The U.S. stock market is in a bull-bear tug of war and naturally, analysts and market watchers are, at this point, divided over speculations as to where the market is headed.
Though the middle stance seems most plausible, the markets may witness higher volatility in the days ahead. Moreover, the ongoing see-saw in the financial stock markets across the globe is giving investors the jitters.
Given the economic uncertainties currently gripping the market, it would be wise for investors to safeguard their wealth. It goes without saying that monetary security tops the priority list in volatile market conditions.
Time for Income Investing
Income investing targets companies that provide a steady stream of income and is naturally one of the most straightforward stock-picking strategies.
Though the income investing style is almost always overlooked, this could actually be a suitable time for such a strategy as it cushions an investor’s portfolio given the said stocks’ low risk, diversification benefits and ready access to funds. Notably, such stocks provide a steady source of income through solid dividend payouts and there are several benefits associated with the same.
Dividends are a less risky component of total return compared to capital appreciation and dividend stocks are historically less volatile than non-dividend stocks. This could be a vital factor if volatility levels run higher from here. These stocks are a safe bet to create wealth as dividends generally act as a hedge against economic uncertainty, and reflect a company’s solid financial structure and healthy underlying fundamentals.
Moreover, dividend investing is a cost-effective mode of investment and is a time-tested policy with long-term growth potential. Further, reinvesting dividends to buy more shares is grabbing attention as a key strategy to amplify one’s portfolio potency.
Digging Deeper
Income investing is not merely about investing in companies with the maximum dividends (in dollar figures). A more apt measure is the dividend yield which measures the actual return that a dividend provides.
The company's past dividend policy is also a key factor one must look out for. The idea is to pick those companies that have a history of paying a steady, continual dividend over many years. Most companies that have a consistent history of paying dividends are generally unfaltering in their abidance to the policy.
Moreover, ideal income stocks also have a history of increasing dividends on a regular basis so as to keep up with inflation. A rising dividend usually means that a company has shown strong growth in the past and is poised to deliver solid earnings in the future as well.
5 Prominent Picks
The holy grail of income investing is thus pretty simple: find fundamentally strong companies with sustainable high dividend yields to obtain a steady and predictable stream of money over the long term.
With the help of the Zacks Stock Screener, we have zeroed in on five stocks that bear solid prospects, flaunt a Zacks Rank #2 (Buy), offer a dividend yield of minimum 2.5%, and boast 5-year historical dividend growth of over 20% along with 5-year dividend yield of over 2.5%.
DuPont Fabros Technology, Inc. DFT is a leading owner, developer, operator and manager of wholesale data centers and a real estate investment trust. This company has been paying dividends consistently since 1999 and has increased its dividend on a continuous basis. Currently offering a dividend yield of 4.7%, this stock has gained over 27% year to date.
5-year historical dividend growth: 40.8%
5-year dividend yield: 3.7%
Mattel, Inc. MAT designs, manufactures and markets a broad variety of family products on a worldwide basis through both sales to retailers and direct consumers. Mattel has been a regular dividend payer since 1993. Currently offering a dividend yield of 4.7%, this stock has gained over 19% year to date.
5-year historical dividend growth: 21.6%
5-year dividend yield: 4%
Sandy Spring Bancorp Inc. SASR operates as the bank holding company for Sandy Spring Bank that provides commercial and retail banking services to individuals and businesses. The company has a strong dividend track record since 1995 and has raised its payout regularly. With a current dividend yield of 3.5%, this stock has gained over 2% year to date.
5-year historical dividend growth: 27.4%
5-year dividend yield: 2.7%
Cracker Barrel Old Country Store, Inc. CBRL develops and operates the Cracker Barrel Old Country Store concept in the U.S. The company’s Cracker Barrel stores consist of a restaurant with a gift shop. The company has been paying dividends since 1993, and has also increased it consistently. With a current dividend yield of 2.9%, this stock has gained nearly 19% year to date.
5-year historical dividend growth: 49.8%
5-year dividend yield: 2.6%
Himax Technologies, Inc. HIMX designs, develops and markets semiconductors that are critical components of flat panel displays. The company has been paying dividends since 2007 and has increased it consistently since then. Currently offering a dividend yield of 2.8%, this stock has gained nearly 25% year to date.
5-year historical dividend growth: 27.5%
5-year dividend yield: 5%
Let’s Get “Boring” and Smart
Income investing might not be the hottest investment fad. In fact, a lot of investors consider dividend-paying companies “boring.”
However, over the long run, it promises returns that are anything but dreary. Though dividend-paying stocks are typically more mature and conventional and not technically thrilling for some, the combination of a reliable dividend payout and dividend growth prospects can be equally exciting if solid returns are what you care for.
Also, given the current market conditions, being a little “boring” may actually be the safest bet. After all, it is all about making profits and income stocks provide them like clockwork.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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