3 Great Dividend Stocks to Buy in the Broad Market Rout

It feels like a bloodbath on Wall Street but in reality the S&P 500 is only closing in on what should be a routine 5% pullback. With that in mind, is it time to consider buying? 

Provided that the world isn't ending -- and it's not -- investors who have been waiting patiently on the sidelines may want to consider buying some stocks. For many, they may turn toward dividend stocks. Where should we look first?


Yes, the tech giant yields just 1.6%. But we've gotten used to Apple (AAPL) bumping its quarterly payout by roughly 10% per year each April. Will it be more this year?

Management said it plans to put its net cash balance of $163 billion to work through capital allocation. That will be a mix between dividends, buybacks and M&A. Further, Apple's cash reserve hit a mind-boggling $285.1 billion as of last quarter. So while the yield looks low on the surface, also consider how much Apple is returning annually in the form of buybacks. It's a well-oiled cash machine that will continue paying dividends -- literally -- for years to come.

Finally, the company just beat on earnings per share and revenue expectations. Guidance for next quarter was a bit light, but we know the business is strong. Services revenue grew 18% year-over-year to $8.5 billion. China revenue grew 11% year-over-year, topping expectation of 9.2%, while the average selling price for an iPhone swelled to $796 as analysts expected $755. For reference, the average selling price in last year's fiscal first quarter was just $695.

Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now.

Johnson & Johnson

Johnson & Johnson (JNJ) has been getting knocked around a bit during this selloff. After approaching $150 per share just last month, shares now trade near $135 -- a previous breakout level.

Shares trade for less than 16 times forward earnings while analysts are looking for approximately 11% earnings growth in 2018. While one may not make the argument that J&J stock is cheap necessarily, it's hard to make the case that it's wildly overvalued. Particularly given its double-digit earnings growth.

The company has raised its dividend payout for an impressive 55 consecutive years. What more can you ask for really? With U.S. tax reform now kicking in, J&J's bottom line should get an extra jolt. Combined with a strong balance and an excellent portfolio of brands, this name should be on investors' buy list.

The one caveat? It would be constructive for J&J to stay above the $135 breakout level. Further, it would be beneficial for it to stay over the 200-day moving average near $133. At the moment, neither scenario is playing out. However, $130 could provide a bid. 

International Business Machines

Some might be surprised to find International Business Machines (IBM) on the list. After all, this dinosaur tech company isn't like any of the hot-stocks out there -- like Microsoft (MSFT) , Alphabet (GOOGL) or Netflix (NFLX) .

However, none of those companies have a dividend like IBM.

IBM yields 3.85% and trades at a paltry 11 times forward earnings. A big yield and a low valuation is nice, but we need an improving story too. Fortunately with IBM, we have just that. Last quarter, IBM snapped a streak of 22 consecutive quarters of declining revenue.

This year, analysts expect sales growth of 1.2% followed by slight growth in the year after. While earnings estimates are not favorable this year -- calling for flat growth from 2017 -- analysts expect about 2.6% growth in 2019.

Not sexy, right? But that's what you get when you're paying just 11 times earnings and receiving an almost-4% dividend yield. There's more than what meets the eye, though.

For starters, IBM is looking at ~$600 million in tax expenses for the year and will actually see its tax rate acting as a year-over-year headwind due to several accounting measures taken in the first half of 2017. So that explains the flat earnings growth. What else is there?

We're finally seeing IBM's strategic imperatives pay off -- businesses like the cloud, A.I., security, blockchain, etc. Cloud revenue rose 27% in 2017 to $5.5 billion, outpacing the segment's 14% growth to $11.1 billion. Overall though, the segment accounted for 46% of the company's total sales. In other words, we should see this group make up a majority of total revenue in 2018.

So long as these secular tech trends continue, IBM could see better-than-expected revenue growth going forward. After racing above $170 per share last month, IBM stock has retraced all of its gains, currently trading near $156.

Microsoft and Alphabet are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells MSFT or GOOGL? Learn more now.

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