President Donald Trump’s plan to cut taxes and eliminate regulations would prove to be favorable, if implemented, but several eminent economists think it’s highly unlikely. Without a concrete budget plan or legislative strategy, much of his agenda could turn out to be what Silicon Valley calls ‘vaporware’ or promises without a product. Trump has also offered a few clues on how he will overhaul the immigration system and improve jobs and wages for Americans.
U.S. fourth quarter gross domestic product, in the meantime, wasn’t revised up as expected, while U.S. trade showed a bigger-than-anticipated deficit. Amid all these, stretched valuations are making bulls skittish and giving hopes to bears. Given such uncertain times, it would be prudent to invest in top-shelf dividend companies.
Trump’s Unrealistic Budget
Trump boasted in his speech to the Congress about keeping the many campaign promises he made to voters. But the president’s pro-growth agenda is already in deep waters for the simple reason that it is inconsistent and impractical.
Hints of lower tax rates to come along with slashed regulations, did, help the stock markets to soar. Yet, his most ambitious promises, not to mention a long list, are a long way from getting done. He promised to construct a wall on the border with Mexico, invest $1 trillion worth on infrastructure and provide better health insurance at low prices, all without trimming social security or Medicare.
In fact, budgeteers from both the Republican and Democrat parties said that it’s next to impossible to achieve such a feat, while arithmetically it simply doesn’t add up. Republican leaders in the Congress themselves can’t agree that Trump can balance the budget without ultimately opting for deficit spending. Fearing that his moves may lead to a disaster, Republicans ignored Trump’s demands, particularly, swiftly replacing President Obama’s healthcare law.
Trump’s willingness to hike defense spending by almost 10% by exacting deep cuts from the State Department and the Environmental Protection Agency (EPA) has also raised a lot of eyebrows. The arithmetic simply doesn’t work here, either.
The combined budget of State and EPA comes to around $67 billion, so extracting about $54 billion, as promised, looks impractical. When White House officials added that they will target foreign aid to boost defense spending, indicating a politically popular target, some leading Republicans were appalled. Let us also not forget that such spending was only a little more than what Obama had projected and well below the numbers sought by some defense hawks like Sen. John S. McCain of Arizona.
Tepid Economic Growth, Stretched Valuations
The much anticipated address to the US Congress by Trump followed a slightly disappointing GDP figures and trade data. The economy expanded at a seasonally adjusted rate of 1.9% in the fourth quarter and was smaller than the consensus estimate of 2.1%. In the previous quarter, however, the GDP rose by a substantial 3.5%.
Analysts were even more disappointed by the fourth quarter’s statistics because in the first half of last year the economy grew a meagre 1.1% raising hopes that the fourth quarter would adopt the same pattern as the third. Since the quarter overlaps the transition from former President Barack Obama’s administration to President Donald Trump, many analysts worry about the effects this new administration will have on the economy. Such a result won’t help Trump achieve GDP growth up to 3% or more anytime soon. The advance goods trade balance, meanwhile, was a deficit of $69 billion when a gap of $66 billion was anticipated.
From a valuation perspective, the U.S. stock market is looking pretty expensive. Trump’s commitment to introduce market-friendly policies pushed the major indexes to trade at all time high levels. Thanks to such enthusiasm, the forward price-to-earnings ratio on the S&P 500, one of the classic metrics investors use to value shares, has climbed to 17.7, the highest level since 2004. It is also above the indicator’s 20-year average. This puts stocks in overbought territory and it won’t be long before the markets face a correction.
5 Best High-Yield Stocks for Your Portfolio
Trump’s promised policies without details, lackluster economic growth and an overvalued market may lead to uncertainty in the near future. This calls for investing in dividend paying stocks. Dividend stocks pay regular income irrespective of market movements. They are also less taxed as compared to interest income, help your portfolio to grow at a compounded rate, protect from earnings manipulation, act as a hedge against inflation, and reflect a solid financial structure and healthy underlying fundamentals.
We have, thus, selected five dividend paying stocks that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Such stocks also flaunt a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Alliance Holdings GP, L.P. produces and markets coal primarily to utilities and industrial users in the U.S. The Zacks Consensus Estimate for its current year earnings soared 37.6% over the last 60 days. Alliance Holdings offers a promising dividend yield of 7.43%. Its five-year average dividend yield is pegged at 0.34%.
Rio Tinto plc (RIO - Free Report) , a mining and metals company, finds, mines, and processes mineral resources internationally including the U.S. The Zacks Consensus Estimate for its current year earnings surged 35.2% over the last 60 days. Rio Tinto offers an encouraging dividend yield of 4.07%. Its five-year average dividend yield is pegged at 5.17%.
Kforce Inc. (KFRC - Free Report) is engaged in providing professional and technical specialty staffing services and solutions in the U.S and internationally. The Zacks Consensus Estimate for its current year earnings soared 7.4% over the last 60 days. Kforce offers a steady dividend yield of 1.89%. Its five-year average dividend yield is pegged at 8.34%.
j2 Global, Inc. (JCOM - Free Report) engages in the provision of Internet services worldwide including the U.S. The Zacks Consensus Estimate for its current year earnings surged 7.3% over the last 60 days. j2 Global offers a solid dividend yield of 1.76%. Its five-year average dividend yield is pegged at 11.76%.
Progressive Corp (PGR - Free Report) is an insurance holding company. The company operates its vehicle businesses and property business in the U.S. The Zacks Consensus Estimate for its current year earnings increased 5.9% over the last 60 days. Progressive offers a sturdy dividend yield of 1.75%. Its five-year average dividend yield is pegged at 26.47%.
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