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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| August 28, 2018
The longest bull market in history has stocks trading at record-high levels. That sounds like great news all around, but it actually creates a problem for income investors: Where can they find dividend stocks poised for outperformance that still sport decent yields?
The idea, after all, is to buy stocks when they’re low, not hitting new highs. Furthermore, the market’s relentless rise is depressing yields on dividend stocks.
Don’t forget: The yield on a dividend stock falls as its price goes up. A year ago, the dividend-paying stocks in the Standard & Poor’s 500-stock index had a trailing yield of 2%, according to Birinyi Associates. After gaining roughly 13% over the past 52 weeks, the yield on the S&P 500 is down to 1.8%.
Quality buy-rated dividend stocks with better-than-average yields are hard to find, but we’re here to help.
First, we scoured the S&P 500 for dividend stocks with yields of at least 2%. From that pool, we focused on stocks with an average broker recommendation of “Buy” or better from Zacks Investment Research. Lastly, we dug into research and analysts’ estimates on the top-scoring names. That led us to these 25 great dividend stocks that have the highest analyst ratings.
Data is as of Aug. 21, 2018. Companies are listed by strength of analysts’ buy recommendations, from lowest to highest. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided by Zacks Investment Research. Zacks surveys analyst ratings on stocks and scores them on a five-point scale, where 1.0 equals “Strong Buy” and 5.0 means “Strong Sell.” Any score of 2.0 or lower means that analysts, on average, rate the stock a buy. The closer the score gets to 1.0, the better.
Market value: $362.2 billion
Dividend yield: 2.7%
Analysts’ average rating: 2.0
There’s a reason Johnson & Johnson (JNJ, $135.35) is the largest health-care stock by market value in the world. From 1944 through 2016, steady growth and a dependable dividend allowed JNJ to deliver an annualized return of 15.5%, making it the seventh-best dividend stock of all time. J&J has raised its dividend annually for 56 years, earning it a place on the S&P Dividend Aristocrats list – an index of stocks that have hiked their payouts for at least 25 consecutive years.
More immediately, analysts expect Johnson & Johnson to post 11.5% growth in earnings per share this year on a 6.2% increase in revenue, according to data from Thomson Reuters.
J&J operates in several different areas of health care, including pharmaceutical products and medical devices. The company is best-known, however, for its over-the-counter consumer brands including Listerine mouthwash, Tylenol pain reliever and Johnson’s Baby Shampoo.
Market value: $159.3 billion
Dividend yield: 3.2%
Analysts’ average rating: 1.97
PepsiCo’s (PEP, $113.72) $3.2 billion purchase of SodaStream (SODA), announced Aug. 20, seemed like a head-scratcher at first. After all, sales of carbonated beverages have been in steady decline for more than a decade. Pepsi has responded by expanding its offerings of non-carbonated beverages and counting on its Frito-Lay snacks business to do more of the heavy lifting.
But analysts at Wells Fargo Securities say the SodaStream deal makes sense. The acquisition furthers PepsiCo’s strategic shift toward offering healthier beverages and gives it a foothold in the make-at-home beverage market.
Long-term dividend investors have to like that Pepsi has paid out a quarterly dividend ever since 1965, and it has raised the annual payout for 46 consecutive years.
Market value: $71.5 billion
Analysts’ average rating: 1.96
Starbucks (SBUX, $54.00) shares are having a tough 2018. Shares were down more than 8% for the year-to-date through Aug. 21, but analysts remain largely bullish on the java chain.
Sure, the rate of earnings growth is slowing down, but it’s still pretty robust, especially for a company the size of Starbucks. Analysts expect profits to increase at an average clip of 13.9% a year over the next five years, according to Thomson Reuters. That’s down from an average annual growth rate of 16% over the past five years.
Analysts at Wells Fargo Securities, who rate shares at “Outperform” (buy), say weakness in Starbucks’ stock is a buying opportunity given the company’s “attractive long-term outlook.”
Market value: $107.3 billion
Dividend yield: 2.1%
Analysts’ average rating: 1.92
Eli Lilly (LLY, $105.07) fell off a “patent cliff” in the first few years of the current decade when it lost exclusive rights to blockbuster drugs such as antipsychotic treatment Zyprexa and the antidepressant drug Cymbalta.
