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Buy These Dividend Stocks to Stabilize Your Portfolio Returns
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We have been talking about the Fed’s hawkish stance for several months now. And while inflation remains high and the job market remains strong, there’s really no reason for the Fed to change that stance.
But since sentiments are a big factor driving the stock market and some of the signs of an economic slowdown are showing up, good returns in the stock market will be harder and harder to come by. Luckily for us, some stocks generate income in the form of dividends. And that’s where we should park at least some of our cash, especially if we are planning on retiring some time in the next few years.
Dividend payers are generally the more mature companies. They’ve been around long enough to see their business mature and have a certain degree of confidence in their competitive position and cash flow streams. However, at times, companies seeing growth challenges could also pay a dividend to keep investors in the shares, as Citigroup has been doing.
The big oil companies usually pay a good dividend and they hike it in times of weak demand, such as during the pandemic. Most oil companies are keeping their dividends steady or lowering them now because the ongoing energy crisis creates opportunities to otherwise deploy their funds. But this is a good problem to have.
Therefore, if we are looking for dividend stocks today, oil companies are actually quite a good option. Not only do they pay out well, but they are also uniquely positioned to see continued growth, for some time at least.
Another group that is relatively better positioned is the banks and insurance companies, because a higher interest rate environment is more favorable for them. And the third group that looks attractive because the hawkish Fed hasn’t quite reached them yet is transportation. These folks are still leading a more or less normal life.
Houston, Texas-based Phillips 66 is an oil & gas manufacturing and logistics company operating through the Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) segments.
The Zacks Rank #2 stock with both Value and Momentum Scores of A belongs to the Oil and Gas - Refining and Marketing industry (top 2% of Zacks-classified industries).
Its dividend currently yields 4.39%, higher than the 5-year historical average yield of 4.11%. Its dividend has grown an average 6.09% in the last five years.
The stock’s valuation is cheap. Phillips 66’s price-to-earnings growth (PEG) ratio is just 0.45. Its price to forward 12 months’ earnings (P/E) is just 6.91X, close to the lowest point of 6.41X over the past year.
Valero Energy manufactures, markets, and sells transportation fuels and petrochemical products in the U.S., Canada, the UK, Ireland and elsewhere. Its three segments are Refining, Renewable Diesel and Ethanol. Valero is based in San Antonio, Texas.
Like Phillips 66, Valero shares carry a Zacks Rank #2 and have an A for both Value and Growth. They also belong to the Oil and Gas - Refining and Marketing industry.
Valero’s dividend yields 3.44%, lower than the 5-year average of 4.75% for the reasons mentioned above. However, the dividend is up 7.23% from five years ago.
With a PEG ratio of 0.71 and P/E of 5.61X, the shares are very cheap.
Another stock in this group that is also attractive for its dividends is Marathon Petroleum Corp. (MPC - Free Report) .
Chattanooga, Tennessee-based Unum Group is an insurance company providing financial protection benefit solutions primarily in the U.S., the UK and Poland. It offers a range of group and individual products for life, disability, sickness and other factors. It also provides group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations.
Unum Group has a Zacks Rank #1 (Strong Buy). While its Value Score is A, its growth Score is C. The Insurance - Accident and Health industry to which it belongs is in the top 7% of Zacks-classified industries.
Unum Group’s dividend yields 3.51%, slightly lower than the five-year average of 3.88%. It has grown 6.18% in the last five years.
Its PEG of 0.50 is well below unity, meaning that investors are hugely undervaluing its earnings growth potential. Moreover, its P/E of 6.16X is just slightly above the median value of 5.83X over the past year, suggesting that upside potential exists.
Headquartered in Pasadena, California, East West Bancorp operates as the holding company for East West Bank that provides a range of personal and commercial banking services to businesses and individuals.
East West carries a Zacks Rank #1, but its Value and Growth Scores of C and D, respectively aren’t particularly attractive. The fact that it belongs to the Banks – West industry (top 19%) is a positive however.
The company’s dividend currently yields 2.27%, slightly above the 5-year average of 2.04%. The dividend has grown 15.34% in the last five years.
East West Bancorp shares trade at a PEG of 0.90, which is still below unity and therefore a sign of undervaluation. Its P/E of 8.10X is the lowest it has been in the past year, and confirms this.
Triton International Ltd.
Triton International of Hamilton, Bermuda engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers.
Triton shares carry a Zacks Rank #2, and Value and Growth Scores of A and B, respectively. The Transportation - Equipment and Leasing industry to which it belongs is in the top 31% of Zacks-classified industries.
Its dividend yields 4.38%, lower than the 5.4% average yield over the last five years. However, in absolute terms, the dividend is 6.98% higher than it was five years ago.
Triton’s PEG ratio is just 0.53 and its P/E of 5.49X is still below the median value of 6.16X over the past year. So there definitely seems to be room for upside.
Conclusion
The advantage of investing in dividend stocks is that you won’t be boxed in by the daily volatility of the stock market, or at least you’ll have a buffer against it. Additionally, you can use the funds to invest in undervalued stocks if the market falls further and benefit from the rebound thereafter.
One-Month Price Performance
Image Source: Zacks Investment Research
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Buy These Dividend Stocks to Stabilize Your Portfolio Returns
We have been talking about the Fed’s hawkish stance for several months now. And while inflation remains high and the job market remains strong, there’s really no reason for the Fed to change that stance.
