Dividend stocks remain at the top of investors’ radar. Not only do these companies pay out a portion of their cash flow to shareholders, but many do so consistently. This consistency has attracted investors over the years, particularly buy-and-hold investors.
With the rise in Treasury yields over the last year, dividend stocks have faced more stiff competition. Simply put, why buy a 2% or 3% dividend yield when investors can get 4% or more on a Treasury bill or bond with less volatility?
Of course, the hope is that over the long term stocks will generate a more meaningful return in combination with its yield, but there’s no guarantee of that happening. Today I specifically want to look at dividend stocks that are yielding more than 5%.
Let’s have a look.
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I had — or should I say “have” — a fantasy buy price on Walgreens (NASDAQ:WBA) in the low- to mid-$20s. Who knows, maybe it will still come to fruition. Even if it doesn’t though, Walgreens is a dividend stock to keep on your radar.
The stock currently yields about 5.4% and the firm has raised that payout in 47 consecutive years. So not only are investors getting a big dividend yield here, they are getting consistency and reliability as well. This isn’t a payout that fluctuates with time; it consistently stair-steps its way higher.
As for its valuation, Walgreens stock trades at just 8 times this year’s earnings forecast. Analysts expect Walgreens to earn about $4.50 a share this year. While that’s actually down about 10% year over year, the valuation is so darn cheap that it likely accounts for it.
Next year, analysts expect earnings to rebound a bit, climbing about 6.5%. It’s worth mentioning that both this year and next year have positive revenue growth forecasts. If we do see the mid-$20s in this name, it’s likely a long-term buy.
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This pick is a bit more controversial, as 3M (NYSE:MMM) has been an absolutely dreadful performer. Worse, this dividend stock will likely get hammered in the event of a recession and/or global slowdown.
3M really does it all, too. They make everything from the Post-It Note and Scotch tape to automotive equipment, personal protective equipment (or PPE), cleaning supplies, filtration systems, energy solutions and more.
The company has been public for more than 60 years and in that span, it’s been raising its dividend the entire way. The last increase was the 62nd consecutive year for 3M’s dividend increase. So while the stock has been pummeled, the dividend payouts keep on coming.
Shares are down 12.5% so far this year and 30% over the last 12 months. Lastly, it’s now down a whopping 50% from its multi-year high.
That said, 3M has weathered the economic storm before and should do so again.
Realty Income (O)
It was tempting to go with a high-yield energy stock that could be in play as an M&A target like Pioneer Natural Resources (NYSE:PXD). It was also tempting to go with a high-yield low-valuation play like Altria (NYSE:MO).
But at the end of the day, it was most tempting to go with a dividend stock that has more consistency with its payout: Realty Income (NYSE:O).
Known as “O stock” in the REIT crowd, this name has continuously churned out a monthly dividend payment for more than 52 years. Further, it has raised that dividend for 102 consecutive quarters. That’s right, forget annual increases, O has raised its payout monthly.
The one problem with Realty Income? Well, it’s not really a problem, but because of the stock’s recent rally — up about 6% in two weeks — shares now yield 4.9%. If investors want to wait for a larger pullback in this name, it’s certainly possible that it comes to fruition and they get that 5%-plus yield. However, those that are accumulating this name may prefer to focus on its yield and dividend consistency rather than timing the stock.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.