10 Outstanding Dividend Stocks to Buy in This Crazy Market

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In the midst of the August market panic, I wrote about these 10 outstanding dividend stocks:

Category

Company

Dividend Yield

Dividend-Adjusted Return Since Aug. 2, 2011

UtilitiesSouthern Company4%10%
UtilitiesWaste Management4%6%
Mortgage REITsAnnaly Capital (NYS: NLY) 15%(3%)
Mortgage REITsChimera (NYS: CIM) 18%1%
Mortgage REITsCrexus13%5%
LuxuryPebblebrook Hotel3%14%
LuxuryCoach (NYS: COH) 1%16%
MultinationalIntel (NAS: INTC) 4%17%
MultinationalPhilip Morris4%3%
MultinationalCoca-Cola3%4%
 
 

Source: S&P Capital IQ.

Why these names? The biggest problem facing the U.S. economy is weak consumer spending. Households have high levels of debt they're still trying to pay off, and people are feeling insecure about their jobs or have already been laid off. Under these circumstances, it's easy to see why they're not spending. And when no one's buying goods and services, companies have more capacity to produce than demand for their products, so they have no reason to hire people.

It's a vicious cycle -- one that probably won't be cured for a long time unless we experience a new technology boom, a surge in exports, or additional stimulus spending to boost demand.

Dividend stocks have been shown to outperform non-dividend payers, especially in bear markets. And there are particular reasons to think these categories of stocks will do well, too: Utilities provide a necessity product and tend to do well in periods of low inflation; mortgage REITs are enjoying strong profit spreads in the current interest rate environment; luxury goods makers should do well as the wealthy continue to accumulate a greater and greater proportion of our nation's wealth; and multinationals can support domestic revenue with sales from emerging markets.

How're we doing?
On average, the 10 stocks are outperforming the S&P500 (INDEX: ^GSPC) by a couple of percentage points. That's nothing to sneeze at, but I'm looking for them to outperform over the long term.
Several of our companies recently reported earnings:

  • Annaly Capital's earnings per share fell to $0.65 from $0.70 in the same quarter last year due to a declining interest rate spread and dilution from its most recent multibillion-dollar share offering. Other large mortgage REITs like American Capital Agency (NAS: AGNC) have been reporting sliding spreads, as the Fed continued to drive down long-term rates to stimulate economic growth. Chimera is expected to announce its results soon -- expect more of the same, plus some more clarity around accounting issues that are delaying its earnings release.
  • Coach reported that its earnings per share grew 16%, driven by sales growth of 15% to $1.05 billion.While sales were predictably flat in its stronghold Japan, China saw double-digit same-store sales growth, and the North American same-store sales grew an impressive 9%. This makes sense, as wealthy American and Chinese consumers continue to increase their purchasing power.
  • Intel's top direct competitor, Advanced Micro Devices (NYS: AMD) , has a new CEO, and he's laying off 12% of its workforce (1,400 workers). Further supporting the multinational thesis I mentioned above, the company cited weak PC growth in the U.S. and Europe. Though slow PC sales would also present a problem for Intel, the company actually had a great quarter, helped in no small part by strong sales in emerging markets.

For the most part, though, the 10 outstanding dividend stocks continue to perform this earnings season.

Foolish bottom line
The current economic environment may be a difficult one for many companies, but the dividend payers listed above are have some protection from these challenges, and, in some cases, could actually benefit from them.

If you're looking for even more dividend stock ideas, I suggest checking out The Motley Fool's special report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." You can download it today at no cost by clicking here.

At the time this article was published Ilan Moscovitzdoesn't own shares of any company mentioned. You can find him on Twitter@TMFDada. The Motley Fool owns shares of Coach, Coca-Cola, Philip Morris International, Waste Management, Pebblebrook Hotel, Chimera Investment, and Annaly Capital Management. The Fool owns shares of and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Southern Company, Pebblebrook Hotel, Intel, Philip Morris International, Coach, Coca-Cola, and Waste Management; creating a diagonal call position in Intel; and creating a write covered strangle position in Waste Management. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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