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3 Dividend Stocks That Are Amazing Value Picks - Analyst Blog

Dividend stocks have always been popular with investors. Not only do these stocks offer higher income in the current low-rate environment but also provide a cushion against equity market risks.

Moreover, dividend stocks are historically less volatile than non-dividend stocks and are proven outperformers over the long term. These stocks are a safe bet to create wealth with as the dividends generally act as a hedge against economic uncertainty. Moreover, these stocks provide downside protection by offering sizable yields on a regular basis.

Another trade-off to consider while picking dividend stocks is to determine whether to choose low-yield, consistent dividend paying stocks or high-yield stocks that could bring fast cash but are not very consistent. It is up to the individual investor to decide on a stock based upon one's requirements, but it is always better to choose a consistent performer with strong fundamentals. Also, one must diversify one's portfolio across industries to minimize risk.

Dividend Growth to Continue

According to the latest quarterly dividend factsheet , dividends per share for the S&P 500 companies have risen for the 16th consecutive quarter. This marks an increase of 11.9% year over year to $38.77 for the 12-month period ending in Jan, 2015.

On the sector basis, leading the way is 'Finance' and 'Information Technology.' However, at the company level, the highest dividend payment came from a company in an industry that has lately seen a lot of trouble - Exxon Mobil XOM . This integrated oil and gas industry stock paid a cash dividend of 69 cents per share to its investors.

Though over the next 12 months dividend growth is expected to slow down to about 8.2%, the Financial and Industrial sectors are anticipated to continue double-digit dividend growth.

Adding Value to Dividend Stocks

Many investors like to look for value in stocks, but this can be very tough to define. There is great debate regarding which metrics are the best to focus on in this regard, and which are not really quality indicators of future performance. Fortunately, with our new style score system we have identified the key statistics to pay close attention to this and thus estimate which stocks might be the best for value investors in the near term.

Picking the Right Way

Selecting a dividend stock could be a tough choice as one must consider not only the past performance of the company but also its prospects. A stock that has paid lofty dividends in the past but may see troubled times ahead will obviously not be a correct choice.

The choices could be narrowed down based upon a favorable Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and promising value metrics (Value Score = 'A' or 'B'). The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of 'value traps' and identify stocks that are truly trading at a discount. Our research shows that, stocks with Style Scores of 'A' or 'B' when combined with a Zacks Rank #1 or #2, offer the best upside potential.

A good industry rank further adds to the value of the stock.

Based upon the above criteria, we have selected three stocks that could be promising picks. Not only do these stocks have a favorable Zacks Rank but also a value score 'A':

Aircastle Ltd. AYR

Stamford, CT-based Aircastle is a firm in the Transportation-Equipment and Leasing industry. The company acquires and leases high utility commercial jet aircraft to passenger and cargo airlines throughout the world.

This stock, which sports a Zacks Rank #1, offers a robust dividend yield of 3.94%. The company has consistently grown dividend over the past several years and has also performed well on the earnings front. The stock has gained about 4.5% year to date (YTD).

Valero Energy Corporation VLO

San Antonio, TX-based Valero Energy Corporation is the largest independent refiner and marketer of petroleum products in the U.S. It is also a leading ethanol producer with 11 ethanol plants in the Midwest.

With a market capitalization of $30.8 billion, the oil refining giant offers a promising dividend yield of about 2.68%. The company recently increased its quarterly dividend by about 45%. Moreover, the stock, which also sports a Zacks Rank #1, has a strong earnings history and is expected to continue to benefit from weak crude prices. Additionally, the stock has gained nearly 21% YTD.

First Interstate Bancsystem Inc. FIBK

Billings, MT-based First Interstate Bancsystem is a financial and bank holding company. It delivers a range of banking products and services to individuals, businesses, municipalities and other entities throughout its market areas.

This Zacks Rank #2 stock offers a promising dividend yield of 2.87% and has consistently grown dividend over the past several years. The company has also performed well on the earnings front beating the Zacks Consensus Estimate in each of the trailing four quarters.

Bottom Line

Investors across the board have varying tastes and investment strategies. Investment in the above-mentioned stocks should result in a steady stream of income that is expected to grow overtime. Moreover, consistent earnings growth is likely to translate into capital appreciation as well.

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VALERO ENERGY (VLO): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

AIRCASTLE LTD (AYR): Free Stock Analysis Report

FIRST INTST MT (FIBK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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