In the words of the chief investment officer of investment advisor firm Richard Bernstein Advisors, “People are paying a lot to get the dividend” and “To think it's safe is naive.” Intriguing and cautionary at the same time, it again shifts the focus to the ever-enticing concept of dividend investment.
In recent times, stock markets across the financial world have been grappling with macroeconomic issues like lackluster growth in China, slump in oil prices, strengthening of the U.S. dollar and depressed energy markets. However, the U.S. stock market is currently basking in the much-awaited economic recovery, buoyed by factors like employment growth and robust manufacturing data.
A Mixed Bag of Factors
Even in this gyrating, sideways market, the major driving factors behind the larger mixed picture are clear. The undeniable strong spots would be the rebound in materials, energy and financial markets over the past couple of weeks and the overall upbeat reaction of the global stock markets to the Federal Reserve’s stance regarding interest rates.
Despite these short-term bullish sentiments and recovery in stock and commodity markets, speculations over the long-term sustenance prevail in the minds of investors. Amid such concerns, Fed’s reluctance to stall a further hike in interest rate – presently pegged at 0.25% to 0.50% – may seem prudent to placate investors. This is also because investors don’t seem to have recovered from the recent collapse witnessed in the month of January.
The Dividend Route
According to a recently published article in Reuters, investors pay approximately $42 for one dollar of dividend they purchase in the S&P’s 500 stock index, a marked rise over the average of $29 since 1935. In all probability, uncertain global financial and economic developments have been acting as spoilers, leading to the random dumping of portfolio staples for dividend stocks by income investors.
The growing investments in dividend stocks can be traced to the risk-aversion principle that investors adopt to tide over losses. Investors, who are not willing to gamble in ventures where the stakes are high, favor companies with solid dividend payment records in the current economic scenario. The fact that these stocks have mostly outperformed markets, while also provided a hedge against economic uncertainties have earned them an undisputed reputation among these risk-averse masses. With market volatility likely to stay, it seems prudent for investors to seek safe havens to brace the rout.
Screen the Best
Though the benefits of dividend investing are bountiful, not all companies can sustain their dividend paying momentum in times of economic distress. A careful strategy is needed to help investors zero in on the best dividend stocks that promise steady future returns.
Echoing the sentiment of Mr. Bernstein, its a good time to lend your portfolio some protection and select the best dividend paying stocks for the most balanced portfolio. Here at Zacks, we will help you find the stocks that are poised to reap significant returns for your portfolio.
We have employed the Zacks Stocks Screener to find companies that offer a dividend yield of at least 5%, and boast a favorable Zacks Rank. Also, we have singled out resilient stocks that have appreciated at least 10% year-to-date, braving markedly adverse market conditions.
4 Stocks to Pick
Superior Industries International, Inc. (SUP - Free Report) : is one of the world’s largest designers and manufacturers of cast aluminum road wheels for the automotive industry. This Zacks Rank #1 (Strong Buy) company has wheel manufacturing facilities in the U.S. and Mexico.
Dividend Yield: 3.25%
Price Change (YTD): 20.2%
Also, over the past one month, analysts have become increasingly bullish, resulting in a sharp spike in the Zacks Consensus Estimate for 2016, which now stands at $1.45, up from $1.25.
Annaly Capital Management, Inc. (NLY - Free Report) is a mortgage real estate investment trust that primarily owns, manages and finances a portfolio of real estate related investment securities. Its Zacks Rank #2 (Buy) company’s investment portfolio includes agency mortgage-backed securities, agency pass-through certificates, collateralized mortgage obligations, interest-only securities and inverse floaters.
Dividend Yield: 11.53%
Price Change (YTD): 10.98%
Also, over the last 30 days, the company has seen an upward revision in the Zacks Consensus Estimate for 2016 to $1.19 from $1.17.
Banc of California, Inc. (BANC - Free Report) provides banking products and services in the U.S. This Zacks Rank #2 (Buy) company also offers private banking products for high net worth individuals and entrepreneurs and is engaged in investing in mortgage-backed securities.
Dividend Yield: 2.84%
Price Change (YTD): 15.53%
Also, over the past month, the company has witnessed an uptrend in earnings estimates for 2016, raising the Zacks Consensus Estimate to $1.59 from $1.50.
Schnitzer Steel Industries, Inc. (SCHN - Free Report) is engaged in the recycling of ferrous and nonferrous scrap metals and manufacturing of finished steel products. While the company’s Metals Recycling segment is engaged in collecting, processing, recycling and selling of scrap metals, its Steel Manufacturing Business conducts produces finished steel products using recycled metal and other raw materials.
Dividend Yield: 3.86%
Price Change (YTD): 35.07%
Also, over the past month, analysts have become increasingly bullish on this Zacks Rank #2 stock. The company has seen a sharp spike in the Zacks Consensus Estimate for 2016, which now stands at 10 cents, up from 4 cents.
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