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All Contents © 2019The Kiplinger Washington Editors
By Bret Kenwell
| May 23, 2017
The best dividend stocks in the market are truly in the eye of the beholder. Yes, some companies have multitudes of qualities whereas others are trash, but at the end of the day, whether a dividend stock (or any investment, for that matter) is good or not is also determined by who’s doing the buying.
Some investors are happy drawing 2%, even 3% dividends over the long haul with so-so growth because ultra-low risk is what matters most. Other investors are happy to take on a little extra chance for a couple more percentage points in yield.
And of course, there are the aggressive types out there that know big, gaudy yields often come with big, gaudy risks, and are occasionally willing to roll the dice.
Today’s look at the dividend world isn’t a look at broad-based “best bets,” but instead a look at different top dividend stocks that appeal to various types of investors — conservative, moderate and aggressive.
A few of these businesses have enormous war chests and unshakable businesses that will be able to stand the test of time. Several of these stocks are a bit more volatile but also have far more room for growth. But all of them have a number of qualities that make them top dividend picks at the moment.
Without further ado, here’s a look at seven dividend stocks for every type of investor.
Prices and data are from the original InvestorPlace story published on May 18, 2017. Click on ticker-symbol links in each slide for current prices and more.
Investing type: Conservative
Dividend yield: 2.6%
Johnson & Johnson is one of the market’s most well-known buy-and-hold dividend stocks, and it actually offers slow and steady growth as well.
JNJ stock is trading just a few bucks from all-time highs now that it’s rallying following April’s post-earnings dip. The downside to those highs, though, is that JNJ trades at a sub-3% dividend stock.
Johnson & Johnson is up about 100% over the past five years, so investors have certainly been rewarded in this low-risk consumer staples/healthcare hybrid play. And it’s tough to find companies like JNJ, which is both a safe blue-chip stock but also grinding out such a high CAGR.
But for all its growth, Johnson & Johnson is certainly a conservative play. Analysts estimates 5% sales growth this year and next, alongside 6% to 7% earnings growth in both years. Consumer brands such as Band-Aids, Neutrogena, Mylanta, Motrin and Tylenol are never going away, and will help prop JNJ up even when the economy is tight.
JNJ trades at about 17 times forward earnings projections, which isn’t grand, but hey — premium blue-chip stocks deserve a little premium.
Dividend yield: 4%
Pfizer Inc. has become a well-known dividend player over the years. However, some investors are growing frustrated with the drugmaker’s stock. Shares of PFE are flat on the year and down 2% over the past 12 months.
Put simply, Pfizer has been a dog.
The big question mark with Pfizer is M&A. Despite having brands like Advil, Xanax, Viagra, Lipitor and ChapStick — among many others — investors want more. After all, PFE sports a market cap of almost $200 billion and has the balance sheet flexibility to make a big move.
That almost came when Pfizer and Allergan plc (AGN) came to terms on a buyout. However, the $160 billion deal fell through in 2016 thanks to new U.S. legislation relating to inversion laws. Allergan — best-known for Botox — would have been a great addition to Pfizer.
Pfizer could still target other companies, but on its own, it’s terribly underrated.
Pfizer yields just about 4%, and the company is expected to grow earnings in high single digits this year and next. Analysts expect 5.6% annual EPS growth over the next five years. That’s not robust, but it is the type of steady growth that fuels steady returns that many conservative dividend investors crave. The fact that PFE trades at just 12 times forward earnings makes it that much better.
Low valuation and a fat yield? There’s plenty to like here.
Investing type: Moderate
Dividend yield: 3.7%
Cisco Systems, Inc. just got a whole lot trickier. Shares were up 13% in 2017 and 27% over the past 12 months until Thursday, May 18, when it dropped nearly 8% over a disappointing fourth-quarter outlook that should see Cisco’s fiscal Q4 revenues to decline 4% to 6%.
Growth wasn’t that great to begin with; analysts expected sales to fall 1.8% this year, to go along with sub-1% EPS growth. So this year’s run was going to be difficult to sustain anyway.
However, the pullback in this old tech giant has the stock in a much more palatable position, and it’s knocked the yield closer to the 4% mark.
Cisco is working on a turnaround, and turnarounds simply take time. Currently, its legacy switch and network businesses carry the load, but CEO Chuck Robbins is trying to position CSCO for future growth.
Specifically, he’s looking to cybersecurity, the cloud and artificial intelligence. Recent acquisitions of Viptela for $610 million and MindMeld for $125 million should help in this regard. However, Cisco’s $72 billion cash pile ensures that if it wants to, a big purchase could be looming.
Valuation is low at just 13.5 times forward earnings, and the dividend is handsome for tech. However, growth at the moment is anemic — you’re betting on Cisco’s recovery plans taking hold, but if they do, CSCO has a lot of upside potential.
