5 Dividend Stocks to Buy After the Pullback


I don't know which is more impressive: That the town of Wichita Falls, Texas, has suffered 100-degree heat for 44 days straight, or that the Dow just came within inches of postings nine days of consecutive losses -- its longest losing streak in 33 years.

You're probably more interested in the latter. And after stocks' pullback, and a flight-to-safety in Treasuries, the average Dow stock now yields more than 10-year bonds. History is kind to stocks when that situation occurs.

Does that mean markets are about to hit a big upswing? No. But it means a few high-quality stocks now deserve more of your attention. Here are five such candidates.

Waste Management (NYS: WM) shares have dropped almost a fifth over the past month, amid disappointing earnings. That's pushed its dividend yield up to 4.4%, and caught the attention of my colleague Anand Chokkavelu.

"I didn't note any permanent impairments" in the company's earnings reports, Anand wrote this week. "Waste Management's stock has dropped to its 52-week lows without any signs of long-term fundamental weakness."

Waste Management now trades at 15 times earnings, compared with an average of 24 times earnings over the past two decades. High-quality companies deserve high-quality valuations. Waste Management doesn't have one right now. Take advantage of that.

Intel (NAS: INTC) is one of the few tech companies with a dividend policy worth talking about. Among Dow stocks, it holds the weird honor of having one of the highest dividend yields and one of the highest estimates of future growth. That discrepancy shouldn't last long. Moreover, Intel's 3.8% yield is supported by just 38% of its free cash flow. This dividend seems unreasonably high compared with the company's growth potential, yet it could be so much higher. Take advantage of that, too.

Paychex (NAS: PAYX) processes paychecks (or did the name tip you off?) for small- and mid-sized employers. (Rival ADP (NYS: ADP) handles the big boys.) Naturally, high unemployment hurts Paychex's business -- but not as much as you might think.

Since 2006, the national unemployment rate has nearly doubled. Yet Paychex's earnings per share have increased 16%, and dividends per share have doubled. Shares are down 12% over the past month, pushing the dividend yield to 4.6% -- about twice the market average. Earnings will get a nice bump if employment or interest rates rise, since Paychex earns interest on cash it holds for customers. Have patience. This high-quality company will treat long-term investors well.

Kimberly-Clark (NYS: KBM) is a household giant, parent to names like Kleenex, Huggies, and Cottonelle. Now yielding 4.4%, it's one of the more attractive dividend plays among high-quality large-cap companies. Earnings are under pressure as commodity costs squeeze margins. But this shouldn't impact dividends, which have used just 55% of free cash flow in recent years, leaving room for error. A consistent and growing dividend has made Kimberly-Clark one of the best dividend stocks to own over the long run. There's little reason to think that will change in the years ahead.

Southern Company (NYS: SO) could be a safe bet if you think the recent market pullback indicates something bigger than a blip. I've been writing a series of articles lately tracking the dividend-adjusted returns of several companies. To my surprise, boring utility companies' total returns usually equal the market average -- high dividends matter that much! Importantly, these companies tend to achieve a market-average return with far less volatility. If a wi ld market has you spooked and wanting out, consider a utility stock like Southern Company. You'll score good returns without the vertigo.

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At the time thisarticle was published The Motley Fool owns shares of Waste Management. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Kimberly-Clark, Southern, Intel, Paychex, Automatic Data Processing, and Waste Management, and creating a diagonal call position in Intel. Try any of our Foolish newsletter services free for 30 days.Fool contributorMorgan Houselowns shares of Paychex and Southern company. Follow him on Twitter @TMFHousel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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