Black Friday Deals on These 3 Dividend Plays

Key Points

• The S&P is nearly 20% off its record peak, which means there are plenty of bargains to be had this holiday season.
• Devon Energy has had a strong year but is currently trading about $10 off its high.
• After better-than-expected third quarter results, the bottom is near if not in for Verizon.
• Simon Property Group offers one of the highest forward yields in the S&P 500 at 6.1%.

Black Friday deals started extra early this year at places like Walmart, Target and Amazon.

In the U.S. stock market, Black Friday sales started even earlier — October 13th to be exact. That’s when the S&P 500 rode a six-day losing streak to a new 2022 low. 

The index has rebounded since then thanks to some cooler inflation readings and better-than-feared third quarter earnings reports. If the S&P can finish up this month, it would be its first two-month win streak since August 2021. Hey, the recovery must start somewhere!

Despite the recent bear market rally, the S&P is nearly 20% off its record peak. This means there are plenty of bargains to be had this holiday season.

And discounted prices mean investors will also have the opportunity to bank some nice yields on above-market dividend payers. These are a few of our favorites for the ‘growth and income’ shopping list.

What is a Good Oil Stock? 

Like most energy names, Devon Energy Corporation (NYSE:DVN) has had a strong year but is currently trading about $10 off its high. The forward dividend yield is a whopping 7.8% and well above the sector average of around 4.2%. 

Better yet, Wall Street remains mostly bullish on the stock despite its huge two-year run. Some price targets suggest that Devon Energy is destined to reach $100 for the first time since 2008. 

One of the nation’s leading shale oil producers, Devon Energy’s third-quarter earnings per share (EPS) doubled year-over-year and beat consensus. Higher realized selling prices on crude and natural gas along with increased production drove the result.

Yet with investors tuned into current oil and gas market developments and rotating to underperforming sectors, Devon Energy has slipped back below $70. Crude oil futures fell below $80 last week due to a weakened demand outlook tied to recession fears and Covid outbreaks in China. 

But with oil volatility the norm since the start of the pandemic, prices could snap back quickly. Europe’s plan to ban Russian crude imports beginning next month and OPEC’s goal to keep supplies tight could make $100 oil a reality this winter.

This would be welcome news for a low-cost producer like Devon Energy which can turn a profit on oil prices north of $30. With the stock’s forward P/E ratio of 7.8x matching its 7.8% yield, the stars are aligned for upside.  

Has Verizon Communications Stock Bottomed?

Verizon Communications Inc. (NYSE: VZ) is down 26% year-to-date. Heavy promotional activity to lure wireless customers away from competitors has weighed on earnings. At the same time, a weak economic outlook could hurt profits well into 2023. The Street is projecting year-over-year EPS declines in each of the next four quarters. 

So why invest here? At this point, the macro headwinds seem to be priced into Verizon shares. And after better-than-expected third-quarter results, the bottom is near if not in. Improved subscriber metrics and benefits from the Tracfone takeover drove a top and bottom line beat. Since the October 21st report, the stock has moved $4 off its low.

Technical analysis also shows that Verizon is oversold. A 10,000 foot view provided by the monthly chart reveals that the price is well outside the lower Bollinger band. Historically, uptrends have followed such extreme dips.

Verizon’s recovery will likely be a slow, extended one as the market assesses the impact of a potential recession on consumer and business wireless demand. But with a 6.8% dividend yield that’s comfortably ahead of that of rival AT&T, this is an easy ‘buy and hold’ call. 

What Will Drive Simon Property Group’s Comeback?

Simon Property Group (NYSE: SPG) offers one of the highest forward yields in the S&P 500 at 6.1%. It has raised its dividend in each of the last two years coming out of the pandemic plunge. 

After soaring 87% in 2021, the shopping mall and premium outlet REIT is having a 25% off sale this Black Friday. The Fed’s rate hike campaign has had a two-pronged effect on the company. 

First, higher rates mean higher borrowing costs, which limits Simon Property Group’s ability to buy or develop retail properties. And since investors expect some level of growth for the risk they incur, anything that limits growth is cause for concern — especially when you carry more than $30 billion of debt. 

Second, higher interest rates hurt consumers’ ability to save and have a negative impact on discretionary spending. Malls in tourist cities could be hit hard by a prolonged recession.

Yes, Simon Property Group’s dividend is compromised by its weakened balance sheet and macro outlook. But there’s reason to believe the payouts are sustainable and a rebound inevitable. 

Management is taking steps to improve its financials and weather the storm for better days. The company exited Q3 with $8.6 billion of liquidity and comfortable coverage ratios. 

Plus, as economic conditions improve, Simon Property will have more than brick-and-mortar to drive growth. U.S. e-commerce investments and expansion into Japan and South Korea stand to improve revenue and diversification. In the meantime, a pattern of dividend hikes should continue to attract Black Friday income shoppers.