But the worst of the patent losses are fading, bullish analysts say, and the launch of new blockbusters should fuel long-term growth. Trulicity, a new diabetes drug, and Taltz, which is used to treat psoriasis, posted strong sales gains in Lilly’s fourth quarter, which helped offset declining sales of Humalog, its best-selling drug for diabetes.
Analysts at Zacks rate LLY shares at “Buy,” noting that the company’s wide range of therapeutic treatments provides support in the face of generic competition. Of the 13 outside analysts surveyed by Zacks, seven rate the stock at “Strong Buy,” while six have it at “Hold.”
Market value: $72.7 billion
Dividend yield: 4.1%
Analysts’ average rating: 1.83
Shares in Kraft Heinz (KHC, $59.84) are having a rough year. The stock was off 22% for the year-to-date through Aug. 21. But analysts remain upbeat on the name, seeing better times ahead.
Second-quarter U.S. sales topped analysts’ estimates for the first time in at least five quarters, and the food giant exceeded Wall Street’s profits estimates too. Stifel rates shares at “Buy,” citing “Kraft Heinz’s robust earnings growth outlook and the potential for the business to continue (to make acquisitions).” Wall Street’s rumor mill also has been chock-full of speculation about Campbell Soup (CPB) as a potential deal target for Kraft.
Stifel analyst rate shares at “Buy,” citing “Kraft Heinz’s robust earnings growth outlook and the potential for the business to continue (to make acquisitions).” A dividend yield in excess of 4% is mighty tasty too, the analysts note.
Market value: $96.3 billion
Dividend yield: 3.1%
Analysts’ average rating: 1.81
Gilead Sciences (GILD, $73.32) is something of a victim of its own success. Sovaldi, its blockbuster treatment for hepatitis C, effectively cured so many sufferers that demand plunged. Sales for the antiviral medication and other hepatitis C treatments such as Harvoni declined to $9.1 billion in 2017 from $14.8 billion a year earlier.
The company’s overall revenue is expected to decline more than 18% this year before stabilizing in 2019, analysts estimate, helped by new treatments for HIV such as Biktarvy.
Analysts at William Blair Equity Research have an “Outperform” rating on the stock, pointing to the ongoing strength of its HIV medications, as well as promise in the field of cell therapy.
Market value: $179.9 billion
Dividend yield: 2.6%
Analysts’ average rating: 1.76
Analysts as a group are bullish on Citigroup’s (C, $71.24) fortunes, even as it has lagged the broader market by a wide margin in 2018. Shares in the bank were off more than 4% for the year-to-date through Aug. 21 vs. a gain of more than 6% for the S&P 500.
But Wall Street says there’s value to be found in the stock at these levels. Credit Suisse rates Citigroup’s stock at “Outperform” (buy), thanks to a “reasonably healthy” economic backdrop both at home and abroad, cost controls and revenue growth.
Of the 26 analysts surveyed by Zacks, 11 call C stock a “Strong Buy,” one has it at “Buy” and four say it’s a “Hold.” On average, they expect the money center bank to generate average annual earnings growth of 11.2% for the next five years.
Market value: $128.5 billion
Dividend yield: 5.4%
Analysts’ average rating: 1.73
Philip Morris International (PM, $83.53) the tobacco company best-known for selling Marlboro cigarettes outside of the U.S., pays out a hefty and dependable dividend.
With a yield exceeding 5%, it’s only natural that PM would be popular with value and equity income investors. Indeed, it’s one of the most widely held stocks among actively managed mutual funds.
Whether investors continue to stay the course with Philip Morris depends in part on the success of its iQos smokeless tobacco gadget. Analysts at Stifel, who rate shares at “Buy,” say iQos, which heats rather than burns tobacco, is set to be a game-changer for the company. Concerns remain about whether it can become a global hit, but PM’s hefty dividend and a history of share buybacks helps limit downside in the stock, Stifel writes.
Market value: $224.1 billion
Dividend yield: 4.3%
Whether you’re playing defense or just looking for dividends, you can’t really ignore Verizon (VZ, $54.91). The telecommunications giant is as blue-chip as they come. Indeed, it’s the sole telecom in the Dow Jones Industrial Average. It’s also a Dividend Achiever, having hiked its payout every year since 2007.
