Has the stock correction mostly run its course? Or are we in the early stages of a bear market? Frankly, I have no idea. There’s really no way to reliably know ahead of time. Popular bear-market indicators like the “death cross” have a mixed record at best and strategies that reliably avoid bear markets also unfortunately tend to miss the most profitable parts of bull markets too.
If your portfolio returns depend entirely on selling to a greater fool, then this is a perilous time to be in the market. I wouldn’t want to own a highflying momentum darling like Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN) if I thought the market might roll over because expensive stocks often fall the hardest.
But if current income is a part of your investment process, then a little market volatility is nothing to worry about. A portfolio of cheap dividend stocks with high and growing payouts will to allow you to realize a decent cash return while waiting for the market regain its footing.
And if you reinvest your dividends, you automatically average in at lower prices.
Today, we’re going to take a look at 10 dividend stocks to hold for the remainder of 2015, come what may in the market. All pay solid dividends, and most are dividend-raising champions.
Apple (NASDAQ:AAPL)
AAPL Dividend Yield: 1.8%
I’ll start with Carl Icahn’s darling, iPhone maker Apple.
Apple has become something of a punching bag of late, with fears of a China slowdown casting a shadow over the company. There also is a growing sentiment that the company Steve Jobs built into a wellspring of innovation might have lost its mojo. The iPhone is now nearly a decade old, yet it remains Apple’s primary cash cow.
Guess what? I don’t care.
Even if Apple never invents a major new product again, the stock is still attractive at today’s prices. AAPL stock trades at a very modest forward P/E of 11.5. And if you strip out the roughly $35 per share in cash and investments, you get a forward P/E of 7.9. That is absurdly cheap.
Meanwhile, Apple has quickly evolved into a shareholder-friendly, dividend-raising machine. Apple’s current dividend yield is a modest 1.8%, but Apple has proven its mettle as a hiker. Since initiating its quarterly dividend in 2012 at 37.9 cents (adjusted for its split), AAPL has bumped it up by 37%. And if the stock price slides much further, you can bet that Icahn will be agitating for another large stock buyback.
Microsoft (NASDAQ:MSFT)
MSFT Dividend Yield: 3.3%
Next up is Apple’s erstwhile rival from the PC era, Microsoft.
Given the decline of the PC as a computing platform, Microsoft might seem like an odd choice. But under its savvy new CEO Satya Nadella, Microsoft is successfully transitioning itself beyond the Windows. Along with Google (NASDAQ:GOOGL) and Amazon, MSFT has become one of the “Big Three” in cloud computing and services.
And given Microsoft’s much longer history serving the enterprise market, my bet is that Microsoft’s cloud business eventually leaves Amazon’s and Google’s in the dirt.
Microsoft is really a king among dividend stocks. It sports a dividend yield of 3.3%, making it one of the highest-yielding mainstream stocks in the S&P 500. And it’s also raising that dividend at a blistering rate, even while managing to lead the industry in capital spending. Over the past five years, Microsoft has raised its dividend at a 19% clip.
Can Microsoft keep it up? Absolutely. Don’t be put off by Microsoft’s seemingly high dividend payout ratio of 82%. Microsoft took a bath last quarter writing off bad investments. Once earnings normalize, the payout ratio should fall back below 50%.
McDonald's (NYSE:MCD)
MCD Dividend Yield: 3.5%
Next, we have a stock whose establishments I (somewhat embarrassingly) frequent more than my doctor would like: McDonald’s.
I know, I know. Fatty fast food is passé in the era of chic and healthy fast-casual options like Chipotle Mexican Grill (NYSE:CMG). But sometimes I justreally want a Big Mac and a Dr Pepper.
Yes, it’s lowbrow. And I really don’t care.
Wall Street hates McDonald’s right now. MCD stock has gone nowhere since late 2011, and analysts are about as bearish on the stock as I’ve even seen. But guess what: McDonald’s has been here before. Back in the late 1990s, its menu had gotten stale and its stores were starting to lose customers. Well, the company adapted, spruced up its menus and its locations, and then proceeded to have one of the most profitable decades in its history.
Right now, McDonald’s sports a dividend yield of 3.5%, and it has boosted that dividend at an 18% clip over the past 10 years. For that kind of growth to continue, McDonald’s will need to see some healthy profit growth too.
But given this company’s past record of turning things around, I don’t see that being a problem.
Prospect Capital Corporation (NASDAQ:PSEC)
PSEC Dividend Yield: 12.7%
Prospect Capital may very well be the most hated stock on Wall Street.
It seems that investors have never fully forgiven the company for cutting its dividend a year ago. Today, the stock trades for just 76% of book value.
And book value is not just an arbitrary accounting term in this case. Prospect’s book value represents real debt and equity investments that the company has marked to market every quarter by third-party valuation firms. Prospect’s book value is close to the real value you could get for its assets if you were to buy the entire company and sell it off for spare parts.
It’s hard to lose money buying a dollar for 76 cents. But that is exactly the pricing we have today in Prospect Capital. And if it takes the market months or even years to realize this value, that’s OK. We’re getting paid — a lot — to wait, via PSEC’s current yield of nearly 13%.
Realty Income Corporation (NYSE:O)
O Dividend Yield: 4.8%
No list of safe dividend stocks is complete without Realty Income, also known as the “Monthly Dividend Company.”
I’ve said it before, and I’ll say it again: Realty Income is one of the very few dividend stocks out there that I believe you really can buy and holdforever. Yes, the stock price will bounce around. That’s inevitable. But given the safety and quality of the underlying real estate portfolio, it’s hard for me to see a scenario short of the actual end of days that would cause Realty Income to cut or eliminate its dividend.
