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All Contents © 2018The Kiplinger Washington Editors
By Chris MacDonald
| October 30, 2017
In the eternal search for return, investors look high and low for growth, value and income stocks that suit their individual preferences. Depending on one’s investment time horizon and propensity for risk, the percentages of growth, value and income stocks will differ across portfolios, although it is generally accepted that carrying some percentage of each equity category is advisable.
In the category of “income” stocks, a wide variety of options are available to the average investor, with various yields, risk profiles and compounding rates to consider.
These three income stocks with solid yields should be considered prime candidates for any portfolio.
Prices and data are from the original InvestorPlace story published on October 25, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Dividend yield: 4.8%
Of all the stocks currently part of the Dow Jones Industrial Average, telecommunications giant Verizon Communications Inc. (VZ) wins the award for top spot as the company with the highest yield.
The year-to-date performance has been less than stellar, with VZ losing more than 8% of its value since the beginning of 2017. The dip in VZ’s share price, indicative of softening sentiment regarding the cash flow generation ability of Verizon and the increasingly competitive market the company finds itself in, has not been lost on momentum investors.
Looking at VZ’s fundamentals, however, we see a divergence between VZ and its peers in terms of value. The company’s price-to-earnings ratio and price-to-sales ratio currently sit at 12.6 and 1.6, respectively – numbers that remain far below the average for the Dow.
A yield of nearly 5% makes VZ a steal for investors willing to buy and hold over the medium- to long-term.
Dividend yield: 1.2%
If you’re wondering how a company with a yield of 1.2% made this list, look no further than Costco Wholesale Corporation’s (COST) special dividend.
While the consensus among many investors who have bought and held COST stock over the years has been one of disdain for the company’s relatively small regular dividend yield and payout ratio, it should be noted that COST has delivered three special dividends over the past five years, adding an additional $5-$7 distribution to the company’s underlying yield with each dividend distribution.
The 2017 special dividend alone added an additional 4% yield to what might otherwise be viewed as a paltry return for investors looking for income.
The argument from COST’s management team is that having a special dividend instead of a higher regular dividend allows for additional operational and balance-sheet flexibility compared to its peers, something that should be weighed carefully by income-focused investors.
Dividend yield: 3.9%
International Business Machines Corp. (IBM) has taken a number of large hits of late, leading to a reduction in the company’s stock price and a corresponding rise in yield for IBM shareholders.
Up until recently, IBM sported a yield higher than 4% on weakness related to a high-profile divestiture by Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B). The Oracle of Omaha very publicly announced his change of heart on the century-old tech company, citing concerns about a shifting competitive landscape in the industry.
That said, Mr. Buffett still holds approximately 50 million shares of IBM, a company which saw its stock price appreciate approximately 10% in mid-October on stronger-than-expected earnings. The company’s profit and revenue growth has begun to pick up, supported by IBM’s focus on improving margins and geographic reach organically, something the company has been able to do over the past two quarters.
All this makes its current valuation appear very attractive to long-term investors looking for a solid mix of income and growth in their high-yield dividend stocks.
This article is from Chris MacDonald of InvestorPlace. As of this writing, MacDonald held none of the aforementioned shares.
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