Following a strong July, investors should feel cautious heading into August. Historically, it has been one of the worst months of the year for major indices, with steeper losses especially in mid-term years.
A day after the United States and China were pursuing talks to stave off a trade war, things have also started going haywire. President Trump is now planning to slap further tariffs on billions of imported Chinese goods, thus, raising the spectrum of a trade war.
Given the widespread uncertainty, investing in dividend-paying companies seems practical as they provide steady earnings regardless of the state of the global equity market.
Prepare for Grueling Times
Equities have, no doubt, been doing well of late. Major bourses have recorded the highest gains in July since the beginning of this year, mostly on strong corporate earnings. But, Wall Street’s rally is showing signs of weakness. After all, both Amazon.com, Inc. AMZN and Apple Inc.’s AAPL strong second-quarter earnings and an overall robust earnings season are factored in the current stock market movements.
Now, the obvious question is what will be the next catalyst for growth? The answer is there aren’t any. In fact, the Trump administration is expected to propose tariffs as high as 25% on $200 billion of Chinese imports, way more than the original proposal for 10%, a move that could ratchet up a trade war between the two most powerful economies. A full-fledged trade war could easily hurt business growth, spending and sentiments.
August — One of the Weakest Months
August, historically, is one of the weakest months for major bourses, per the Stock Trader’s Almanac. Since 1950, the Dow Jones Industrial Average has lost 0.2% in the month. It’s also the second worst month of the year for the broader S&P 500. The large-cap index has registered a decline of 0.1% over the course of the month. The Nasdaq somehow manages to eke out gains of 0.1% in the month, but, it is still the 11th best month of the year for the tech-laden index.
The picture turns even gloomier during midterm election years, as the current one is. The Dow Jones, the S&P 500 and the Nasdaq usually lose 0.7%, 0.4% and 1.8%, respectively, in such Augusts.
The only index that has, comparatively, performed better is the Russell 2000 index of small-capitalization shares. The index gained 0.2% in the month of August. However, that is again its ninth-best month of the year. And when it comes to midterm election years, unfortunately, the index slumped 1.9%.
Sell in May and Go Away
Summer months, by the way, continue to be risky for Wall Street. This is due to the historical trend embodied by the phrase “sell in May and go away.” Investors are encouraged to sell stock holdings in May to avoid getting affected by the seasonal decline in equity markets. The strategy also involves getting back into the equity markets in November, thereby evading the typical volatile May-October period. Traditionally, stocks have underperformed in the six-month period commencing May and ending in October, compared to the six-month period from November to April.
The Dow Jones, in particular, posted a meager return of 0.3% in the May-October period since its inception, while during the November-April period the blue chip index registered an average gain of 7.5%. Mostly lower trading volumes in the summer season and substantial increase in investment during the winter months are the main reasons behind the discrepancy in returns.
Time to Buy Dividend Stocks: 5 Top Picks
Thanks to the aforementioned factors, August is certainly cast into uncertainty. This calls for investing in dividend paying stocks which boast immense financial strength and are immune to market vagaries. Such stocks reflect solid financial structure, healthy underlying fundamentals and better quality business. They have also raked in excellent risk-adjusted returns this year.
Hence, we have selected five such dividend paying stocks to boost your returns. Such stocks also possess a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Apollo Commercial Real Estate Finance, Inc. ARI operates as a real estate investment trust (REIT) that primarily originates, acquires, invests in, and manages commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments in the United States. Currently, the company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 1.1% over the last 60 days. The company’s expected earnings growth rate for the current year is 26.9%, compared with the REIT and Equity Trust industry’s estimated rally of 0.5%.
The company has a dividend yield of 9.6%. Its five-year average dividend yield is 10.3%.
CONSOL Coal Resources LP CCR produces and sells high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings jumped 7.8% over the last 60 days. The company’s expected earnings growth rate for the current year is 41.8% compared with the Coal industry’s estimated rally of 8.4%.
The company has a dividend yield of 12.4%. Its five-year average dividend yield is 14%.
Sutherland Asset Management Corporation SLD operates as a real estate finance company. Currently, the company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings advanced 1.2% over the last 60 days. The company’s expected earnings growth rate for the current year is 15.5% compared with the REIT and Equity Trust industry’s estimated rally of 0.5%.
The company has a dividend yield of 9.6%. Its five-year average dividend yield is 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vermilion Energy Inc. VET acquires, explores, develops, and produces crude petroleum and natural gas. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings soared 70.8% over the last 60 days. The company’s expected earnings growth rate for the current year is 221.6% compared with the Oil and Gas – Exploration and Production – International industry’s estimated rally of 3.1%.
The company has a dividend yield of 6.1%. Its five-year average dividend yield is 5.2%.
New Media Investment Group Inc. NEWM owns and operates local media assets in the United States. Currently, the company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 10.7% over the last 60 days. The company’s expected earnings growth rate for the current year is 53.7% in contrast to the Publishing – Newspapers industry’s estimated decline of 6.8%.
The company has a dividend yield of 8.2%. Its five-year average dividend yield is 7.1%.
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