If you haven't already gotten choosy when picking your portfolio's sources of income, it's time - and here are five dividend stocks to buy now to help you.
You see, many of the most popular dividend-paying stocks have become pricey amid the markets' year-to-date rallies and the insatiable hunt for yield.
For example, The Coca-Cola Company (NYSE: KO) sports a juicy yield of just under 3%, but looks expensive with a P/E of 22. And The Procter & Gamble Co. (NYSE: PG) boasts an appealing 3.12% yield, yet shares trade at a lofty 20 times earnings.
Even with the 10-year Treasury yield approaching 3%, dividend investing is still the best approach.
You see, from 1897 through 2003, 97% of the total after-inflation accumulation from stocks came from reinvesting dividends. Only 3% came from capital gains, according to Jeremy Siegel, Professor of Finance at the Wharton School of Business.
But there's more to income investing than simply dividend yield.
Money Morning Global Investing & Income Strategist Robert Hsu reminds income investors they also need to focus on capital preservation and appreciation.
"Earnings growth drives dividend growth and capital appreciation," Hsu says. "Dividend stocks without growth potential, such as utility stocks, are underperforming and will continue to underperform in a rising rate environment."
Five Dividend Stocks to Buy Now
To get you started, here are five dividend stocks worth checking out for their attractive and stable yields:
- Toronto-Dominion Bank (NYSE: TD) grabbed the No. 11 spot on Global Finance's annual ranking of the World's 50 Safest Banks. Winners were selected through an evaluation of the 500 largest banks worldwide based on long-term credit ratings from Moody's, Standard & Poor's and Fitch, as well as total assets. The Canadian-based bank also just reported fiscal third quarter earnings that exceeded expectations, thanks to strong retail lending and wealth management. Additionally, TD recently raised its dividend for the second time this year. The latest increase, from $0.81 per share quarterly to $0.85, boosts the banking behemoth's yield to a bankable 4%.
- Apollo Investment Corp. (Nasdaq: AINV) is a business development company - which is an investment any income-seeking investor should become familiar with. BDCs were created by Congress in 1980 to encourage the flow of public equity capital to private businesses. BDCs must invest at least 70% of their assets in private or thinly traded public U.S. corporations, and must distribute at least 90% of their taxable income to shareholders via dividends. BDCs have an incentive to pay out even more since they gain an additional tax advantage if they distribute at least 98% of ordinary income and 98% of capital gains to shareholders as dividends. Hsu is a fan of BDCs in general because "they provide a service that's essential to the capitalist system." He especially likes Apollo for the way it provides direct investment capital to a plethora of companies: via the issuance of warrants, and convertible and high-yield bonds (which yield much more than "vanilla" corporate bonds). The company is backed by Apollo Global Management (NYSE: APO), founded by legendary leveraged buyout and private equity maverick Leon Black. Shares yield an exceptional 9.64%.
- KKR & Co. LP (NYSE: KKR) Kohlberg Kravis Roberts & Co. is a private equity investment firm specializing in acquisitions, leveraged buyouts, special situations, growth equity, mature and middle market investment across all industries worldwide. Over the last three decades, KKR has grown and evolved into a leading global investment firm. KKR is attractive to shareholders for its stellar price performance and opportunity to profit alongside the firm's savvy billionaire partners, who put their own capital behind their ideas. And its 8.13% yield is a very nice added bonus. With M&A activity on the rise, the IPO calendar full, and loan rates low, KKR is positioned to make better investments in stronger business. Shareholders get to share in the successes, while also pocketing an ample payout.
- Altria Group Inc. (NYSE: MO) raised its quarterly dividend $0.04 to $0.48 late last month. The $1.92 annual payment represents a 5.6% annual yield, and is up 9.1% from the previous $1.76 per share annual payout. Additionally, Altria increased its current buyback program from $300 million to $1 billion. Buybacks have a notable impact since with each share bought back, the company reduces the number of shares outstanding (the float) and thus the amount spent on dividends. This allows the company to increase EPS and future dividends. Altria's five-year divided growth rate is 8.4%. Over the period, dividends were hiked from $0.32 per share quarterly to its present $0.48.
- Kinder Morgan Energy Partners LP (NYSE: KMP) operates as a pipeline transportation and energy storage company in North America. Its products pipelines segment delivers gasoline, diesel fuel, jet fuel and natural gas to myriad markets over some 8,600 miles, including crucial shale regions in Texas and Canada. KMP is a favorite of Hsu's for its stable business and distribution payout record. The Houston, TX, based company has steadily increased quarterly distributions more than 30% over the last five years, even amid a steep 75% drop in natural gas prices over the same period. Quarterly payouts are $1.32 per unit for an attractive 6.61% yield. Hsu expects that yield to soar to 13.4% in two years.
Robert Hsu knows about generating income - he earned his first $1 million at 29 and retired at 31. Now he wants to help you make the smartest moves today for your retirement. Don't miss his recent analysis, How a 1% Gain Can Destroy Your Retirement Dreams (Part I)
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