Bear markets aren’t a lot of fun to live through. In fact, I’m actually losing a little sleep over the current one. For whatever reason, this bear market just feels nastier than some of the others I’ve been through.
But the nice aspect of a bear market is that dividend stocks you might normally have considered too expensive to buy suddenly look like a bargain. If you’re brave enough, you can buy your favorite dividend stocks at bargain basement prices and effectively “lock in” very solid dividend yields.
I have to write “lock in” in quotation marks, of course, as there is really no such thing as a guaranteed dividend. Dividends can get cut in a hurry, and an exceptionally high yield is often a prelude to exactly that. So, common sense rules apply here. We’re looking for quality companies that are suddenly a bargain, not cheap garbage that gets cheaper.
So, with no more ado, let’s take a look at seven dividend stocks that have gone on sale of late. I would consider all of them viable options for a diversified dividend portfolio.
Apple Inc.
Consumer electronics leader Apple Inc. (NASDAQ:AAPL) might seem like a strange addition on a list of dividend stocks given that its yield is just 2%. But given Apple’s reputation as a dividend grower, I’d say it can hold its own on any dividend stock list. And you certainly can’t argue that it’s not a bargain. At one point last year, the stock fetched $134 per share. Today, it doesn’t even trade for $100.
What gives?
In a nutshell, a lot of investors are worried that the day we feared — the day that iPhone sales started to sag — is finally here. For all of Apple’s efforts to create popular new products, it is still first and foremost an iPhone company.
I’m not too worried about it, though. In a broadly overpriced market, Apple is one of the few truly cheap stocks out there. It trades at just 9 times next year’s expected earnings. And that says nothing of Apple’s massive cash hoard, which was more than $200 billion as of last reporting period. Nearly 40% of Apple’s market cap is cash in the bank.
I don’t know when sentiment will turn friendly to Apple again. But I do know that the company is ridiculously cheap at these levels.
General Motors Company
I really don’t know what investors want to see from General Motors Company (NYSE:GM). The company had one of its best years in history in 2015, and yet the stock finishes the year down sharply from its highs. GM traded as high as $38.99 last year. Today, it trades for $30 and yields a fat 4.8%. Early this year, GM raised its dividend by about 6% and massively increased its share repurchase plan.
Looking at operations, GM is going through a major overhaul of several popular car models, which is generally a prelude to higher sales.
Yet GM stock gets no love. It seems that investors are fixated on the risks posed by a slowdown in China.
Well, this is my view: GM is priced to deliver decent enough returns no matter what happens in China. The shares trade hands at 5 times this year’s expected earnings and 0.3 times sales. At that price, it’s hard to imagine really losing money here. GM is a dividend bargain.
StoneMor Partners L.P.
There is nothing certain in life but death and taxes. Well, StoneMor Partners L.P. (NYSE:STON) seeks to profit from the first and avoid the second.
That needs a little explaining: StoneMor is a publicly-traded cemetery. And while that might be somewhat morbid, it’s a fantastic business model. Funeral and burial services (including cremation) are unavoidable expenses, and not ones that heirs are likely to skimp on. Furthermore, with the aging of the baby boomers, business is about to get kicked into overdrive. The number of annual deaths in America is expected to grow by about 80% between now and 2035, meaning that StoneMor has two decades of growth practically baked in.
We’ve covered death; now for taxes. StoneMor is structured as a master limited partnership (“MLP”), a structure that is somewhat rare outside of the oil and gas sector. Being an MLP means that StoneMor is required to pass on nearly all of its profits in the form of distributions in order to escape taxes at the company level. As a result, StoneMor pays a fat yield of just over 10%.
Despite its low-volatility business, StoneMor has been a high-volatility stock. Its price has sagged from more than $32 to just $26.25 today. Don’t sweat it; this is the sort of volatility that comes with the turf when you buy smaller-cap stocks. Just keep cashing the distribution checks, and ride out the price swings.
Energy Transfer Equity LP
And finally, I’ll leave you with a more speculative recommendation, midstream MLP Energy Transfer Equity LP (NYSE:ETE). Energy Transfer was thegrowth dynamo of the MLP space going into last year, and its merger with rival Williams Companies, expected to be completed within a quarter, will make it the largest midstream pipeline company in North America — even bigger than Kinder Morgan and Enterprise Products.
The issue is financing. Energy Transfer has never had difficulty accessing the debt and equity markets, but this is a truly nasty time for the MLP space, and financing on reasonable terms is hard to come by. This has spread fears that ETE might have to temporarily lower or suspend its dividend in order to finance the Williams takeover.
My take on this?
If that is what it takes, so be it. As I’m writing this, the yield is a gargantuan 15%. At this point, ETE could slash its dividend in half and still have one of the highest dividend yields amount large-cap companies. And once the merger with Williams is consolidated, the combined entity will be a midstream powerhouse. Patient investors will be glad they waited it out.
Disclosure: Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL, EPD, ETE, GM, TEF, STAG and STON.
