The roller coaster ride that stocks rode in 2018, particularly in December, has shaken the faith of some investors. After all, it’s hard to watch a year of growth disappear in just a few days or even a few hours. Despite this volatility, 2019 should still be a good year to invest in stocks, but it makes sense to look for ways to combat volatility. One way to do this is by investing in dividend stocks.
For investors who lived through 2018, the stability dividend stocks provide many benefits. First, when companies pay out dividends it is generally seen as a sign that a company is financially healthy. A dividend can also be seen as a key driver of a stock’s total return. But the reason why even the most growth-oriented investor should be considering dividend stocks at this time is that they can offer potentially strong returns that can smooth out the effects of volatility.
Once a company starts to pay a dividend, their stock becomes less volatile because the dividends provide investors with consistent cash flow, and once companies issue dividend they will make every effort to maintain that dividend. In that way, the stock of dividend-paying companies will sometimes act similar to a bond instrument.
In this slide show, we’ll take a look at seven dividend stocks that offer investors the opportunity for healthy dividend yield (in some cases, the dividend yield is higher than a 10-year Treasury bill. You’ll also get to see why these companies have something to offer beyond their dividend to make them appealing to growth-oriented investors.
Quick Links
- AT&T
- Suncor Energy
- General Mills
- Altria Group
- AbbVie
- Target
- Best Buy
#1 - AT&T (NYSE:T)
AT&T (NYSE: T) - For starters, let’s take a look at AT&T. One reason for investors to consider AT&T is that they offer a 6.82% dividend yield which is more than enough to compensate investors for owning a stock that fell 21.6% in 2018. Two issues that were weighing the stock down appear to have been resolved. In June of 2018, the company completed their merger with Time-Warner. And in January, the wireless company completed the sale of several of its data centers to Brookfield Infrastructure. However, from the perspective of dividend investors, the factors related to their stock are more of what you would be concerned about for a growth stock. As a dividend stock, you have to appreciate their ability to generate an enormous free cash flow. In 2019, the company is forecast to create about $26 billion in free cash which they can use to pay for their recent acquisitions (DirecTV and Time-Warner). That kind of cash will also ensure dividend investors that the company will maintain their streak of not only paying, but raising their dividend for 35 years. In January, analysts from Citi upgraded AT&T to a buy rating. According to the analysts’ notes: “We still see AT&T in the early innings of a multi-year transition across a number of its operating segments that may require more investment before bearing the fruits of better revenue and cash flow contributions over a longer period of time.”
About AT&T
AT&T Inc provides telecommunications and technology services worldwide. The company operates through two segments, Communications and Latin America. The Communications segment offers wireless voice and data communications services; and sells handsets, wireless data cards, wireless computing devices, carrying cases/protective covers, and wireless chargers through its own company-owned stores, agents, and third-party retail stores.
Read More - Current Price
- $22.83
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $23.40 (2.5% Upside)
#2 - Suncor Energy (NYSE:SU)
Suncor Energy (NYSE: SU) - Another company that makes this list because of their ability to generate large amounts of cash is Suncor Energy. Despite being part of the energy sector which has been banged around over the last two years, Suncor has managed to keep their quarterly dividend virtually the same. They currently offer a very attractive dividend yield of around 4.4%. Another factor in the popularity of their stock is their recent focus on share buybacks. In 2017, they bought back $1.6 billion in shares and did the same in 2018. This has helped drive their stock performance and has made SU one of the more attractive oil stocks. Benjamin Halliburton, chief investment officer at Tradition Capital Management had this to say about the future growth of Suncor which he calls a low-cost oil sands operation, “We believe SU can grow 7 to 9 percent compound annual growth rate indefinitely given its resource base.” Like AT&T, the stock itself has been a victim of volatility, and indeed SU does carry a beta of over 1. However, as a dividend stock, the high dividend yield should be more than enough to offset a stock that has been unable to sustain the lifts it has received from its buybacks.
About Suncor Energy
Suncor Energy Inc operates as an integrated energy company in Canada, the United States, and internationally. It operates through Oil Sands; Exploration and Production; and Refining and Marketing segments. The Oil Sands segment explores, develops, and produces bitumen, synthetic crude oil, and related products.
