10 Outstanding Dividend Stocks to Buy in This Crazy Market
In the midst of the August market panic, I wrote about these 10 outstanding dividend stocks:
Dividend-Adjusted Return Since Aug. 2, 2011
|Utilities||Waste Management (NYS: WM)||4%||12%|
|Mortgage REITs||Annaly Capital (NYS: NLY)||15%||(9%)|
|Mortgage REITs||Chimera (NYS: CIM)||18%||(8%)|
|Mortgage REITs||Crexus (NYS: CXS)||12%||(7%)|
|Luxury||Coach (NYS: COH)||2%||6%|
|Multinational||Coca-Cola (NYS: KO)||3%||0%|
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 beginning to take a slight lead over the S&P 500 (INDEX: ^GSPC), which posted a slight decline. Over time, I expect them to outperform -- particularly if a weak economy persists.
So far, that's been the case. The economy added 103,000 jobs in September, but unemployment has held pretty steady between 9.0% and 9.2% for most of the year as the jobs gains struggle to keep up with layoffs in the public sector, a growing population, and the huge number of discouraged workers. I also wrote a column last month explaining why this all means high inflation is pretty unlikely for the time being.
Here's the recent news:
- Coach and Waste Management went ex-dividend on Sept. 1. They pay out $0.23 and $0.34 per share, which equates to 0.4% and 1% of current share prices, respectively.
- Coca-Cola went ex-dividend on Sept. 13. It pays out $0.47 per share, or 0.7% of its current price.
- My Foolish colleague Anand Chokkavelu noted that the SEC is looking into whether all mortgage REITs should be able to keep their tax-exempt REIT status. At least for now, Annaly's CEO doesn't seem too worried. He suggests that most of the activities the SEC is looking into -- which may include the socially dubious practice of REITs' purchases of synthetic CDOs -- aren't as prevelant as they were during the bubble years.
Foolish bottom line
The current economic environment may be a difficult one for many companies, but these dividend-payers have some protection from these challenges and, in some cases, could actually benefit from them.
At the time this article was published Ilan Moscovitzdoesn't own shares of any company mentioned. You can find him on Twitter, where he goes by@TMFDada. The Motley Fool owns shares of Coach, Intel, Coca-Cola, Philip Morris International, Waste Management, Pebblebrook Hotel, Chimera Investment, and Annaly Capital Management and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Southern, 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 don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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