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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| August 6, 2019
The markets are looking perilous right now, with rising trade tensions and Federal Reserve uncertainty sparking heavy selling. While there has been a flight out of stocks generally – Standard & Poor’s 500-stock index is off almost 6% over the past five days – dividend stocks are gaining a little appeal.
Investors were caught off guard after the Federal Reserve lowered its benchmark interest rate by a quarter-point. Some were expecting a half-point cut, and others were expecting Fed Chairman Jerome Powell to signal another quarter-point cut later in the year (he didn’t). Then America’s trade war with China flared up after President Donald Trump threatened a new round of tariffs, which the Chinese replied to by cutting off imports of U.S. agricultural products and momentarily letting its yuan currency slip above a key level.
Dividend stocks can help smooth out returns during volatile periods like this. Morgan Stanley private wealth adviser Christopher Poch is a firm believer in dividend investing. He writes, “In over 33 years in the wealth management industry, I have seen what works for the long-term, tax paying investor. The importance of dividends and the contribution to overall total return, for new and experienced investors alike, should not be overlooked.”
“Not only do dividend stocks as a group have less volatility year- to- year, they outperform nondividend paying stocks over time as well,” Poch writes. “Over the last 90+ years, dividends have accounted for more than 40% of the total return equation.”
Here are five dividend stocks that TipRanks has identified as earning a “Strong Buy” rating by Wall Street’s analyst community. Each of these stocks boasts relatively high yields between 3% and 5% – well more than the broader market’s current 1.9% – and are projected to gain between 17% and 65% over the next 12 months.
Data is as of Aug. 5. Dividend yields are calculated by annualizing the most recent monthly payout and dividing by the share price.
Market value: $106.5 billion
Dividend yield: 4.0%
TipRanks consensus price target: $312.00 (17% upside potential)
TipRanks consensus rating: Strong Buy
Chipmaker Broadcom (AVGO, $267.66) boasts a generous dividend yield of 4%. To put that into perspective, that’s more than three times the yield of the Technology Select Sector SPDR Fund (XLK). AVGO also has stacked nine consecutive years of dividend growth. In June 2014, it paid out 29 cents per share. This June, it doled out $2.65.
Wall Street also sees Broadcom as a compelling dividend stock for its capital-gains potential. Out of 28 analysts covering the stock, 22 rate AVGO a Buy. That includes RBC Capital’s Mitch Steves, who just two weeks ago initiated coverage on the stock with an Outperform rating (equivalent of Buy) and a $320 price target that implies 20% upside from current levels.
The five-star analyst writes, “We view Broadcom as an attractive asset with: 1) potential for multiple expansion; 2) long-term EPS growth well into double digits; and 3) a healthy capital-allocation policy if the right deals do not present themselves.”
What’s more, Steves believes the company will benefit from the $19 billion acquisition of CA Technologies, calling the deal solid from both a technology and financial perspective “even if messaging of the story could have been improved.” By owning the “mainframe stack,” Broadcom can increase pricing, offer better solutions and create a larger competitive moat, he writes. See why other top analysts are bullish on Broadcom.
Market value: $67.2 billion
Dividend yield: 3.5%
TipRanks consensus price target: $59.75 (48% upside potential)
Morgan Stanley (MS, $40.49) is something of an unheralded dividend darling. The Financial Select Sector SPDR Fund (XLF), which is anchored by heavyweight banks and other large-cap financials, yields just 2%. Meanwhile, Morgan Stanley offers up a thick 3.5% yield that’s larger than the vast majority of its blue-chip peers.
The analyst community is overall bullish on MS shares. Wall Street Journal tracks 25 analysts covering the stock, and 20 of them say Morgan Stanley is buy-worthy. Only four analysts have come out with commentary about MS over the past three months, but all four are in the bull camp.
“We believe (Morgan Stanley’s) strong fundamentals can comfortably offset the rate uncertainties.” five-star Oppenheimer analyst Chris Kotowski wrote on July 19 following the company’s earnings beat. MS reported profits of $2.2 billion, or $1.23 per share, which easily beat consensus estimates of $1.14.
Citigroup analyst Keith Horowitz recently upgraded MS from Hold to Buy. “We see Morgan Stanley net income growth of 2-3% over the next two years by continuing to gain market share in both its institutional and retail franchises, which compares more favorably against the flat to slightly declining net income growth among the rest of the bank universe,” he writes.
