Even when the markets are as indecisive and volatile as they are now, there are still safe harbor stocks with very comforting yields, writes Jim Trippon of Dividend Genius.
With the latest market worries—legitimate ones at that—over the drama of the Greek debt and its possible effects playing out in Europe, investors are naturally skittish about things.
After all, we’ve seen selling sprees in both the spring and summer, against the backdrop of potentially serious economic problems which haven’t been satisfactorily resolved. So it’s prudent to be cautious.
As we’ve learned from previous experiences, sometimes what look like bargain stock prices are followed by even lower stock prices. Thus you have to be careful, even when bargain hunting.
This goes for dividends, too, of course. Higher and higher yields can be part of a falling market, but if conditions worsen too much, as they did in the extreme events of 2008 and 2009, many stocks will have to slash their dividends or even suspend them.
For investors, the US bank stocks in the aftermath of the subprime mortgage meltdown also melted down their dividends. That was a particularly sobering lesson.
Even with those cautions in place, however, there are attractive dividends. After the market dipped in March, then recovered, then dropped more emphatically this summer, many investors are wondering where to go next.
Yet dividend investors are always searching for a good deal, and there are places to find them. There are still companies doing good business, with healthy prospects, which are paying reliable dividends.
Many of the big blue chips such as Verizon (VZ) and AT&T (T)—highly visible, solid companies which are continuing to do good business in a sluggish economy—should not be overlooked. AT&T’s payout currently yields 6.2%, while Verizon is paying out at a 5.7% rate.
These stocks tend to have relatively stable share prices, and should not face the types of declines that so many others do. That’s not to say these stocks are immune from share-price declines should the market take another downward leg from here, but they are less volatile than the general market.
When you’re shopping for bargains, whether it’s dividend stocks or any other kind of stock, you should always check the fundamentals. What the stock price reflects is a number of factors, many of which are overall market factors such as whether the market is pricing in a recession or not, or how it sees the global economy and business conditions several months out.
But ultimately if you’re trying to pick up bargains, you’ll want to see how the business that underlies the stock is doing. AT&T, for example, did have an awful year in 2008, when it lost $2.6 billion. But in 2009, it earned $12 billion in net income, followed by $19 billion in 2010. So that’s a healthy performance in a very rough economy.
Should we have another recession, these two telecoms aren’t recession proof, but their businesses should weather it better than most. After all, people aren’t going to dump their cell phones or stop using them, even if the economy does weaken.
I mentioned that good dividend stocks are everywhere, and they are, even in unattractive markets. There are some not-so-obvious names which feature solid payouts.
RPM International (RPM), a specialty paint, coating, and chemical company which does both consumer and industrial business, is one. With a market cap of $2.4 billion and being in a rather dull business, RPM doesn’t have a high profile, so many investors are not aware of it. Rarely, if ever, will you see frantic headlines about RPM stock.
Yet the company earns steadily, and is a staunch dividend payer, so many dividend investors know it well. RPM did $3.38 billion in net sales in the last twelve months, and brought in $189 million in net income. The current yield is 4.65%, and RPM continually increases its dividend.
Companies like 3M (MMM) or major oil company Conoco Phillips (COP) can also provide some weight for a foundation of a dividend portfolio.
If you like bank stocks, Canadian banks—not US banks—are where to look for payouts from stable financial institutions. Royal Bank of Canada (RY), for example, yields 4.72%, while Bank of Montreal’s (BMO) dividend is currently 4.85%.
Beyond that, investors can shop for higher yields with MLPs or some foreign stocks, but always tailor your choices to your personal level of risk.
Even as the market misbehaves, dividend investors can find places to profit.
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