Dividend yield: 3.1%
While our first thoughts on “the cloud” might drift to companies such as Microsoft Corporation (MSFT) or Amazon.com, Inc. (AMZN), many forget about the backbone of this industry — the actual cloud storage facilities.
Just like a REIT can use retail real estate to rent out space to Walgreens Boots Alliance Inc. (WBA), a company like CyrusOne Inc leases space for cloud storage. The importance of this niche category becomes even more prevalent when watching retail real estate investment trusts (REITs) decline thanks to bankruptcies in retail and struggling stores.
CyrusOne yields a hair over 3.1% and has returned about 10% year-to-date. It’s up an impressive 34% over the past six months, too.
Yes, the dividend yield isn’t great, but it makes up for that in payout growth — CONE has upped the ante on its dividend by more than 160% in just four years! Moreover, CyrusOne is a high-quality company with plenty of growth. Analysts expect revenues to balloon 27.4% this year and 17% next year. Earnings are expected to improve by 95% next year and 36.2% annually for the next five years.
Price-to-funds from operations (P/FFO, a more accurate way to value REITs than P/E) is a bit high at 20, and there’s always a chance of disruption when you dabble in tech.
But I would pick up CONE on any dip below $50. The dividend and business growth prospects are too attractive.
Investing type: Aggressive
Dividend yield: 8.1%
The Blackstone Group L.P. hasn’t had the smoothest ride over the past few years. BX rallied from $25 in 2014 to $38 in 2015, then fell back to the $25 mark in 2016 … before recovering to about $29 currently.
At least there’s some sort of comfort in the form of a big (but variant) 8%-plus dividend.
A dividend that high can often be a warning sign, but Blackstone is an exception. With superior management and a business that has plenty of secular growth, BX can maintain its lofty payout. If investors are lucky, they will also experience capital gains as well.
Blackstone CEO Stephen Schwarzman recently made the case that his stock should be worth more. Specifically if valued in-line with the S&P 500’s price-to-earnings ratio, Blackstone is worth $50. If that was based on the index’s dividend yield, BX stock would be worth $100, he reasons.
While that broad assessment doesn’t hold much water, the point is nonetheless the same: Blackstone shares probably are worth more than where they trade now.
Last quarter, Blackstone beat on the top and bottom lines, and analysts expect 45% earnings growth this year on top of 30% revenue expansion. All this for less than 10 times next year’s earnings estimates.
BX simply remains an “aggressive” play due to the relatively high volatility in the stock over the past few years, especially in the face of a rising market.
Investing type: Aggressive
Shares of Qualcomm, Inc. have had a tumultuous ride this year, down 14% in 2017.
Why the slide? Blame a legal battle with Apple Inc. (AAPL). Apple is currently withholding $1 billion in royalty payments until a legal dispute is settled. Qualcomm also had to pay $815 million to BlackBerry Ltd (BBRY) in mid-April. Right now, QCOM is a lawyer magnet, and that makes it suitable only for those with higher risk profiles.
But Qualcomm wouldn’t be on this list of top dividend stocks without a few positive traits.
Earnings estimates have declined dramatically in the wake of QCOM’s troubles. That’s not great, but lower expectations are easier to hurdle over, and the valuation has been knocked down to boot. Plus, when and if Qualcomm finally closes on its acquisition of NXP Semiconductors NV (NXPI), that’s a fairly bullish driver that should reverse the recent downturn. (Qualcomm paid $38 billion — an attractive price for NXP.)
Qualcomm has its problems, but a 4% dividend will amply pay investors while they wait for more positive headlines to trickle down.
Investing type: Aggressive (No, really.)
Finally, we come to our third aggressive pick … Tupperware Brands Corporation?
Just bear with me.
Tupperware has all of the hallmarks of a moderate or even conservative dividend play. TUP shares trade at about 14 times forward earnings estimates and should grow sales a modest 3.1% in 2017 and 3.8% in 2018. Earnings are expected to grow roughly 7% for the next two years, and improve to 12% annually once you look out five years.
Better still, the company raised second-quarter and full-year guidance amid its most recent report.
Plus, Tupperware pays out a nice (but not outlandish) dividend yielding 4%.
The big issue is simply timing — TUP has been on the run, and now that hot performance is catching up to it. Shares are up nearly 30% so far in 2017, but they were doing better until investors started to take some profits off the table. So investors jumping in right now are risking some backpedaling.
A secondary issue is dividend growth. Namely, the quarterly payout has been flat at 68 cents per share since 2014, when the company started to suffer some serious operational issues and the stock hit the skids. A resumption in dividend hikes this year would go a long way to instilling even more confidence in this income play.
But the business is looking up for now, so I would simply wait for shares to back a little further — say, $67-$68 — before jumping in.
This article is from Bret Kentwell of InvestorPlace. As of this writing, he held none of the aforementioned securities.
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