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All Contents © 2017The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| January 2017
High-quality dividend stocks never go out of style for long-term investors, and there is no shortage of stocks with high yields and bright prospects for 2017, from telecommunications companies embracing the digital future to pharmaceutical companies riding the success of new drugs.
That's not to say that these stocks won’t fall if the market slumps this year. No stock is without risk. But between their near-term profit potential and sizable dividends, these 10 dividend-paying stocks are poised to deliver better-than-average total returns in the coming months.
(All prices and other data are as of January 9, 2017. Figures are based on the average of analysts’ forecasts for calendar 2017, as compiled by Zacks Investment Research, unless otherwise noted. Stocks are listed alphabetically.)
Share price: $63.79
Dividend yield: 3.6%
The pharmaceutical sector is a great place to look for generous dividend payers and few stocks sport yields as high as AbbVie’s. The patent expired in December on AbbVie’s Humira, the top-selling anti-inflammatory drug on the market. Even so, investors are optimistic about the company’s new products, such as Imbruvica, a treatment for blood cancer. AbbVie’s shares returned 20%, including dividends, over the past 52 weeks, while the pharmaceutical sector overall was in the red.
Analysts expect robust profit growth for AbbVie in 2017, with earnings per share expected to rise 13% over estimated 2016 earnings on a sales gain of 10%, to $28 billion. That’s well ahead of analysts’ forecast for 9% earnings growth for the broader market, and 8% for the pharmaceutical industry. AbbVie has logged 44 straight years of dividend growth.
Share price: $40.80
Dividend yield: 4.7%
The telecommunications services sector is well-known for dividends, thanks in large part to AT&T. The company has paid uninterrupted dividends since 1984 and has raised its payout annually for more than three decades. AT&T’s yield is the highest in Standard & Poor’s 500-stock index, which has a yield of 2.1%
Although phone service remains AT&T’s core business, the company is moving aggressively into pay-TV and content production with acquisitions such as DirecTV and a pending deal to buy Time Warner (TWX)—an entertainment giant whose lineup includes CNN, HBO and the Warner Brothers movie studio. Analysts aren’t counting on the deal going through -- at least not without some modifications -- due to antitrust issues. But even without it, AT&T’s profits should still rise by about 5% in 2017, and the company’s strong free cash flow (cash profits, minus the capital expenditures needed to maintain the business) should support its next dividend hike.
Share price: $115.84
Dividend yield: 3.7%
The same forces that propelled Chevron’s stock to a gain of 36% in 2016 should only get stronger in the coming year. After a long slump, oil prices stabilized last year. And now that the OPEC oil cartel has agreed to cut production, prices are expected to rise even more. That's good news for Chevron, a component of the Dow Jones industrial average. The integrated oil company should see profits rise in its drilling and transportation operations, and despite the higher crude prices, in its refining business, too. Analysts forecast revenue to increase from $113 billion in 2016 to $153 billion in 2017. As a result, they expect the company's earnings per share to finally lift off, soaring 276% in 2017 over 2016 levels—far ahead of the tepid 2.5% rise expected for the industry overall.
Share price: $12.63
Dividend yield: 4.8%
U.S. auto sales set a record in 2016, but the prospect of leaner times ahead has weighed on shares of Ford. The stock slumped 8% in 2016, including dividends. Yet the market is treating Ford, with a price-earnings ratio of just 8, compared with 17 for the S&P 500, as if profits will fall off a cliff. That shouldn’t be the case. Although car sales are forecast to decline in 2017, they are still expected to remain close to record levels.
Share price: $36.01
Dividend yield: 4.2%
As with Ford, the case for investing in General Motors comes down to generous dividends and a bargain-priced stock. Only about three-dozen stocks in the S&P 500 possess yields above 4%, GM being one of them. And GM distributed just 25% of its profits as dividends in the third quarter of 2016, compared with an average of just over 40% for S&P 500 companies, indicating ample room to cover its payout and hike it in the future. Analysts see earnings per share dipping from $6 in 2016 to $5.83 in 2017. But with a P/E ratio of 6, GM’s stock already reflects the expected earnings decline—and maybe then some.
