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Do Not Ignore Dividend Stocks, Not Even in a Rising Market

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When companies keep reporting stronger earnings and raising their outlooks for the rest of the year (or at least the next quarter), it’s natural for estimates to keep moving up, up and up. And the prospect of earnings growth makes us want to jump into stocks that can make the most of the trends.

That is not a bad strategy. History has repeated itself many times in this respect. In fact, we can safely say that the positive estimate revision trend is the strongest indicator of share price appreciation, and buying these stocks should therefore yield capital gains.  

But there’s a special situation this year. We’ve just been through a pandemic, which threw everything out of gear last year. So comparisons are rather easy at this point, for most of these stocks. And although companies are reporting strong results, there’s the concern that the good news is probably already priced in. From what can be seen from the results thus far, solid beats have not always led to equally inspiring price reaction.

That said, if we are not just day traders and we want to hang on to our bets, we’d probably do better to watch the prices over the next month or so. Because positive surprises are more likely to lead to share price appreciation over time.

Why then are we talking about dividend stocks? It’s simply really. Dividend stocks generate regular income.

You can use this cash to build a reserve balance. Use this money to cover your losses because even the best of us makes mistakes sometimes! And when valuations are on the high side, these mistakes can prove to be expensive.

You can use this cash to buy on dips. Absolutely nobody will advise you to buy stocks without doing the homework. But even if you’ve done that, your picks may be too expensive when you have the cash to spare. If you’ve built a reserve, you can wait for the opportune time to use it.

Third, you can live off it if you really need to.

Now, there are so many stocks out there that are paying dividends. How should you go about picking the right stocks?

When you’re shopping for dividends, you’re basically looking for regular income. So you should be looking to ensure that the payments will be sustained.

Unless the company makes notable changes in its payout policy, a dividend payer generally continues to pay dividend. However, the ones that increase the dividends over time are also the ones that will increase your earnings over time. So check for dividend growth over a reasonable period of time (like 5 years). Then check if earnings and cash flow have also increased over this time. If everything is showing an upward trend, your earnings will too.

Another thing to understand is the dividend yield. While we all want a big yield because it means that we’ll earn that much more for every dollar spent on buying the stock, a high dividend yield is not always a good thing. At least, it’s something worth studying.

If the high yield is coming from falling share prices, there could be something going on at the company that we don’t know about. This could impact our future income. So always use this number in combination with the other factors like the past trend in earnings, cash and dividends, as well as future estimates and their revisions.

Here are a few stocks that look good from these perspectives-

Fidelity National Financial, Inc. (FNF - Free Report)

Fidelity, together with its subsidiaries, provides various insurance products in the U.S. The company title insurance, escrow, and other title related services, including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance through its Title, F&G, and Corporate and Other segments.

The shares carry a Zacks Rank #2, Value Score A and Growth Score B.

The company’s dividend yields 3.15%. Over the last five years, its dividend grew 3.15% while earnings grew 15.3%. Its operating cash flow has moved up and down over the last 10 years although displaying an upward trend. It has been steadily moving up in the last three years, particularly in 2020.

The company will report on May 6, after which major revisions in estimates could occur. However, the trend over the past 90 days has been upward for both 2021 and 2022.

Interpublic Group of Companies, Inc. (IPG - Free Report)

New York-based Interpublic, together with its subsidiaries, provides advertising and marketing services across more than 110 countries. The company specializes in consumer advertising, digital marketing, public relations, communications planning and media buying and specialized communications disciplines.

The shares carry a Zacks Rank #2, Value Score A and Growth Score A.

The company’s dividend currently yields 3.62%. In the last five years, its dividend grew 13.4% while earnings grew 10.1%. Its net cash from operations moved around in a tight range for most of the last 10 years but jumped notably higher in 2019, increasing again in the following year.

There’s just one analyst providing estimates for IPG and those estimates have moved up for both 2021 and 2022.

Janus Henderson Group plc (JHG - Free Report)

London-based Janus Henderson is an investment management company. It provides investment advisors for equities, fixed income, property and private equity sectors.

The shares carry a Zacks Rank #2, Value Score A and Growth Score B.

The company’s dividend currently yields 4.24%. In the last five years the dividend increased 11.1% while earnings increased 9.2%. Net cash flow has grown substantially since 2016.

The last 90 days have seen notable upward revisions in estimates for both 2021 and 2022. The company reports today, after which there could be further revisions.

MGM Growth Properties LLC (MGP - Free Report)

Las Vegas-based MGM is a real estate investment trust. The company is engaged in the acquisition, ownership and leasing of destination entertainment and leisure resorts which include casino gaming, hotel, convention, dining, entertainment and retail offerings.

The shares carry a Zacks Rank #2, Value Score B and Growth Score D.

MGM’s dividend yields 5.6%. In the last five years, its dividend has grown 8.6% while earnings have grown 6.1%. Its net operating cash dipped sharply in 2019 but rebounded strongly thereafter in 2020.

The last 90 days have seen notable upward revisions in estimates for both 2021 and 2022. The company reports tomorrow, after which there could be further revisions.

CareTrust REIT, Inc. (CTRE - Free Report)

CareTrust, another real estate investment trust, is primarily engaged in the ownership, acquisition and leasing of skilled nursing, seniors housing and other healthcare-related properties. The company leases healthcare facilities to healthcare operators in triple-net lease arrangements.

The shares carry a Zacks Rank #2, Value Score D and Growth Score D.

Its dividend yield is currently 4.36%. Its dividend has grown 30.6% over the last five years even as earnings grew 7.6%. Its net operating cash flow has grown steadily over the last 10 years.

The company will report on May 6, after which major revisions in estimates could occur. However, the trend over the past 90 days has been upward for both 2021 and 2022.

Sierra Bancorp (BSRR - Free Report)

Sierra Bancorp is the bank holding company for the Bank of the Sierra, which is the largest independent bank headquartered in the South Valley, and operates branch offices as well as real estate centers, agricultural credit centers and a bank card center.

The shares carry a Zacks Rank #2, Value Score B and Growth Score D.

Its dividend yields 3.02%. The dividend has grown 13.3% in the last five years during which time earnings grew 16.7%. Its operating cash has been trending up from 2016 although there was a dip last year.

The estimate revision trend over the past 90 days has been upward for both 2021 and 2022.

Year-to-Date Price Price Performance

 

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