3 Bargain-Priced Dividend Stocks You Should Buy Now
When you shop for the stocks of dividend aristocrats, publicly traded companies that have increased their dividends consecutively for the last 25 years, you obviously can expect dependable dividend yields, but did you know you can also find bargain stocks that will appreciate in value?
Here are three stocks with good dividend yields that are trading at bargain-basement prices.
1. Walmart (WMT) - Get Report
The world's largest company when measured by revenue, Walmart has racked up 41 consecutive years of dividend increases. But stockholders may be a bit nervous about the company's prospects given its recent disappointing earnings forecast, which caused its shares to plummet on Oct. 14. Now trading around $60, the stock has fallen 29% over the past 12 months from about $85, making it the most discounted stock in the Standard & Poor's Dividend Aristocrats index (SPDAUDP).
The stock has a price-to-earnings ratio of 13.5 based on earnings estimates for the next 12 months. That makes it significantly cheaper than the index, which had a forward P/E of 18.3, as of the end of October. Walmart also has a 3.47% dividend yield, and with a dividend payout ratio of about 41%, investors can rest assured that this yield is sustainable. The combination of all these metrics make this stock a bargain.
The big selloff last month came after the company said it expected profits to decline between 6% and 12% in fiscal 2017. About three-quarters of that decline is tied to increased wages for the retailer's employees. Earlier this year, the company raised wages for about half a million workers and announced plans to increase its minimum wage to $10 in 2016.
But Walmart executives have presented the wage increases as investments that will improve customer service and pay off in the long run. The company is also making investments in e-commerce that will dampen earnings in the short run but help Walmart better compete with the likes of Amazon.
As is typical when companies deliver disappointing earnings forecasts, investors punished Walmart by selling shares, and now the stock is trading at a big discount to other dividend aristocrats, presenting savvy investors with a great opportunity.
The company's share price will bounce back over the next few years once the company's investments gain traction. (For a list of bad stocks that are in a precarious position and likely to crumble in another correction, click here.)
2.Target (TGT) - Get Report
Target has accumulated 32 years of consecutive dividend increases and now trades around $71 per share with a forward P/E of 13.8. The stock's yield is 3.2%.
In contrast to Walmart, Target has been delivering strong earnings news. Target met Wall Street's estimates with its earnings report this week, and it beat estimates in the three previous quarterly reports. Also this week, the company raised its annual guidance, hinting that sales may be robust heading into 2016.
Target's share price has fallen more than $10 from its 2015 highs, it has performed well when viewed over a longer period. The stock is well more than double its price in February 2009, when the stock market was hitting its lows in the wake of the financial crisis. Solid earnings in 2015 and substantial cash flow will guarantee Target's healthy dividend yield for 2016, which should be another good year for the company.
The share price trouble in 2015 can largely be attributed to Target raising its minimum wage to $9 an hour. However, as mentioned earlier, Target's management has raised guidance for the end of the year, citing confidence behind its investments in marketing, trendier inventory and better in-store displays. Those changes seem to be paying off. Target's third-quarter net earnings were up 56% to $549 million over the same quarter last year.
3. Johnson & Johnson (JNJ) - Get Report
Health care giant Johnson & Johnson makes over-the-counter drugs such as Tylenol, medical devices such as insulin pumps and glucose monitors, and consumer products such as Listerine mouthwash and Band-Aid brand bandages.
The company's share price hit an all-time high in June at $106.50 before leveling out around $100. Johnson & Johnson has beaten earnings estimates every quarter since 2001 except for two quarters when the company met expectations. With 45 years of consecutive dividend increases and a payout ratio of 55.6%, the company's 3% dividend yield is sustainable.
No wonder Johnson & Johnson has long been considered the management gold standard. The company has a forward P/E ratio 15.89, a solid discount when compared to the 18.3 forward P/E of the dividend aristocrats index. With a full product pipeline and recent regulatory approvals under its belt, Johnson & Johnson stock should continue its strong track record for paying fat dividends and beating estimates into 2016.
The above companies boast strong balance sheets, good management and reasonable valuations. They provide products that their customers will always need, regardless of market volatility. These stocks have room to grow and provide the peace of mind that they'll be around for years to come with solid dividend yields.
If you're worried about the stock market but are still looking for solid income, the above stocks are great buys with room to grow. But for a list of bad stocks that you should not be holding, click here. If you own any of these equities, sell them before it's too late.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.