Read More - Current Price
- $40.83
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $56.40 (38.1% Upside)
#3 - General Mills (NYSE:GIS)
General Mills (NYSE: GIS) - GIS is hoping that a new health-conscious brand portfolio will offer the company some “lucky charms”. While many investors flocked to the safety of some of the big name defensive stocks such as Coca-Cola, McDonald’s, and Proctor & Gamble, General Mills found itself with more investors selling than buying, causing their stock to drop by 50% since 2016 despite the company still offering a strong 4.26 dividend yield. The largest factor to weigh on the company was a product line that was behind the organic, healthy consumer snack trend. This led to the company’s revenue declining which made investors question whether there was sufficient demand to justify the leverage on their balance sheet. But GIS has fought back with new products that, at least initially, seem to be gaining traction. They also recently completed their acquisition of Blue Buffalo. The pet food manufacturer is a growing brand name that has reportedly captured 10% of this high-growth market and is projecting strong first-half sales growth of near 20%. General Mills has delivered an uninterrupted dividend for over 117 years.
About General Mills
General Mills, Inc manufactures and markets branded consumer foods worldwide. The company operates through four segments: North America Retail; International; Pet; and North America Foodservice. It offers grain, ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, bakery flour, frozen pizza and pizza snacks, snack bars, fruit and savory snacks, ice cream and frozen desserts, unbaked and fully baked frozen dough products, frozen hot snacks, ethnic meals, side dish mixes, frozen breakfast and entrees, nutrition bars, and frozen and shelf-stable vegetables.
Read More - Current Price
- $63.80
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $72.67 (13.9% Upside)
#4 - Altria Group (NYSE:MO)
Altria Group (NYSE: MO) - One defensive stock that is not being overlooked is the Altria Group. This tobacco company is an income investors dream because of the strong margins that allow them to reward their shareholders through both dividends and stock buybacks. In fact, the company has an impressive 5.7 percent dividend yield. Altria, which owns Phillip Morris USA, has a footprint in virtually every aspect of the tobacco industry including various cigarette brands, smokeless tobacco, cigars, and e-cigarettes. But what may be getting investors more excited is Altria’s $1.8 billion investment in Cronos Group which would give Altria a 45% ownership stake in the Canadian cannabis producers. The cannabis market represents a gigantic opportunity for a company like Altria that is looking for opportunities to broaden their revenue stream and be on the forefront of introducing new products to market. Cronos posted 186% revenue growth in 2018 and that growth is forecast to continue in 2019. Some investors will point out that Cronos has yet to turn a profit, but the cannabis field is about to get very crowded. Altria’s investment will certainly be a significant boost to Cronos as it seeks to take a leadership position.
About Altria Group
Altria Group, Inc, through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States. The company offers cigarettes primarily under the Marlboro brand; large cigars and pipe tobacco under the Black & Mild brand; moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands; oral nicotine pouches under the on! brand; and e-vapor products under the NJOY ACE brand.
Read More - Current Price
- $55.98
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $51.33 (8.3% Downside)
#5 - AbbVie (NYSE:ABBV)
AbbVie (NYSE:ABBV) - Abbvie is a good example of a stock that may face some challenges as a pure growth play, but remains an exceptional dividend stock. Investors can virtually bank on their 4.6% dividend yield as the company has a 45-year streak of increasing their dividend. The present and future direction of Abbvie’s stock centers around their popular, and best-selling, drug Humira. The drug, which is proven to treat symptoms of Crohn’s disease and rheumatoid arthritis (among other conditions), saw its EU patent expire in 2018 and the U.S. patent for Humira will expire in 2023. However, while the company is noticing a drop-off in international sales, AbbVie has negotiated licensing agreements with competitors who will be introducing biosimilar drugs. But Humira is not expected to give much ground to its competitors. The market research company EvaluatePharma speculates that Humira still has a long run – with projected sales of over $15 billion in 2024. The company is also projecting $35 billion in annual risk-adjusted sales from drugs other than Humira by 2025. That amounts to more than what the company made last year from Humira.
