The 3 Best Dividend Stocks From an Expensive, Low-Yielding Market

Brian Stoffel, The Motley Fool
Updated

Almost every day this month, the financial headlines have read: "S&P 500 Rallies to New Highs." If you're looking to put new money into the market, it might make you think you've missed the boat. But look carefully, and you'll see that the best dividend stocks available are much cheaper than the broader market.

Just how expensive is the market?
Right now, the S&P 500 is trading for 18.5 times earnings and offering an average dividend yield of 2.1%. Over the past 50 years, that's expensive, but not ridiculously so. The median P/E for the S&P 500 since 1964 hovers around 17.7, with an average payout of 3%.

In other words, today's S&P 500 is 4.5% more expensive than normal. But the average dividend yield is a full 30% lower than what long-term investors are used to receiving.


To find the best dividend stocks today, I went looking for three companies that are trading for less, and offering a better yield than the market -- while having future prospects brighter than the market is acknowledging.

Apple

Source: Matt Buchanan, via Commons.Wikipedia.org.

  • Current P/E: 10.9, a 41% discount to the S&P 500 P/E

  • Current dividend yield: 2.6%, a 24% premium to the average S&P 500 yield

It's no secret that investors are worried that the days of growth and blockbuster products at Apple are over. You can count me among those who have these concerns -- especially because without a new product launch, it becomes increasingly probable that Steve Jobs was what made the difference between Apple and the competition.

But there are three undeniable facts that make Apple worth considering at today's prices. First, the stock is dirt cheap. Second, the company is giving back billions of dollars to shareholders through its dividend and share repurchase program.

But most importantly, the Apple ecosystem is still valuable. As people buy one Apple product, they're more likely to buy others, as they want their devices to talk to and sync with one another. If you've made purchases on iTunes or stored information on the iCloud, the switching costs become pretty high, making you an Apple user for the foreseeable future.

Ford

Source: Ford Motor Company.

  • Current P/E: 9.6, a 48% discount to the S&P 500 P/E

  • Current dividend yield: 2.8%, a 33% premium to the average S&P 500 yield

Before investing in automakers, it's important to note that the auto industry is quite cyclical, and holding on to shares during the good and bad times is key to being a successful dividend investor with Ford.

There are lots of reasons for Ford shareholders to be excited: Sales of the F-150 series were up for the 21st consecutive month in April, largely because of the pickup in housing starts. And for the more fuel-conscious driver, the company's Fusion model has been doing very well.

But what could be a big catalyst in the years ahead are international sales. There's no doubt that Europe, which had once been a boon to the company, has disappointed in terms of sales. Though losses will probably continue for the next year or so, the company's restructuring plans in the continent could bear fruit sooner than you might think.

Textainer

Source: Textainer.

  • Current P/E: 9.7, a 47% discount to the S&P 500 P/E

  • Current dividend yield: 4.6%, a 119% premium to the average S&P 500 yield

Textainer is a specialist in the worldwide transportation of goods through intermodal containers. They are called "intermodal" because these carriers can be used on ships, trains, and semi-trucks. It might surprise you to know that 95% of all trade worldwide travels by ship, meaning that business itself is highly dependent on the health of international markets.

Though small, Textainer is one of the best plays within the shipping industry. The company leases out its containers to more than 400 clients worldwide. Having a client list that big is important, because it helps ensure that the containers are always being used, instead of being sent back to headquarters empty (and without much revenue).

If you're an investor who prefers returns to rhetoric, you'll want to read The Motley Fool's new free report, "5 Dividend Myths ... Busted!" In it, you'll learn which stocks provide premium growth and whether bigger dividends are better. Click here to keep reading.

The article The 3 Best Dividend Stocks From an Expensive, Low-Yielding Market originally appeared on Fool.com.

Fool contributor Brian Stoffel owns shares of Apple. The Motley Fool recommends Apple, Ford, and Textainer Group and owns shares of Apple and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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