As we start getting used to bear market conditions, maybe it’s also time to start re-evaluating what we look for in a stock. I don’t want to say that it’s too much to expect share prices to go up and up and up, but I do think that now is the time to consider dividends as a larger component of your portfolio’s return.
We’ll take a look here at three stocks which have shown reliable – and lucrative – dividend yields. The criteria used to include a stock in this list include a ‘Strong Buy’ rating from the TipRanks analysts, at least two positive analyst reviews within the last two weeks, a 20% upside potential, and a company history of paying out regular, steadily increasing, dividends. Using TipRanks Stock Screener tool, we found plenty of companies to meet that profile. Here we’ll delve into the details of three.
Altria Group, Inc. (MO – Research Report)
Altria is one of the world’s largest manufacturers and distributors of cigarettes, cigars, tobacco, and e-cigarette vaping products. The company is considered a classic defensive stock, able to fall back on consistently high sales even in tough economic times. While declining trends in global cigarette use may cast some doubt on that, Altria’s moves into the e-cigarette and legalized marijuana markets offer potential revenue streams to offset cigarette losses.
Looking at Altria’s stock performance, we see a long slump since the second week of November. This hasn’t bothered the market analysts, however, as Altria has also agreed to take a $1.8 billion stake in the Canadian Cronos Corp (CRON), a major player in that country’s legalized marijuana sector. With Altria’s history and infrastructure for the manufacture of cigarettes, a 45% stake in a marijuana company would provide lower cost access to product ingredients.
Piper Jaffray analyst Michael Lavery (Track Record & Ratings) pointed this out on Dec 11, adding that Altria retains plenty of free cash even after the Cronos acquisition, and may be looking at expanding its stake in the vaping sector. Looking forward, Lavery said that he “believes Altria can deliver double-digit earnings growth over 2018-2020, above its long-term 7%-9% growth target, driven by pricing, tax savings, managing spending, share buybacks and falling interest expense.” Lavery’s $75 price target implies a 50% upside potential.
A few days earlier, on Dec 7, Well Fargo’s Bonnie Herzog (Track Record & Ratings) also noted Altria’s commitment to acquire Cronos. She predicts the stock will outperform the market, although she did not set a specific price target. In her comments, she said, “Overall, we applaud MO’s decision to pivot fast and to move into a new adjacent category (cannabis) that is complimentary to its core tobacco business.”
MO stock currently has a $70 average price target to go with its ‘Strong Buy’ analyst consensus. Compared to the $51 current share price, this suggests a 37% upside potential for Altria.
Looking at the company’s dividends, we see that management has a superb record with a near-50-year history of making regular dividend payouts. Focusing on recent history, Altria has paid out to its investors in 24 of the last 28 quarters. Since 2012, the quarterly dividend per share has increased from 41 cents to 80 cents. Altria’s next dividend payout, for Q4 2018, is scheduled for January 10 at 80 cents per share. The current payment gives an annualized yield of 6.3%.
Big Lots, Inc. (BIG – Research Report)
Big Lots is a well-known, Ohio-based retailer, offering its customers a wide range of household goods at discount prices. As a discount closeout retailer, Big Lots has something of a ‘recession proof’ reputation, but that didn’t protect it from a bad third quarter. The Q3 earnings report, released on Dec 7, showed a deep miss on earnings – a loss of 16 cents per share compared to the forecast 6 cents – and a net loss of $6.56 million compared to last year’s Q3 profit of $4.37 million.
However, market analysts have retained their ‘Buy’ ratings on BIG stock. They have noted that the decline in share price following the earnings report gives an opportunity to buy cheap, and that the chain is currently spending a large part of its cash flow on improvements and remodeling in its stores.
The analyst reviews are somewhat instructive. Several ratings were published on Dec 10, after analysts had had time to digest the Q3 report. Citigroup’s Greg Badishkanian (Track Record & Ratings) and Piper Jaffray’s Peter Keith (Track Record & Ratings) both lowered their targets, to $36 and $39 respectively.
At KeyBanc, Bradley Thomas (Track Record & Ratings) also lowered his price target, to $44, but laid out a case for optimism in BIG: “A soft start to Q4 is requiring greater markdowns, and Big Lots is also increasing investments in new and remodeled stores.” He added that he is “optimistic Q4 can meet new guidance and remain positive on the consumer outlook for 1H, supported by a favorable tax refund backdrop.”
Big Lots’ ‘Strong Buy’ consensus is based on four recent ‘buy’ ratings and no ‘holds’ or ‘sells.’ The average price target is $39, which gives a 36% upside when compared to the current share price of $28.
Since the second half of 2014, Big Lots has been consistent in paying out a regular quarterly dividend, having made 30 consecutive payments. The next scheduled dividend is set to go out on Dec 28. The 30 cents per share payment will give an annualized rate of 4% per share. Over the last 30 quarters, the dividend payment has increased from 17 cents per share, a gain of 76%.
Cisco Systems, Inc. (CSCO – Research Report)
Cisco is a major provider of networking hardware, telecom equipment, and high-tech services. The company’s products have major applications in Internet of Things and domain security. Cisco’s market cap of $200 billion makes it the largest technology networking company in the world.
Of the companies we’re looking at here, Cisco seems to have the strongest reviews. On Dec 11, Steven Milunovich (Track Record & Ratings) of Wolfe Research initiated coverage of CSCO, with a price target of $56. Milunovich has a good record on this stock; his success rate is 92% and his average profit is 20%. His price target implies 30% upside potential on CSCO.
Three days later, on Dec 14, Cisco received both a ‘buy’ and a ‘hold’ rating. Nomura’s Jeff Kvaal (Track Record & Ratings) gave the hold, saying, “Strengthening IT spending, a muscular, innovation-led refresh cycle, and a rising software mix have lifted Cisco’s multiple and its shares to post-recession highs. However, we believe some tailwinds, notably IT spending strength, may reverse in 2019 to reveal imperfections in Cisco’s story.” He set a price target of $50, which still gives the stock a 16% upside.
On a positive note, Ivan Feinseth (Track Record & Ratings) of Tigress Financial gave a bullish comment: “Cisco benefits from the rapid growth of its IT and data security service offerings. …[S]ignificant upside exists from current levels.” He declined to set a specific price target.
Indeed, the average target on CSCO, is $52, or a 22% upside from the $43 share price. The analyst consensus of ‘Strong Buy’ is based on 10 ‘buy’ ratings and 3 ‘holds.’
Cisco has been bullish on the dividend, front, as well. The company’s dividend has been growing steadily for eight years, from a yield of 0.5% to the current 3%. During that time, Cisco has never missed a quarterly payment. Cisco’s next payment, of 33 cents per share, is scheduled for Jan 23.
Author: Michael Marcus