Stocks across industries hitting new lows this year have many investors rattled on the best dividend stocks to buy. However, rock-bottom rates should not serve as an end to your dividend strategy but a sign to be more selective with the types of stocks you choose to buy and hold.
In the grander scheme of things, high dividend stocks are actually great long-term buys. Companies that pay out dividends historically outperform those that don’t.
While the volatility in the current economic environment can make it harder to find the right stocks, investors just need to look a little closer to find those hidden opportunities.
However, it’s worth considering the trade-off that comes with holding high-dividend stocks. Yield and risk go hand-in-hand, meaning a rise in one leads to a subsequent increase in the other. As they say “no risk, no reward.”
With that in mind, there are plenty of high-yield stocks out there that have stood the test of a volatile market. Here are our top three picks:
Pfizer (PFE)
U.S. Bancorp (USB)
AT&T (T)
With the race toward a novel coronavirus
vaccine underway, healthcare companies are
having a major moment. Pharmaceutical giant,
Pfizer (PFE), saw a 35% rally in its stock price
after recouping its losses from lows in March.
Like many of its peers, Pfizer suffered from a
decline in the sale of its generic drugs at the
onset of the pandemic. But with recent success
in its vaccine trials and restructuring initiatives,
the company is headed toward brighter days.
Pfizer currently provides an annual yield of about 4%. Experts believe this payout will continue to remain stable as long as demand for its products and cash flow continues to rise.
However, the company experienced stagnant sales growth in recent years with many of its drugs losing their exclusivity to competitors. Pfizer plans to combat this decline with the development of new therapies and newly approved biosimilars. This could push the company to greater heights in the biopharma sector.
While many of Pfizer’s drugs and vaccines are still in their development phase, a dividend yield of 4% at a stock price of $37.20 makes this a great dividend stock to buy in any investing environment.
Pfizer
Next up on the list is Minnesota-based, U.S.
Bancorp (USB), the parent company of U.S.
Bank. The bank currently manages $500 billion
in assets and holds the title as the fifth-largest
bank in the U.S.
USB has a wide presence across the nation
and serves everyone from individuals to
government entities. Having a market capitalization of $56 billion doesn’t hurt either.
While the pandemic served as a death-knell for most major industries, big banks saw stellar earnings during this past quarter and U.S. Bancorp was no different. The company recorded a net income of $3.22 billion and revenue increased to $5.84 billion during the period. Many investors have put their support behind the bank stocks historically known to outperform the markets in the long term.
In addition to its impressive earnings, U.S. Bancorp has an annual dividend payment of $1.68, which puts its yield at 4.47%. With one of the highest yields across major banks, USB stock is a top stock for investors looking for some solid returns. Analysts remain confident in the bank’s ability to keep its dividend rate up and its recent investments in its technological capabilities have been a boon for its valuation.
U.S. Bancorp
California-based Lumentum
(LITE) manufactures optical
and photonic products that
are used by optical net-
working and commercial
customers. One of the
brightest
lights in the sector, Lumentum, benefits from able management, and strong fundamentals. Its recent quarterly results confirmed that the business remains novel coronavirus proof, despite supply chain issues arising due to
the virus.
Revenue came in at $368.1 million, beating consensus estimates by $18 million. Net income is positive for the quarter and trailing nine months. Shares gained 5% pre-market after the Q4 beats on EPS and margins. However, supply chain issues buffeted the company during the quarter. But that’s an expected issue since we are in the middle of a pandemic. Many countries implemented restrictions on the free movement of goods. That affected Lumentum’s logistics, especially in countries like Malaysia.
With all that said, let’s discuss valuation a bit before wrapping up. With LITE stock trading at 53.14x trailing 12 months price to earnings, shares are hardly available at a discount. It’s arguable that the stock is in the overbought category. That’s not to say I am not bullish on its future. It’s just that I would wait for shares to drop 10% to 15% before buying in.
Lumentum Holdings
Outside of Microsoft, perhaps
no large company has better
managed the transition to SaaS
than Adobe (ADBE). Its
Photoshop and Illustrator,
among other platforms,
traditionally were disk-based options.
They are now part of bundles, including Adobe Creative Cloud, that have driven impressive and consistent growth in recent years.