About AbbVie
AbbVie Inc discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers Humira, an injection for autoimmune and intestinal Behçet's diseases, and pyoderma gangrenosum; Skyrizi to treat moderate to severe plaque psoriasis, psoriatic disease, and Crohn's disease; Rinvoq to treat rheumatoid and psoriatic arthritis, ankylosing spondylitis, atopic dermatitis, axial spondyloarthropathy, ulcerative colitis, and Crohn's disease; Imbruvica for the treatment of adult patients with blood cancers; Epkinly to treat lymphoma; Elahere to treat cancer; and Venclexta/Venclyxto to treat blood cancers.
Read More - Current Price
- $167.74
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $203.37 (21.2% Upside)
#6 - Target (NYSE:TGT)
Target (NYSE: TGT) - Can we all agree that, while Amazon has forever changed the retail landscape, the big-box retailers are finding their feet and starting to claw back into the market. For Target, that has meant an aggressive digital strategy that is competing with, and in some areas beating Amazon. This is an under-the-radar story largely because Target’s stock – that surged over 30% at one point in 2018 – came crashing back to earth, giving back virtually all of its gains. Still, sales continue to grow, particularly in their digital space. And with partners such as Restock and Shipt, Target is enjoying a 50% growth rate in digital sales. In 2019, Target plans to use Shipt to fulfill all of its major product categories. Better still, the orders will be fulfilled directly from stores, so the company will not have to take on the expense of building out distribution centers. As a dividend stock with a forward multiple of 12X earnings to go with a 3.6% dividend yield, Target doesn’t need to anything special, they just need to keep executing their plan well. If they do that, their stock should be rewarded.
About Target
Target Corporation operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns, as well as jewelry, accessories, and shoes; and beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
Read More - Current Price
- $121.73
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 13 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $171.90 (41.2% Upside)
#7 - Best Buy (NYSE:BBY)
Best Buy (NYSE: BBY) - With a dividend yield of 3%, Best Buy is not necessarily the “belle of the ball” as it comes to dividend stocks, but it is being called a “titan of retail” with good reason. Despite facing tremendous pressure from Amazon, Best Buy has beaten the odds where competitors such as Circuit City and Radio Shack could not. Not only have they survived, but they are recognized as the premier physical electronics retailer. The formula for Best Buy centers around competitive pricing and store experience that delivers a personal touch that many electronics buyers prefer. Not only does the company still have 1,500 brick-and-mortar stores, it also has the seventh largest online retail e-commerce platform. This has helped the company more than double their EPS over the last four years even while revenue has remained flat. The anticipated growth of their online sales should provide compelling margins that propelled a 32 percent dividend increase in 2018 with further growth expected in 2019.
About Best Buy
Best Buy Co, Inc engages in the retail of technology products in the United States, Canada, and international. Its stores provide computing and mobile phone products, such as desktops, notebooks, and peripherals; mobile phones comprising related mobile network carrier commissions; networking products; tablets covering e-readers; smartwatches; and consumer electronics consisting of digital imaging, health and fitness products, portable audio comprising headphones and portable speakers, and smart home products, as well as home theaters, which includes home theater accessories, soundbars, and televisions.
Read More - Current Price
- $86.77
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $103.35 (19.1% Upside)
In 2018, investors experienced the effects of volatility on their portfolios. In the last two weeks of the year alone, many stocks made double-digit, or even triple-digit moves in both directions – many times in a single day. In the best case scenario, many investors saw much of their 2018 gains washed away. Market volatility is unavoidable. However, it can be managed with a proper strategy. A part of that strategy should include investing in high-quality dividend stocks. A company that pays a dividend is known for their financial stability. And many of the high-quality stocks in this category offer dividend yields that exceed the return of a 10-year Treasury bill.
However, many of the stocks that pay dividends are stocks that, during good times, can be considered growth stocks. This focus on growth can frequently cause investors to overlook these stocks. But the reasons for owning a stock that pays a great dividend is exactly that … to claim that regular dividend, particularly when the broader market is subject to volatility. No matter which direction these stocks move, investors can take comfort in banking those regular dividend payments which they can either reinvest or use as a source of income in retirement.
However, a successful dividend investing strategy is only as reliable as the ability of the company to pay that dividend. The companies that we’ve listed in this report have more going for them than attractive dividend yield. These companies also have a proven history of issuing, and in many cases, increasing their dividend payment.
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