Analysts expect the kind of slow-but-steady growth you expect from a telecom. Earnings per share are forecast to grow at an average annual rate of 5.4% for the next five years. Add in the healthy dividend yield, and the consensus is that Verizon can deliver superior returns versus the S&P 500.
That’s certainly been the case in the past. Indeed, Verizon has proven to be one of the 50 best stocks of all time. From 1984 to 2016, it delivered an annualized return of 11.2%, which created $165.1 billion in wealth.
Market value: $44.8 billion
Analysts’ average rating: 1.69
Praxair (PX, $158.32) hit some regulatory hurdles in its proposed $83 billion merger with German counterpart Linde, but analysts remain confident in the stock as a long-term holding.
U.S. regulators in August said the industrial gases companies would need to sell assets that generate more $4.3 billion sales before they would give the deal a thumbs up. Praxair and Linde agreed to merge in an all-stock deal in December 2016.
Of the 13 analysts surveyed by Zacks, eight rate PX at “Strong Buy,” one has it at “Buy” and four say it’s a “Hold.” A big part of the case in favor of Praxair is management’s longstanding commitment to the dividend.
The company, which was added to S&P’s list of Dividend Aristocrats in January 2018, has raised its payout every year for 25 consecutive years.
Market value: $124.5 billion
Dividend yield: 2.5%
Analysts’ average rating: 1.63
Shares in McDonald’s (MCD, $161.04) have traded sideways for the past year, hurt by underwhelming responses to its new $1/$2/$3 Dollar Menu and Big Mac trio promotion. Furthermore, the introduction of the fresh-beef Quarter Pounder “isn’t sizzling yet,” says Stifel, which rates MCD at “Hold.”
But analysts, on average, still think MCD looks pretty tasty. Earnings are forecast to increase at an average annual rate of almost 9% for the next half decade, according to Thomson Reuters data. Add in the dividend, and the consensus view is that this Dow stock is a buy.
Speaking of dividends: The world’s largest hamburger chain’s payout dates back to 1976 and has gone up every year since.
Wikimedia Commons, Raimond Spekking
Market value: $87.6 billion
Dividend yield: 3.3%
Analysts’ average rating: 1.60
The Trump administration may have blocked Broadcom (AVGO, $210.51) from acquiring rival Qualcomm (QCOM) in early March, but the chipmaker’s July deal to buy CA Technologies (CA) for $18.9 billion has analysts sweet on the stock.
The breakdown of the 25 recommendations collected by Zacks goes like this: 17 analysts rate AVGO at “Strong Buy,” one has it at “Buy” and seven say “Hold.”
Zacks Investment Research says all this bullishness stems in part from increased demand for networking products from cloud and data centers, growth in broadband video delivery and rising demand for storage. The healthy dividend also helps.
The CA Technologies deal expands Broadcom’s reach into mainframe and enterprise software.
Market value: $183.8 billion
Dividend yield: 2.8%
Analysts’ average rating: 1.59
Analysts who are bullish on Merck (MRK, $69.17) note the strength of a host of its blockbuster drugs.
Cancer-drug Keytruda, for example, is a runaway hit, having been approved for advanced melanoma, non-small cell lung cancer, head and neck cancer, classical Hodgkin lymphoma and bladder cancer. The pharmaceutical giant is seeking additional approvals for Keytruda for a wide range of other cancers. Bulls also point to strength in Januvia for diabetes, as well as Gardasil, a human papillomavirus vaccine.
“Merck has been and remains our Top Pick as we see room for significant upside to (profit) estimates as Keytruda continues its impressive rollout,” say Credit Suisse analysts, who rate shares in the Dow component at “Outperform.”
Market value: $247.9 billion
Like Merck, Pfizer (PFE, $42.16) is a Dow component with a healthy dividend yield. Analysts are also increasingly optimistic about its drug pipeline. Hit drugs on the market already include Ibrance, to treat breast cancer, blood thinner Eliquis, and Xeljanz, a treatment for rheumatoid arthritis.
Pfizer has hiked its divided annually every year since 2010. At the same time, analysts expect steady, if unspectacular, bottom-line gains. Earnings per share are forecast to rise at an average annual rate of 7% for the next half-decade, according to data from Thomson Reuters.