Share price: $53.62
Dividend yield: 3.3%
As one of the world’s largest suppliers of paper and packaging materials, International Paper may not sound like an exciting business. But it possesses some attractive features. The company dominates the market for containerboard, giving it exposure to rising demand for packaging used by online retailers. For example, the company supplies half of the shipping boxes used by Amazon.com. Analysts expect earnings per share to climb 23% in 2017 over estimated 2016 levels. The firm pays a healthy dividend, too, and it is income you should be able to count on, considering International Paper has paid uninterrupted dividends since 1993.
Share price: $61.10
Dividend yield: 3.0%
A health care stalwart and component of the Dow Jones industrial average, drug maker Merck hasn’t missed a quarterly dividend payment in more than three decades. A recent four-year streak of dividend increases looks likely to continue and Merck’s growth prospects look compelling. Years of acquisitions, along with research and development, have resulted in a slew of successful drugs now on the market. Cancer medicine Keytruda is an ongoing hit, for example, and Merck has more potential winners in the works, with 24 drugs in the latter stages of development. In the 12-month period that ended September 30, 2016, the company generated $9 billion in free cash flow. Analysts surveyed by Thomson Reuters see a 10% increase for Merck's stock in the next 12 months or so.
Share price: $33.47
Like Merck, Pfizer is a Dow component and a relatively high-yielding stock. Investors worry that the company isn’t producing enough new products to overcome the loss of revenues from drugs that lose patent protection. But Pfizer has invested heavily in research and development, and it made some big acquisitions that should start to produce a new wave of products. Pfizer’s lineup of drugs in development looks promising, with 94 products in the works. Recent successes include breast cancer treatment Ibrance, blood thinner Eliquis and the pneumococcal pneumonia vaccine Prevnar 13.
The company has paid quarterly dividends consistently for decades and has a seven-year history of dividend growth. Earnings per share are expected to rise 8% in 2017, and the dividend looks well-covered. Pfizer paid $7.2 billion in dividends last year and another hike is expected in 2017. The firm's free cash flow is stable, ranging between $10.6billion and $19.3 billion since the last recession ended in 2009.
Share price: $52.68
Dividend yield: 4.3%
Dow component Verizon has paid uninterrupted dividends since its name changed from Bell Atlantic in 2000. It can also claim 10 straight years of dividend growth. But the company has more to offer than an income stream.
Verizon is repositioning itself for a world in which mobile content is ubiquitous and digital ads are moneymakers. It purchased AOL for its digital-advertising technology in 2015 and currently has an agreement to buy Yahoo (YHOO). That deal may not go through, partly because of Yahoo’s recent disclosure of a massive data theft impacting more than 1 billion accounts. But Verizon is raking in cash from its mobile business, Fios TV service and other sources. Earnings per share should climb 3.6% in 2017. Throw in a 4.3% dividend yield and you could scoop up total returns close to 8% over the next year if the stock keeps pace with profit growth, as expected.
Share price: $54.24
Dividend yield: 2.8%
It's going to take some time for Wells Fargo to rebuild its reputation. The revelation that thousands of employees opened millions of accounts without customers' knowledge cost the CEO his job and continues to hurt business. But like all such scandals, this too, shall pass. Wells Fargo remains a "great bank," in the words of Warren Buffett. He should know. Berkshire Hathaway (BRK-B), the company he heads, is the bank’s largest stockholder. And Buffett hasn’t sold since the scandal broke. That should give investors confidence in Wells Fargo's prospects, but if that's not enough, 2017 is shaping up to be a good one for the entire financial sector. Interest rates are on the rise, which boosts banks' profitability. Financial deregulation -- a stated goal of the new administration -- could also pad the bank’s bottom line.
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