U.S. stocks did manage to eke out gains in April, but still booked their worst weekly loss since February last week. Lackluster corporate earnings were primarily responsible for such a debacle. A flurry of weak economic reports also continues to add to the woes. Moreover, we are in May, which is predominantly a bad month for investment. Investors tend to offload their stock holdings this month and tend to reenter the markets in fall.
However, it will be wise not to completely offload your portfolio during this phase. Instead, it's time to invest in companies that pay hefty dividends. Dividend stocks pay regular income irrespective of market movements. Moreover, the possibility of a rate hike ebbing in the near term makes dividend paying stocks more alluring.
Markets Volatile, Corporate Profits Weak
U.S. stocks ended April with a whimper, which raised doubts whether the mid-February rally is running out of gas. Sell-off in technology and healthcare stocks curtailed gains. Companies from both these space were hit hard by losses following a bout of weak earnings reports.
High-profile tech companies including Microsoft Corporation MSFT and International Business Machines Corporation IBM reported disappointing quarterly earnings results. The biggest setback was that of Apple Inc. AAPL . The tech behemoth registered its first eight-day losing streak on Monday since Jul 1998. Perhaps more grievous than the company's earnings and revenue miss was the decline in its iPhone sales. Biotech firms too including Gilead Sciences Inc. GILD reported discouraging earnings results. Big discounts and rebates on Gilead's costly hepatitis C medicines hampered results.
This month, the broader markets did close the first-trading session higher. But let's not forget that the markets have entered a period from May to October where stocks suffer the most losses for the year. This period has given rise to the old adage "Sell in May and go away." The strategy states that any investor who sells stocks in May and then gets back in November, thereby avoiding the volatile May to October period, make more moolah than those who remained steadfast throughout the year.
Economic Data Discouraging
With the corporate season winding down, all eyes will be on domestic economic data to determine the market's next move. However, on this front, things aren't looking bright either. The battered U.S. manufacturing sector did stabilize a bit, but is yet to regain full health. The ISM manufacturing index dropped to 50.8 in April from 51.8 in March.
This data followed the U.S. economy's weakest quarterly growth in two years between January and March, as spending levels declined considerably. The U.S. economy expanded at an annualized rate of 0.5% in the first quarter, according to the Commerce Department. Business investment tumbled the most in almost seven years in the said quarter, while household purchases went up the least since early 2015. Retail sales, a key barometer of consumer spending, also dropped in March.
On the housing front, things are also looking gloomy. While housing starts declined more than expected in March, building permits touched a one-year low. New home sales also fell in March suggesting some cooling in the housing market.
Fed Cautious on Rate Hikes
U.S. inflation, on the other hand, barely rose due to lukewarm spending in the first quarter. This made it even less likely that the Fed will raise rates soon. The core personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, increased 0.1%, below the consensus estimate of a 0.2% gain. This is also way below the Fed's desired target level of 2%.
The Federal Open Market Committee had kept the interest rate flat within the 0.25 and 0.5 percent range in April. The Fed also said that it was in no hurry to hike rates further. It had hiked rates in December for the first time in nearly a decade.
Top 5 Dividend Stocks to Invest In May
U.S. stocks not only failed to end in the green convincingly in April, but are also headed for a period of lull that will last until fall. A slew of weak economic data isn't helping matters either. As more volatility is in the cards and the economic outlook remains unstable, it is time to add top-notch dividend stocks to your portfolio.
Companies that pay consistent dividends put a ceiling on market declines. These companies generate consistent cash flows irrespective of market conditions. They are generally financially stable and mature companies, which helps their stock prices to increase steadily over a period of time . Moreover, dividends are also less taxed as compared to interest income. They help your portfolio to grow at a compounded rate and offer protection from earnings manipulation.
As the possibility of an immediate rate hike has been ruled out, dividend payers are even more in demand. Dividend paying stocks suffer when rates are rising as investors focus on safe bonds. Most importantly, such stocks when combined with a Zacks Rank #1 (Strong Buy), are expected to boost your returns. The favorable Zacks Rank should help these stocks to continue gaining this year as well.
Darden Restaurants, Inc.DRI through its subsidiaries owns and operates full-service restaurants in the United States and Canada. DRI is headquartered in Orlando, FL. DRI carries a Zacks Rank #1 and offers a promising dividend yield of 3.2%. DRI's 5-year historical dividend growth rate is 7.6%.
KLA-Tencor CorporationKLAC manufactures and markets process control and yield management solutions worldwide. KLAC is headquartered in Milpitas, CA. KLAC carries a Zacks Rank #1 and offers a promising dividend yield of almost 3%. KLAC's 5-year historical dividend growth rate is 12.6%.
Hasbro Inc.HAS together with its subsidiaries provides children and family leisure time products and services worldwide. HAS is headquartered in Pawtucket, Rhode Island. HAS carries a Zacks Rank #1 and offers a promising dividend yield of 2.4%. HAS' 5-year historical dividend growth rate is 10.4%.
Campbell Soup CompanyCPB together with its subsidiaries manufactures and markets convenience food products. CPB is headquartered in Camden, NJ. CPB carries a Zacks Rank #1 and offers a promising dividend yield of 2%. CPB's 5-year historical dividend growth rate is 1.4%.
American Tower CorporationAMT is a real estate investment trust. It invests in the real estate markets across the globe. AMT is headquartered in Boston, MA. AMT carries a Zacks Rank #1 and offers a promising dividend yield of almost 2%. AMT's 5-year historical dividend growth rate is 25.9%.
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INTL BUS MACH (IBM): Free Stock Analysis Report
AMER TOWER CORP (AMT): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
CAMPBELL SOUP (CPB): Free Stock Analysis Report
GILEAD SCIENCES (GILD): Free Stock Analysis Report
DARDEN RESTRNT (DRI): Free Stock Analysis Report
HASBRO INC (HAS): Free Stock Analysis Report
KLA-TENCOR CORP (KLAC): 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.
