlying investments stop performing as well as they have. But its five-year return of 90% for shares vs. about 70% for the S&P 500 shows outperformance at a broad level — and that’s not even counting the mammoth dividends along the way!
When you add up the big dividend and the big deal-making potential during periods of distress, it seems that Blackstone is one of the safest bets out there for long-term investors in 2017.
Bulletproof Stock #12 – IBM (IBM)
- Industry: Technology
- Dividend Yield: 3.3%
- Buy Below: $184
International Business Machines Corp. (NYSE:IBM) has a checkered past when it comes to stock performance, sometimes lagging the market for long periods of time before reinventing itself and breaking out. And right now, the latest transformation at IBM is making big progress.
IBM has been shifting resources away from its steadily shrinking legacy businesses, including the $2.3 billion sale of a server arm to Lenovo last year and the $1.5 billion sale of its chip business to GlobalFoundries in 2014. Meanwhile, Big Blue has been pouring money into high-growth areas including cloud computing and security to evolve with the times.
It’s working, too. IBM’s “strategic imperatives” segment — the growth businesses it is so heavily invested in — saw 13% revenue growth last year to now account for 41% of the entire top line. The company is still cheap, however, as earnings have been under pressure, and investors have been slow to be convinced. IBM trades for less than 13 times next year’s earnings, showing Wall Street is discounting any potential for growth here, and that means you can get in at a great price.
Besides, even if the strategic imperatives IBM is investing with don’t pay off big time in 2017, you can lock in a 3.1% dividend and enjoy stability in this mega-cap tech company that remains one of the most entrenched businesses in the world.
If times get tough, IBM is a great stock to fall back on.
Bulletproof Stock #13 – General Mills (GIS)
- Industry: Food Processing
- Dividend Yield: 3.3%
- Buy Below: $67
General Mills, Inc. (NYSE:GIS) is not exactly a sexy name, so you’d be forgiven for overlooking it lately. The consumer staples giant behind megabrands like Cheerios, Pillsbury and Betty Crocker isn’t exactly a growth name and doesn’t scratch the itch for investors looking to ride a bull market rally.
However, with times getting tough, a stable 3%+ dividend play is looking better and better — particularly since the market went “risk on” at the end of 2016 and left General Mills stock by the wayside. After a modestly downbeat earnings report in September, this staples stock sold off by double digits in short order, then was abandoned as Wall Street focused on the Trump Trade.
That makes now the perfect time to buy this durable company. Its valuation has been brought back to a comfortable level, and shares have stabilized after the drop-off last year.
Yes, revenue is forecast to decline by a small amount in 2017. But that negativity has been priced in, and better margins and an aggressive stock buyback plan will cause earnings to improve by almost 9%.
And remember, when times get tough, consumers cut back on eating out — not on cereal and cupcakes made at home. That means GIS stock will hang tough whatever the market throws our way.
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