Investors can also take comfort in the fact that Pfizer has paid uninterrupted dividends annually since 1980. The company has raised its payout every year since 2010.
Air Products and Chemicals
Market value: $36.3 billion
Analysts’ average rating: 1.53
Air Products and Chemicals (APD, $166.10) has long been a dividend champion, and analysts think the stock can outperform in the shorter-term too.
The company spent much of past few years restructuring. It spun off its electronic materials division and sold its performance materials business to focusing on its legacy industrial gases business. The new slimmed-down version of APD is expected to deliver faster earnings growth. Credit Suisse, which rates APD at “Outperform,” writes that the company continues to deliver strong quarterly results on the back of solid volume gains and stable pricing.
One thing that hasn’t changed is the company’s commitment to its dividend. APD, a member of the S&P Dividend Aristocrats, has upped its payout for 36 years in a row.
Market value: $228.3 billion
Dividend yield: 3.8%
Analysts’ average rating: 1.50
Chevron (CVX, $117.94) stock has been struggling in 2018, and that has some analysts calling it a bargain-busting buy.
Indeed, Jefferies Equity Research has the oil and gas giant on its “Franchise Pick” list – a roll call of buy-rated stocks in which Jefferies analysts have the most confidence. They cite Chevron’s “strong growth profile driven by high-margin projects tied to oil prices,” including its Australian liquid natural gas operations and industry-leading position in Texas’s Permian Basin, as being undervalued by the market.
Of the 14 analysts surveyed by Zacks, 10 rate CVX stock at “Strong Buy.” One calls the Dow component a “Buy,” while three have it at “Hold.”
Market value: $232.4 billion
Analysts’ average rating: 1.48
Home Depot (HD, $200.23) reported record sales and earnings in the second quarter, and analysts expect the nation’s largest home improvement chain to keep plugging along.
“A slowdown in housing is increasingly a concern from investors but management doesn’t believe it is impacting results,” say analysts at Stifel, who rate HD at “Buy.” “We believe there is no reason to be concerned in the near term and think the investments the company is making will just fuel future growth.”
The rest of Wall Street tends to agree that this Dow stock is attractive at current levels. According to Zacks Investment Research, 18 analysts rate HD stock at “Strong Buy.” Three have it at “Buy,” while five say it’s a hold.
Market value: $76.2 billion
Analysts’ average rating: 1.46
Vanguard might be nipping at its heels, but BlackRock (BLK, $474.93) remains the world’s largest asset manager with a commanding share of the market for exchanged-traded funds (ETFs). That bodes well for future growth. BlackRock currently has $6.3 trillion in assets under management, but the real action comes from the expanding popularity of passive investments.
Best known for its iShares suite of exchange-traded funds, BlackRock’s $1.38 trillion in ETF assets gives it nearly 40% of the market, according to Morningstar. Second-place Vanguard has $872 billion in ETF assets – good for about 25% of that market.
“BlackRock remains well poised for growth, driven by acquisitions and its initiatives to gain market share in the ETF business,” Zacks Equity Research says. “Mounting operating expenses and increased dependence on overseas revenues remain primary near-term concerns.”
Market value: $163.3 billion
Analysts’ average rating: 1.44
Cable and media giant Comcast (CMCSA, $35.74) has been embroiled in mergers and acquisition drama for much of 2018, but that hasn’t soured analysts on the stock.
The company in July dropped out of a bidding war with Walt Disney (DIS) to acquire most of 21st Century Fox (FOXA). It then made a $34 billion bid for 61% of European pay-TV giant Sky (SKYAY). The attendant uncertainty has weighed on CMCSA stock throughout 2018, but analysts remain buoyant on the name. Jefferies considers it to be a “Franchise Pick.”
Comcast also happens to land on the list of 50 best stocks of all time. Shares generated an annualized return of 12.4% from 2002 to 2016. That was good for lifetime wealth creation of $140 billion.
Market value: $216.8 billion
Dividend yield: 2.9%
Analysts’ average rating: 1.42
Analysts have been bullish on Cisco Systems (CSCO, $45.78) for some time, and after the networking hardware maker posted better-than-expected quarterly results in August, they look pretty smart. CSCO, a Dow stock, was up 18% for the year-to-date as of Aug. 21.
