Let’s Talk Dividend Stocks
- I like the value over growth story if you must be in stocks right now.
- But I like high dividends on value stocks, best of all.
- High-flying tech stocks are not the story… not for a while yet…
I’m heading out to dinner with Andy and another friend tonight who happens to be in the area.
I love that about Europe.
It seems much easier to be “in the area” on this continent.
Perhaps it’s the excellent rail system. Or the great highway system. Or the ease of flying.
So it’s not such a big deal to travel. It’s just what Europeans do.
Christoph, our friend, gave Andy a great confidence boost about Piedmont.
Christoph told him, “I’ve lived in every country in Europe. Italy is my favorite. And Piedmont is my favorite region in Italy.”
Andy currently basks in the sunny rays of confirmation bias.
Since I’m settled in already, I merely enjoyed hearing that.
Because I’m stuck here anyway!
Before I get into today’s piece, a couple of things:
First, there won’t be a Rude on Monday, as it’s Memorial Day, and you deserve a hot dog and beer-laden Monday.
Second, as you may know, I’m not allowed to give you recommendations in this newsletter.
So the charts I will show you later are not recommendations. They’re just ideas to do with as you will.
With that said, I want to give you something to chew on while you’re reading this.
Let’s get into it.
Jared and the Dirtnap
I subscribe to Jared Dilian’s excellent newsletter, The Daily Dirtnap, and have done so for a few years now.
Not only does Jared write his publication every day, but he also writes for John Mauldin and Bloomberg, as well.
Jared seems to give my brain “a jump” whenever it stalls.
In yesterday’s issue, Jared mentioned his long position in IBM.
I tweeted about IBM the other day. I’ll put it in the next column.
IBM has held up remarkably well throughout all of this. And it pays a 5% dividend yield. Someone made a snarky comment that you can’t underperform expectations when there are no expectations.
But that is precisely the reason to get long!
When I put this trade on I heard a lot about what buffoons these people were, and the whole history with the stock buybacks, but this has probably held up the best of anything in the portfolio.
And you remember the earnings beat from a few weeks ago.
Now his chart looks like the most boring sideways chart of all time.
But if I zoom out for five years:
You might think IBM is a bit toppy!
However… IBM is a dividend aristocrat and currently sports a 4.82% yield.
Dividend Stocks and Yields
For a gentle review, the dividend yield equals the dividend paid divided by the stock price.
It’s the income portion of the total return on a stock. (The other part is the capital gain.)
Dividend yields move all the livelong day as stock prices move second-to-second.
If you’re a value investor who wants a coupon-like return, you will invest in stocks with good (and growing) dividend yields.
A good baseline to know when to invest in these companies is when the dividend yield creeps above 4%.
It’s not a “written-in-stone” rule, but a high dividend yield may imply the stock is cheap relative to its dividend.
Dividend Aristocrats, Kings, and Achievers
I mentioned the term “dividend aristocrat” earlier.
Let me define that term and a couple of others.
Dividend kings are stocks that have consecutively increased their dividend payments for at least 50 years.
Dividend aristocrats are stocks that have consecutively increased their dividend payments for at least 25 years.
Dividend achievers are stocks that have consecutively increased their dividend payments for at least ten years.
The appeal seems obvious: these are companies you can trust, to varying degrees, to increase their dividends.
And those dividends add up over time.
But you still have the opportunity to reap capital gains, as well.
What Aristocrats are Interesting?
Before I begin, none of the stock charts I’m showing you imply a recommendation.
I’m not long any of these stocks, nor do I plan on getting long any time soon.
These are ideas. And I’ll show you my thinking behind them. That’s all.
You may agree or disagree. That’s totally fine.
With that said, let’s go.
This stock has been a stinker for five years.
But in 2022, it’s in a nice uptrend.
Will it continue? Maybe, maybe not. But a break above $25.50 would be massively bullish.
In the meantime, you can collect a 5.21% dividend yield.
Realty Income is a stock that’s back up to its pre-Covid highs.
Analysts are looking for a $76 target price. But if the price gets that to that level, it will have made a new all-time high.
So, there is plenty of capital gain potential here, and you can also collect a robust 4.35% dividend yield.
For some reason, the $45-46 area looks like long-term support (since 2017, anyway).
So this stock may be poised to bounce from here – and it looks like it’s started doing so.
This is by no means a guarantee, but it’s a good bet to make while collecting a 4.09% dividend yield.
$45 would be a good place to put a stop. Below there, I don’t think the dividend is worth it.
Where Can You Find This Stuff?
These are only three stocks I’ve had a quick look at. Again, they’re not recommendations.
And while I think dividend investing is a bright idea in an environment like this, I’d try to avoid stocks that are highly likely to fall further.
Here are a few great references I used for this piece.
For the dividend stocks, MarketBeat is, well, hard to beat. Here is their list of Dividend Aristocrats.
You can also find the Dividend Kings and Dividend Achievers in the top menu under “Financial Calendars.”
I also use, as always, stockcharts.com for a quick take on the stock prices, trends, and support and resistance levels.
You can use both these tools for free, though the bells and whistles of each site are subscription-based.
And none of the links in this piece are affiliate links, so you can click away without worrying about my incentives.
It’s a jungle out there right now, but we may be in for another upturn (though I still think we have far further to go in this secular downtrend).
Jared Dilian reminds his Daily Dirtnap subscribers that the Fed will reverse course sooner or later.
I agree, but not yet.
However, the down days haven’t been as down lately.
So we could be in for a brief respite.
Hey, that’s a bit of good news for the three-day weekend!
So grab your hot dogs and beers, and enjoy your time off.
You deserve it!
And I’ll see you Tuesday morning.
All the best,