Home/Blog/Trading Ideas/Amid Market’s Early Dive, Dividends Deserve a Look

Amid Market’s Early Dive, Dividends Deserve a Look

13 January 2016 in Trading Ideas

Key Takeaways

  • With uncertainty in the markets it may be time to relook dividend paying stocks for potential income
  • Motifs mentioned: Dividend Stars
  • Stocks mentioned: AT&T Inc. (NYSE:T), The Coca-Cola Co (NYSE:KO), McDonald’s Corporation (NYSE:MCD), Verizon Communications Inc. (NYSE:VZ), Dominion Resources, Inc. (NYSE:D)

This wasn’t the start to the year most investors were looking for.

With China’s financial markets in free fall, additional tensions generated by North Korea, Saudi Arabia and Iran has set the stage for serious jitters among global traders.

In the US, domestic investors had already been dealing with the fall to mortality of widely held Apple, whose latest iPhone iteration doesn’t seem to have the knockout sales numbers of previous iterations. The company’s stock has fallen by more than 20% in just two months.

And, with the Federal Reserve suggesting that low inflation may stave off another interest-rate increase beyond what was previously expected (thus reintroducing some skepticism of the economy’s health), US stocks have stumbled out of the gate, with the S&P 500 down 6.1% in the year’s first week of trading.

Amid this uncertainty, as well as the low (or no) yields offered by bonds and cash, it may be time for investors to dedicate some of their portfolio to stocks with dividend payouts that have shown to be historically reliable generators of income.

Naturally, many of these stocks have fallen recently and could continue to fall amid a further decline in the broader market. On the other hand, their potential dividend payouts could make them relatively more attractive in a more volatile trading environment.

Lee Jackson at 24/7 WallSt recently ran screens for perceived “safe” stocks among equities that held a buy rating by Merrill Lynch.1,2

The five screen-generated stocks below comprise about one-third of the weight of our Dividend Stars motif, which has fallen 3.1% in the past month, and is off 6.3% in the last 12 months.

The S&P 500 has decreased 6.1% in the last month and 6% over the past 12 months.

AT&T Inc. (NYSE:T) – The company reiterated 2015 guidance for double-digit revenue growth and continued consolidated margin expansion, according to Jackson. Management expects capital spending to increase sequentially, as well as estimating free cash flow to top $4.5 billion.

Meanwhile, third-quarter wireless subscriber additions came in higher than many Wall Street estimates, and the company’s new DirecTV division saw positive video additions where many expected losses.

AT&T investors receive a 5.72% dividend; Merrill’s price target on the stock is $40; it closed last week at $33.54.

The Coca-Cola Co (NYSE:KO) – The company enjoys a 50% share of the world’s carbonated soft drink market and 44% share of the US market. According to Jackson, analysts have noted that the stock is underweighted by managers and can grow the dividend. It also remains one of the key holdings in Warren Buffett’s Berkshire Hathaway (NYSE:BRKB) equity portfolio.

Over 70% of its profits are derived outside of the US.

Investors receive a 3.18% dividend yield. Merrill’s price target on the stock is $48; it closed last week at $41.51.

McDonald’s Corporation (NYSE:MCD) – This stock has actually been a big gainer – it’s up nearly 20% in the past four months – but it still fits the profile of a safer haven, according to Jackson. The company is the world’s leading global foodservice retailer, with over 36,000 locations serving approximately 69 million customers in over 100 countries each day.

Right now, investors get a 3.08% dividend yield.

Verizon Communications Inc. (NYSE:VZ) – The company operates America’s self-described most reliable wireless network, with 109.5 million retail connections nationwide.

Jackson noted that Wall Street has applauded Frontier’s acquisition of Verizon’s wireline operations in California, Florida and Texas, which is expected to be completed at the end of March. Many feel that focusing on the higher margin segments at the company makes sense, and the sale to Frontier is a “huge” cash boost to the balance sheet, Jackson said.

Investors currently get a 5.04% dividend yield.

Dominion Resources, Inc. (NYSE:D) — is one of the nation’s largest producers and transporters of energy, with a portfolio of approximately 24,600 megawatts of generation and 6,455 miles of electric transmission lines. Dominion operates one of the nation’s largest natural gas storage systems, with 928 billion cubic feet of storage capacity, and it serves utility and retail energy customers in 13 states.

Investors are getting a 3.73% dividend yield.

Ready to get started with Motif Investing? Sign up for a free account today.

While certain companies may have consistently paid dividends in the past, there can be no assurance or guarantee that they will be able to continue paying dividends in the future.

  1. Lee Jackson, “4 Save Dividend Stocks to Buy as 2016 Starts With Market Rout,” 247wallst.com, Jan. 5, 2016, http://247wallst.com/investing/2016/01/05/4-safe-dividend-stocks-to-buy-as-2016-starts-with-market-rout/2/, (accessed Jan. 10, 2016).
  2. Lee Jackson, “4 Defensive Dividend Stocks to Own as World Events Rock Markets,” 247wallst.com, Jan. 7, 2016, http://247wallst.com/investing/2016/01/07/4-defensive-dividend-stocks-to-own-as-world-events-rock-markets/, (accessed Jan. 10, 2016).
  1. Ritam
    19 Mar at 10:27 am

    Do motifs pay dividends, and are they re-invested?

    • Timothy Hemsworth
      22 Mar at 6:52 am

      Thanks for your question Ritam! If the stock in the motif you own pays a stock dividend, we will credit the additional stock shares to that motif. If the dividend is in cash, we will credit the money to your account and it will be reflected in your account balance. We do not offer dividend reinvestment at this time. Have a great day!