Amid a wild market, these 2 dividend paying stocks look like smart bets for income seeking investors. Here’s why.
We’ve had a wild couple of weeks in the market.
Last week, the S&P 500 dropped nearly 4% to end a volatile October as investors feared spiking coronavirus cases in the U.S. But since Monday, the index has gained 6% even as the presidential election has yet to resolve.
The index has been in a wild sideways trading range since hitting an all-time high on September 2, and after this week’s drive higher, it’s sitting just 2% below that record.
But even in such a tumultuous market, there remain companies that still reward shareholders for hanging on, with more than 200 companies increasing their dividends this year.
And according to Laffer Tengler Investments’ Nancy Tengler, that’s a bullish sign for the broader market.
“It tells me that the management teams have good visibility on future earnings growth,” Tengler said.
Tengler said that her top pick among dividend yielders is Texas Instruments (NASDAQ: TXN), which pays out a 2.77% dividend.
“This is a company that actually… generates free cash flow of almost $6 billion and pays out only $3 billion in dividends, has been growing the dividend over 20% per year, 17% this year, but clearly has the ability to continue to pay and grow that dividend,” Tengler said.
Late last month, Texas Instruments delivered an earnings beat, posting third quarter revenue of $3.8 billion—well above the company’s guidance range of $3.26 billion to $3.54 billion—driven by a pickup in demand for semiconductor components from both the automotive and consumer electronics sectors.
Texas Instruments CEO Rich Templeton pointed out that revenue was up 18% from the June quarter “with notable strength from the rebound of automotive demand and growing demand from personal electronics.”
Templeton added in a statement that cash flow from operations was $5.8 billion for the trailing 12 months, with free cash flow of $5.2 billion over the same period.
So far this year, TXN is up more than 12% and the stock has risen 5% in just the last month alone.
Tocqueville Asset Management portfolio manager John Petrides argued that it’s not enough to just look for stocks that offer a high dividend, and said investors should search for companies that consistently grow their dividends.
“The key is to invest in companies that have the capacity to continue not only to pay out their dividend, but to grow their dividend,” Petrides said. “You don’t want to just invest in a dividend stock with a high yield simply because the state yield is above average. You want to make sure that the company has the wherewithal to continue paying out that dividend over time.”
One stock that Petrides believes fits the bill is industrial REIT, STAG Industrial (NYSE: STAG). STAG, whose properties include warehouses and light manufacturing buildings, yields 4.46%.
Petrides said that his firm owns STAG “in our enhanced income strategy for those clients looking specifically for income.
“One fo the great accelerators of COVID has been the explosion within e-commerce,” Petrides added. “One of the great accelerators of COVID has been the explosion within e-commerce. E-commerce has been a great growing segment pre-COVID but then COVID came and now everything is e-commerce. STAG provides distribution and owns and operates distribution centers and warehouses to continue to facilitate that trend.”