This is a REIT that owns a portfolio of high-traffic essential retail sites, such as your local convenience store or pharmacy.
A bear market this year would knock a few dollars of the stock price, for sure. But frankly, who cares? Realty Income sports a nice dividend yield of 4.8%, and it has raised its dividend for 72 consecutive quarters.
Bear market? Bring it.
Vereit Inc. (NYSE:VER)
VER Dividend Yield: 6.8%
Along the same lines we have VEREI, formerly American Realty Capital Properties. Like Realty Income, VEREIT owns a diversified portfolio of high-traffic retail properties.
The portfolio isn’t quite as high-quality as Realty Income’s, though; as a case in point, one of VEREIT’s largest tenants is struggling dining chain Red Lobster.
But VEREIT is also what I would call a “special situation” stock, and one that I consider a solid turnaround play. About a year ago, this REIT was embroiled in an accounting scandal that was absolutely devastating. The board of directors suspended the dividend and essentially fired the management team. As a result, a lot of investors are understandably wary of VEREIT.
But herein lies our opportunity.
The portfolio is solid enough to essentially run itself. During the past year of management uncertainty, the underlying properties continued to perform as expected. And under its new management team,VEREIT reinstated its dividend. At current prices, the REIT sports a dividend yield of 6.8%.
The bad news was priced into this stock a long time ago. At current prices, VEREIT is priced to outperform, come what may in the market.
Digital Realty Trust Inc (NYSE:DLR)
DLR Dividend Yield: 5.3%
I’ve been a fan of data center REIT Digital Realty for a long time. I’ve never been comfortable investing directly in social media stocks given the crazy valuations usually found in the sector. But Digital Realty offered a nice, low-risk way to get exposure to the underlying trend.
As more and more computing moves onto smartphones and into the cloud, demand for data centers should only rise. And in Digital Realty, we have a cheap dividend stock yielding more than 5%.
But there is another reason to like Digital Realty in today’s market. It is one of the most heavily shorted stocks you can find, with more than 18 days worth of trading volume sold short, according to the most current short interest data.
Remember, when you short something, you eventually have to buy it back. So an exceptionally high short ratio like this makes DLR a good short-squeeze candidate. Any small sliver of better-than-expected news could send the shorts running for cover. And that many shorts all running for the exits at the same time can send the stock price sharply higher.
So, even if we do have a real bear market, I wouldn’t be surprised to see Digital Realty bounce like a spring.
Teekay Corporation (NYSE:TK)
TK Dividend Yield: 6.8%
As the price of crude oil has continued to slide, the proverbial baby has been thrown out with the bathwater. Stocks that really have no direct exposure to oil and gas prices have gotten slammed. It’s guilt by association.
But herein lies an opportunity for us to buy high-quality dividend stocks trading at temporarily depressed levels.
A perfect example is seaborne energy transporter Teekay Corp. Teekay is a quirky company. In addition to owning its own tanker assets, Teekay is the general partner of two MLPs, Teekay Offshore Partners (NYSE:TOO) and Teekay LNG Partners (NYSE:TGP) and the controlling shareholder of another corporation, Teekay Tankers (NYSE:TNK).
But this is where it gets interesting. Rather than continue as an operating entity in its own right, Teekay is transitioning into a pure-play general partner by dropping its operating assets down into its MLPs. And this means massively higher dividends.
As part of Teekay’s strategic shift, it boosted its dividend by 74% earlier this year, and management expects annual dividend growth of 15% to 20% over the next three years. Between that stellar growth rate and Teekay’s current 6.8% dividend, you’re looking at a healthy heaping of income in the years to come.
Not too shabby!
Kinder Morgan (NYSE:KMI)
KMI Dividend Yield: 6.7%
Along the same lines, we have pipeline superstar Kinder Morgan. Kinder Morgan has been beaten like a red-headed stepchild this year, down roughly a third from its 52-week high.
But this is absurd when you actually bother to look at Kinder Morgan’s prospects. The company increased its project backlog by $3.7 billion in the second quarter to $22 billion, meaning that KMI has no shortage of growth prospects in front of it irrespective of what happens to the prices of oil and gas.
During its reorganization last year, management said that it intended to raise KMI’s dividend by at least 10% per year from 2016 to 2020, and it reiterated that call this past quarter. And at today’s prices, the stock sports a fantastic dividend yield of 6.7%.
Between the current dividend yield and the expected growth rate, you’re looking at substantial income potential — alone worth considering in a market that is expensive and priced to deliver almost nothing in the way of returns over the next decade.
StoneMor Partners LP (NYSE:STON)
STON Dividend Yield: 9.2%
And last but certainly not least, we have StoneMor Partners. StoneMor is one of the largest owners of cemetery and funeral home properties in the world.
And as morbid as this might sound, business is about to get kicked into overdrive.
Death is coming to America in a big way, and no, I’m not talking about war or pestilence. I’m talking about demographics. The aging of the baby boomers means that there will be an unprecedented demand for funeral services in the decades ahead. No garden-variety bear market is going to change that.
StoneMor currently sports a dividend yield of 9.4%. Dividend growth has been modest in recent years, but that’s OK. We can enjoy the high current dividend yield while we wait for the growth to materialize.
In a broad bear market, StoneMor will probably take its lumps. But given that it is a small cap off the radar screen of most investors and that it pays a truly mammoth dividend, I’m betting any downside will be minimal.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.