What are the financial experts saying about Morgan Stanley’s outlook? Find out on TipRanks.
Market value: $8.1 billion
Dividend yield: 4.9%
TipRanks consensus price target: $45.89 (65% upside potential)
Luxury fashion brands Coach, Kate Spade and Stuart Weitzman all fall under the Tapestry (TPR, $27.84) umbrella. The company indeed has a massive dividend nearing 5%, which compares favorably to an average consumer-goods stock yield of about 2%. But TPR has grown that yield the painful way – by shrinking in price. The stock has lost roughly 40% over the past year.
Wall Street’s analysts, however, are wildly supportive of the stock. In the past three months, 10 analysts have reiterated or initiated a Buy rating. Robert W. Baird’s Mark Altschwager reiterated his Buy rating a couple months ago, giving it a $43 price target (54% upside potential) after the company named Joanne Crevoiserat the new CFO, effective Aug. 1.
Crevoiserat comes from Abercrombie & Fitch (ANF), where she worked as executive vice president and COO for more than two years. “We believe Ms. Crevoiserat’s background will prove to be an asset to Tapestry as it evolves as a multi-brand organization – with her track record of financial discipline, transformational leadership experience, and understanding of next-generation consumers giving us increased confidence in Tapestry’s longer-term outlook,” Altschwager writes.
Tapestry will report earnings next on Aug. 15, giving analysts another chance to re-evaulate the company. You can check out current pro opinions on TPR at TipRanks.
Market value: $31.6 billion
Dividend yield: 4.8%
TipRanks consensus price target: $98.57 (30% upside potential)
Valero (VLO, $75.78) is the largest independent refiner in the world, with 15 refineries and total crude throughput capacity of nearly 3.1 million barrels per day. Valero also owns 14 corn ethanol plants in the American Midwest.
Valero doesn’t have the cleanest dividend history, as the energy stock was forced to cut its dividend by two-thirds in 2010. But the payout has since recovered and is in the midst of a nine-year growth streak. In general, Valero has been generous in rewarding shareholders, returning $11.7 billion to shareholders via dividends and buybacks between 2015 and 2018.
Eight analysts have recently published opinions on the stock, and all of them have included Buy-equivalent ratings. RBC Capital’s Brad Heffern is one of them.
He wasn’t particularly jubilant about second-quarter results, which he deemed a “very standard VLO beat.” “However, we think the negative reaction reflects investor sentiment that the 2Q19 bar was relatively low and should have been more easily cleared,” he writes.
But while Heffern lowered his price target to $98 per share (29% upside potential), he maintained his Outperform rating. His rationale: “We like Valero Energy for its position at the bottom of the global refining cost curve and its significant leverage to the US Gulf Coast refining market.” Get the full scoop on the VLO analyst consensus at TipRanks.
Market value: $108.8 billion
Dividend yield: 3.2%
TipRanks consensus price target: $213.80 (18% upside potential)
Biotechnology stocks are known for their breakneck growth, not their income potential. That makes multinational biopharma Amgen (AMGN, $181.50) and its 3%-plus yield stand out.
While the stock is 7% in the red year-to-date, AMGN has been enjoying a wave of bullish sentiment lately after reporting solid revenue and profit beats. Thirteen analysts have sounded off on the stock over the past three months, and of those, 10 rate AMGN a Buy.
Highly rated Jefferies analyst Michael Yee has a Buy rating and $230 price target on AMGN, writing that it should hit those levels should new blockbuster drugs conspire with a positive court decision facing star drug Enbrel. He also noted further potential upside should AMG 150 – its KRAS gene inhibitor, which is being studied as a treatment for tumors – continue to show progress.
Indeed, even JPMorgan’s Cory Kasimov, who has a Hold rating on Amgen, acknowledged the potential for AMG 510 and recommended investors keep watch on the next formal data presentation at World Conference on Lung Cancer in early September. “The surprise of the 2Q call was the encouraging disclosure that AMG 510 is now demonstrating activity in tumor-types beyond (non-small cell lung cancer),” he writes.
Find out how the Street’s average price target for AMGN breaks down.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.