Stock go up, investor happy. Stock go down, investor… sad?
Probably. In fact, we’d go so far as to say that’s probably the ordinary reaction an investor has to a decline in the share price of a stock he or she owns — but not all the time.
You see, if the stock is question is a dividend stock, even a decline in stock price can be offset by the value of the dividend you’re being paid to own it. What’s more, because a stock’s dividend yield is calculated by dividing the dividend amount by the stock price, the lower the stock price falls, the bigger the dividend yield becomes — making the stock increasingly attractive to other dividend investors, and providing a backstop that can prevent the stock falling further!
So how do you find great dividend stocks, popular on Wall Street, and attractive to dividend investors?
Using the Stock Screener at TipRanks, you can screen for stocks rated “strong buy” by Wall Street analysts, and screen, too, for stocks paying better-than-average dividend yields. Combine these two attributes, and voila! You’ve got a great dividend stock candidate. Here are three of them:
One of Europe’s largest drugmakers, Paris-based Sanofi boasts a market capitalization north of $112 billion, more than $40 billion in annual sales, and net profits approaching $4 billion. Sanofi stock’s a great cash generator as well, throwing off nearly $6.3 billion in cash over the last 12 months, enabling it to pay a market-beating dividend yield of 3.9%.
Just recently, Morgan Stanley analyst Mark Purcell upgraded Sanofi shares to “overweight,” calling the stock a “defensive” play in an uncertain market. According to Purcell, the stock is “largely de-risked” — indeed, the analyst says Sanofi has the lowest risk growth outlook of any European Big Pharma stock, due to a lack of big drugs losing patent protection in the near future (the dreaded “patent cliff”), and a pipeline of new drugs in late-stage clinical trials that could soon come to market.
Whereas the consensus on Wall Street is that Sanofi stock is worth $52 per share, Purcell thinks Sanofi could go all the way to … $98 a share! (To watch Purcell’s track record, click here)
“We argue that new CEO Paul Hudson inherits significant optionality to unlock shareholder value alongside the recent CFO and CSO appointments. The management team can draw on their shared experience from the strategic transformations of AstraZeneca and Novartis, the new chapter of innovation at Roche and the cost discipline of Peugeot. The evolution of the GSK equity story, with which Sanofi has much in common, albeit with greater balance sheet flexibility and lower patent risk, offers a further yardstick for investors, we believe. We explore potential strategic options that could in theory help to close the 15% relative P/E multiple discount,” Purcell said.
Sanofi stock hasn’t moved much over the past year, up less than 4%. Regardless, Wall Street loves Sanofi stock, rating it “strong buy” on average, and with a $52 price target implying 14.5% upside from today’s prices. Factor in the dividend, and you’re pushing 18.5% potential profit. (See Sanofi stock analysis on TipRanks)
But you needn’t travel all the way to Europe to find an attractive drug stock paying a big dividend. Right here at home, Kenilworth, New Jersey-based Merck & Co. pays its shareholders a very respectable 2.7% dividend yield. (The average stock on the S&P 500 is only paying 2%).
Recently, Merck presented more positive data at ESMO supporting the use of Keytruda + chemo to treat neoadjuvant/adjuvant TNBC. These data, along with other data presented at ESMO, like BMY’s (NC) Merck-227 data and the Lynparza ovarian data, support MRK’s leadership in oncology.
Morgan Stanley analyst David Risinger commented, “KN-522 demonstrated an impressive pathologic complete response (pCR), improving on results from its earlier exploratory KN-173 trial. On another key efficacy metric, event free survival (EFS), the trend to 18mo looks quite favorable but the trial’s discussant urged a measure of caution in over-interpreting the findings, saying data were too early still and need to mature. The reason for caution is that discontinuation rates were ~2x for Keytruda vs placebo (PBO), raising the specter that longer-term survival curves may look different than shown at the first, early look, if too many patients are stopping therapy prematurely. The discussant also reminded that certain immune-related adverse events would likely be permanent, implying a more definitive calculation of risk:benefit is warranted, but this is not yet possible from the preliminary data set.”
As a result, Risinger reiterated an Overweight rating on MRK stock with $90 price target, which implies nearly 7% upside from current levels. (Watch Risinger’s track record, click here)
Overall, the consensus targets on the Street see Merck shares rising as high as $100 per share over the next 12 months, 18% above current levels. (See Merck stock analysis on TipRanks)
Switching gears now from the somewhat esoteric world of biotech to a company we’re all very familiar with, Verizon is our final stock to look at in today’s column — and for good reason.
Investors have long viewed the telecom industry as a happy hunting ground for stocks paying robust dividends, and Verizon, which pays 4.2%, is no exception. In fact, Verizon has raised its dividend for 13 years in a row, with its latest dividend hiking coming just last month. At 4.2%, Verizon’s dividend is now more than twice the market average.
One analyst who likes Verizon more than most is Oppenheimer’s Timothy Horan, who in August upgraded Verizon shares to “outperform” with a $70 price target implying better than 16% upside (and better than 20% with the dividend added in). Horan believes that Verizon will be an early beneficiary of the telecommunications industry’s move to 5G wireless technology. And anticipating customer defections from T-Mobile and Sprint once those two companies merge, Horan predicts that Verizon will also benefit from customer “churn” at this wireless rival. (To watch Horan’s track record, click here)
Overall, Wall Street loves the stock, giving Verizon “strong buy” ratings by and large. Granted, with a consensus price target of “only” $65, most analysts don’t see a huge amount of upside in the stock — only about 9%. But if you add in the dividend yield, the potential profit on this one exceeds 13%, and maybe even more.
Topping it all off, with a P/E of less than 16, Verizon’s not just the biggest dividend payer on today’s list of highly-rated dividend stocks — it’s also the cheapest. (See Verizon stock analysis on TipRanks)