As with CRM, valuation admittedly is a concern. ADBE stock historically didn’t look that expensive, often trading at 30x forward earnings or less. It’s now as 43x.
But with MSFT itself clearing 30x, and CRM over 50x, that multiple on its face isn’t outrageous. And with Adobe’s growth likely to include e-signatures as well, there’s plenty of runway for the company to grow into the steep valuation assigned its stock.
Adobe
Last, but certainly not least, is AT&T (T), a stock
with one of the highest dividend yields on the
market. The company boasts an impressive
yield of 7% and its dividend has seen a
consecutive increase over the last 36 years.
For the purpose of comparison, the S&P
500 average yield is just 1.8%.
However, AT&T was not immune to the effects of the Covid-19 pandemic. AT&T saw a rapid decline in its share price as the pandemic took its toll on the economy. However, it’s worth noting that while prices did fall, the company’s dividend continued to rise. This provided many investors with the opportunity to buy the stock at a low price.
Experts believe that despite a dim economic outlook, AT&T’s dividend incline is likely to continue. The company has made some bold moves this year such as the roll-out of its new 5G network, which will be a major catalyst for growth. Revenue numbers will see an upward trend as more consumers adopt this new technology. AT&T is also lowering its debt levels through the sale of assets. This will help the firm continue its dividend growth streak.
Although AT&T’s current share price is trending low at around $30, the company’s solid dividend yield and potential for growth make this dividend stock an attractive investment. There is a good chance that AT&T’s value will appreciate in the coming months as investments in its 5G network and streaming platforms pay off. If you are looking for a stable stock with safe returns, this is a good dividend stock to buy.
AT&T
California-based
Lumentum (LITE)
manufactures optical
and photonic products that are used by optical networking and commercial customers. One of the brightest lights in
the sector, Lumentum, benefits from able management, and strong fundamentals. Its recent quarterly results confirmed that the business remains novel coronavirus proof, despite supply chain issues arising due to the virus.
Revenue came in at $368.1 million, beating consensus estimates by $18 million. Net income is positive for the quarter and trailing nine months. Shares gained 5% pre-market after the Q4 beats on EPS and margins. However, supply chain issues buffeted the company during the quarter. But that’s an expected issue since we are in the middle of a pandemic. Many countries implemented restrictions on the free movement of goods. That affected Lumentum’s logistics, especially in countries like Malaysia.
With all that said, let’s discuss valuation a bit before wrapping up. With LITE stock trading at 53.14x trailing 12 months price to earnings, shares are hardly available at a discount. It’s arguable that the stock is in the overbought category. That’s not to say I am not bullish on its future. It’s just that I would wait for shares to drop 10% to 15% before buying in.
Lumentum
Holdings
If an investor is going
to own an SaaS stock,
one place to start is
with the company
that brought the model to the mainstream. Salesforce (CRM) went after Oracle’s dominance in CRM (customer relationship management) software via its cloud model.
Since then, CRM stock has been one of the best in the market. It’s returned 4,750% since its 2004 initial public offering. That’s a staggering annualized return over 25%.
The gains are going to slow going forward, but they’re unlikely to stop. Salesforce still has a massive lead in CRM, though HubSpot (HUBS) is trying to chip away. The 2016 acquisition of Demandware moves the company more heavily into e-commerce as well.
To be sure, CRM stock isn’t cheap. But it hasn’t been pretty much ever. This seems a classic case of investors paying up for quality.
Salesforce
Outside of Microsoft,
perhaps no large
company has better
managed the
transition to SaaS than Adobe (ADBE). Its
Photoshop and Illustrator, among other platforms, traditionally were disk-based options.
They are now part of bundles, including Adobe Creative Cloud, that have driven impressive and consistent growth in recent years.
As with CRM, valuation admittedly is a concern. ADBE stock historically didn’t look that expensive, often trading at 30x forward earnings or less. It’s now as 43x.
But with MSFT itself clearing 30x, and CRM over 50x, that multiple on its face isn’t outrageous. And with Adobe’s growth likely to include e-signatures as well, there’s plenty of runway for the company to grow into the steep valuation assigned its stock.
Adobe
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.