April has time and again proved to be favorable for stocks. But this time around, April has arrived during midterm election, which usually spells a rough phase for stocks.
Earnings related volatility could spike further in April. Unabated trade tensions, possibilities of two or more rate hikes by the Fed this year, high profile departures in the Trump administration and the real impact of the tax overhaul policy are laying the base for a tumultuous earnings season. Long-dormant volatility, by the way, made a comeback last month.
With the month expected to be rough, investing in sound dividend paying stocks seems judicious. Such stocks provide steady income and cushion one’s portfolio against market risks.
Midterm Election Years Spell Trouble
The Stock Trader’s Almanac noted that April has traditionally been a strong month for stocks, going back to World War II. The Dow Jones, the S&P 500 and the Nasdaq Composite gained an average of 1.9%, 1.5% and 1.4%, respectively.
But, such a rise wouldn’t be enough to drive the indices back to record territory. The Dow is already 9.4% below its all-time record high, the S&P 500 is off 8.1% and the Nasdaq is down 7.5%. Lest we forget, all the major bourses have already seen the second straight monthly drop and the second steepest monthly fall for the tech-laden Nasdaq since January 2016.
A bigger concern, in fact, is that April comes during a mid-term election year. In such years, historically, the second quarter is weak for the broader market, as is the third quarter. In the second quarter, the market typically gains 1.8% since World War II but loses 2.2% during such years. The third quarter also isn’t much better than the second in election years.
Volatility Likely to Stay
Another concern for market pundits is earnings related volatility. Markets are gearing up for first-quarter earnings results this month. Investors seek clarity on the impact of protectionist trade policies and higher interest rates. After all, these factors will play a pivotal role in determining first-quarter earnings results.
According to The Goldman Sachs Group, Inc (GS - Free Report) , “the options market is pricing in earnings volatility mostly in April week 4.” The technology sector, in particular, will be more susceptible to erratic movements. Goldman noted that almost 33% of April preannouncements are done by tech companies. Techs have already taken a beating following the backlash over Facebook, Inc’s (FB - Free Report) handling of user data (read more: Facebook Is a Screaming Buy Despite Data Scandal).
Wall Street’s “fear gauge”, the Cboe Volatility Index (VIX) is already up 81% in the first quarter, its biggest quarterly gain since 2011, according to the WSJ Market Data Group. The index last traded at 22.68, above its long-term average of 20. The VIX reflects traders’ collective anticipation for volatility in the upcoming 30-day period.
Factors Intensifying Instability
Trade-related fears increased after Trump imposed duties on foreign aluminum and steel, and levied tariffs on China products. Beijing retaliated by targeting 128 U.S. products with an import value of $3 billion. A full-blown trade should unnerve investors as it might deal a heavy blow to economies and hurt corporate profits.
Amid all these, the Fed has hiked rates by a quarter-percentage point and projected a steeper path of rate hikes in 2019 and 2020. This hasn’t gone down well with investors as we all know that they had piled up on U.S. stocks with the notion that quantitative easing will help the domestic economy grow at a better rate than emerging economies. After all, rate hikes will raise borrowing costs, eventually denting corporate profits and affecting the U.S. economy.
April Could be Cruel: Buy 5 Top Dividend Stocks Now
With so many concerns plaguing investors’ minds, dividend paying stocks are tempting options at the moment. The best dividend stocks pay out a healthy yield and have strong prospects, and are less susceptible to market gyrations. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.
While finding companies that offer these traits isn’t easy, they certainly do exist. To help you find these businesses, we have selected five dividend payers who have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. 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.
Pfizer Inc. (PFE - Free Report) develops, manufactures, and sells healthcare products. The company has a Zacks Rank #1 and a VGM Score of B. Pfizer has a dividend yield of 3.8%, while its five-year average dividend yield is pegged at 3.5%. The Zacks Consensus Estimate for its current-year earnings rose 6.5% in the last 60 days. The stock is expected to return 11.7% this year, higher than the industry’s projected return of 9.8%.
Unique Fabricating, Inc. (UFAB - Free Report) engineers and manufactures multi-material foam, rubber, and plastic components. The company has a Zacks Rank #2 and a VGM Score of A. Unique Fabricating has a dividend yield of 7.1%, while its five-year average dividend yield is pegged at 5.3%. The Zacks Consensus Estimate for its current-year earnings rose 5.1% in the last 60 days. The stock is expected to return 20.3% this year, better than the industry’s projected return of 16.6%.
Guess', Inc. (GES - Free Report) designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. The company has a Zacks Rank #1 and a VGM Score of B. Guess' has a dividend yield of 4.3%, while its five-year average dividend yield is 4.6%. The Zacks Consensus Estimate for its current-year earnings rose 14.3% in the last 60 days. The stock is expected to return 37.1% this year, higher than the industry’s projected return of 14.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nordstrom, Inc. (JWN - Free Report) is a fashion retailer that provides apparel, shoes, cosmetics, and accessories for women, men, young adults, and children. The company has a Zacks Rank #2 and a VGM Score of A. Nordstrom has a dividend yield of 3.1%, while its five-year average dividend yield is 2.5%. The Zacks Consensus Estimate for its current-year earnings rose 9.3% in the last 60 days. The stock is expected to return 15.5% this year, higher than the industry’s projected return of 14.3%.
Ciner Resources LP engages in the trona ore mining and soda ash production businesses. The company has a Zacks Rank #2 and a VGM Score of B. Ciner Resources has a dividend yield of 8.1%, while its five-year average dividend yield is 7.6%. The Zacks Consensus Estimate for its current-year earnings rose 10.9% in the last 60 days. The stock is expected to return 22.7% this year, better than the industry’s projected return of 11.3%.
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