But since sentiments are a big factor driving the stock market and some of the signs of an economic slowdown are showing up, good returns in the stock market will be harder and harder to come by. Luckily for us, some stocks generate income in the form of dividends. And that’s where we should park at least some of our cash, especially if we are planning on retiring some time in the next few years.
Dividend payers are generally the more mature companies. They’ve been around long enough to see their business mature and have a certain degree of confidence in their competitive position and cash flow streams. However, at times, companies seeing growth challenges could also pay a dividend to keep investors in the shares, as Citigroup has been doing.
The big oil companies usually pay a good dividend and they hike it in times of weak demand, such as during the pandemic. Most oil companies are keeping their dividends steady or lowering them now because the ongoing energy crisis creates opportunities to otherwise deploy their funds. But this is a good problem to have.
Therefore, if we are looking for dividend stocks today, oil companies are actually quite a good option. Not only do they pay out well, but they are also uniquely positioned to see continued growth, for some time at least.
Another group that is relatively better positioned is the banks and insurance companies, because a higher interest rate environment is more favorable for them. And the third group that looks attractive because the hawkish Fed hasn’t quite reached them yet is transportation. These folks are still leading a more or less normal life.
Which brings us to today’s picks:
Phillips 66 (PSX - Free Report)
Houston, Texas-based Phillips 66 is an oil & gas manufacturing and logistics company operating through the Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) segments.
The Zacks Rank #2 stock with both Value and Momentum Scores of A belongs to the Oil and Gas - Refining and Marketing industry (top 2% of Zacks-classified industries).
Its dividend currently yields 4.39%, higher than the 5-year historical average yield of 4.11%. Its dividend has grown an average 6.09% in the last five years.
The stock’s valuation is cheap. Phillips 66’s price-to-earnings growth (PEG) ratio is just 0.45. Its price to forward 12 months’ earnings (P/E) is just 6.91X, close to the lowest point of 6.41X over the past year.
Valero Energy Corp. (VLO - Free Report)
Valero Energy manufactures, markets, and sells transportation fuels and petrochemical products in the U.S., Canada, the UK, Ireland and elsewhere. Its three segments are Refining, Renewable Diesel and Ethanol. Valero is based in San Antonio, Texas.
Like Phillips 66, Valero shares carry a Zacks Rank #2 and have an A for both Value and Growth. They also belong to the Oil and Gas - Refining and Marketing industry.
Valero’s dividend yields 3.44%, lower than the 5-year average of 4.75% for the reasons mentioned above. However, the dividend is up 7.23% from five years ago.
With a PEG ratio of 0.71 and P/E of 5.61X, the shares are very cheap.
Another stock in this group that is also attractive for its dividends is Marathon Petroleum Corp. (MPC - Free Report) .
Unum Group (UNM - Free Report)
Chattanooga, Tennessee-based Unum Group is an insurance company providing financial protection benefit solutions primarily in the U.S., the UK and Poland. It offers a range of group and individual products for life, disability, sickness and other factors. It also provides group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations.
Unum Group has a Zacks Rank #1 (Strong Buy). While its Value Score is A, its growth Score is C. The Insurance - Accident and Health industry to which it belongs is in the top 7% of Zacks-classified industries.
Unum Group’s dividend yields 3.51%, slightly lower than the five-year average of 3.88%. It has grown 6.18% in the last five years.
Its PEG of 0.50 is well below unity, meaning that investors are hugely undervaluing its earnings growth potential. Moreover, its P/E of 6.16X is just slightly above the median value of 5.83X over the past year, suggesting that upside potential exists.
East West Bancorp, Inc. (EWBC - Free Report)
Headquartered in Pasadena, California, East West Bancorp operates as the holding company for East West Bank that provides a range of personal and commercial banking services to businesses and individuals.
East West carries a Zacks Rank #1, but its Value and Growth Scores of C and D, respectively aren’t particularly attractive. The fact that it belongs to the Banks – West industry (top 19%) is a positive however.
The company’s dividend currently yields 2.27%, slightly above the 5-year average of 2.04%. The dividend has grown 15.34% in the last five years.
East West Bancorp shares trade at a PEG of 0.90, which is still below unity and therefore a sign of undervaluation. Its P/E of 8.10X is the lowest it has been in the past year, and confirms this.
Triton International Ltd.
Triton International of Hamilton, Bermuda engages in the acquisition, leasing, re-leasing, and sale of various types of intermodal containers and chassis to shipping lines, and freight forwarding companies and manufacturers.
Triton shares carry a Zacks Rank #2, and Value and Growth Scores of A and B, respectively. The Transportation - Equipment and Leasing industry to which it belongs is in the top 31% of Zacks-classified industries.
Its dividend yields 4.38%, lower than the 5.4% average yield over the last five years. However, in absolute terms, the dividend is 6.98% higher than it was five years ago.
Triton’s PEG ratio is just 0.53 and its P/E of 5.49X is still below the median value of 6.16X over the past year. So there definitely seems to be room for upside.
Conclusion
The advantage of investing in dividend stocks is that you won’t be boxed in by the daily volatility of the stock market, or at least you’ll have a buffer against it. Additionally, you can use the funds to invest in undervalued stocks if the market falls further and benefit from the rebound thereafter.
One-Month Price Performance
Image Source: Zacks Investment Research