Analysts at William Blair, who rate shares at “Outperform,” are bullish on Cisco because the global economic environment looks healthy, new products are starting to make an impact on growth, and the company is returning cash to shareholders through dividends and buybacks.
Of the 19 analysts polled by Zacks, 14 say shares are a “Strong Buy.” Two have it at “Buy” and three rate CSCO at “Hold.”
Market value: $158.9 billion
Dividend yield: 2.2%
Wall Street’s pros are bullish on DowDuPont’s (DWDP, $68.83) ability to further cut costs in the shorter-term, as well as the benefits of the company’s plan to split into three separate publicly traded firms next year.
In a research note titled “Patience Is Bitter, but Its Fruit Is Sweet,” Credit Suisse, which rates shares at “Outperform,” says the 2019 spinoffs look to be on track. The spun-off agriculture division, which will focus on seeds and crop protection, will be called Corteva Agriscience. The materials division will retain the Dow name, while the specialty products division will be known as DuPont.
In the meantime, analysts expect earnings per share to jump 25% this year, according to data from Thomson Reuters. Revenue is forecast to increase 10%.
Market value: $90.6 billion
Analysts’ average rating: 1.41
It’s been a rough several years for oil-field services companies like Schlumberger (SLB, $64.76), ever since prices for crude collapsed in 2014. But analysts see brighter times ahead for the industry’s largest, most diversified firm.
The onshore U.S. oil-field services market bottomed out in 2016, says Credit Suisse, which rates SLB at “Outperform.” International markets are just now picking back up, with deepwater still waiting its turn. “With 35% to 40% of revenues from North America, SLB has succeeded in expanding and improving its business there,” Credit Suisse says. “It now stands to benefit even more with the international recovery.”
Of the 17 analysts tracked by Zacks, 13 rate SLB at “Strong Buy,” one has shares at “Buy” and three call it a “Hold.”
Market value: $5.9 billion
Dividend yield: 3.4%
Analysts’ average rating: 1.40
Leggett & Platt (LEG, $46.25) has its hands in several pies, including producing steel wire; designing and manufacturing seating support systems for automobiles; and making components for manufacturers of upholstered furniture, beds and other home furnishings.
It isn’t a particularly glamorous company, but it’s a star when it comes to dividends. L&P has raised its payout for 47 consecutive years and in 55 of the past 56 years.
“We believe Leggett and Platt is poised to see volume and margin growth in a variety of business units,” say analysts at Stifel, who rate shares at “Buy.” “With the stock priced attractively to both the S&P 500 and relative to historical multiples, we are bullish on the shares.”
Market value: $20.2 billion
Dividend yield: 2.4%
U.S. steelmaker Nucor’s (NUE, $63.80) second-quarter earnings more than doubled thanks to help from new tariffs on steel imports, but analysts see other reasons to like the stock.
Sure, higher average selling prices are boosting results, but Nucor also saw solid volume growth across its business, says Credit Suisse, which rates shares at “Outperform.” By Zacks’ count, eight analysts rate NUE at “Strong Buy” and two have it at “Hold.”
Although steel prices remain a risk, one thing investors can count on is the dividend. Nucor has hiked its annual payout every year since 1974, and it pays out a conservative 29% of profits as dividends.
Market value: $39.4 billion
Analysts’ average rating: 1.27
Analysts aren’t the only ones in love with Delta Air Lines (DAL, $57.60). Berkshire Hathaway (BRK.B) Chairman and CEO Warren Buffett is a huge fan too.
Berkshire scooped up another 10.1 million shares in the air carrier during the second quarter, increasing its stake by 18.8%. Buffett began investing in Delta and several other airlines in 2016 after decades of shunning the industry. Berkshire’s is now Delta Air Lines’ top shareholder. It owns 63.7 million shares, or 9.2%, of DAL’s shares outstanding.
Analysts expect Delta Air Lines to generate average annual earnings growth of more than 16% for the next five years, according to Thomson Reuters data. Of the 13 analysts polled by Zacks, 10 call DAL a “Strong Buy,” two have it at “Buy” and one says “Hold.” The dividend yield of 2.4% ain’t bad, either.