Has the stock correction mostly run its course? Or are we in the early stages of a bear market? Frankly, I have no idea. There’s really no way to reliably know ahead of time. Popular bear-market indicators like the “death cross” have a mixed record at best, and strategies that reliably avoid bear markets also unfortunately tend to miss the most profitable parts of bull markets too.
If your portfolio returns depend entirely on selling to a greater fool, then this is a perilous time to be in the market. I wouldn’t want to own a highflying momentum darling like Netflix or Amazon if I thought the market might roll over because expensive stocks often fall the hardest.
But if current income is a part of your investment process, then a little market volatility is nothing to worry about. A portfolio of cheap dividend stocks with high and growing payouts will to allow you to realize a decent cash return while waiting for the market regain its footing.
And if you reinvest your dividends, you automatically average in at lower prices.
Today, we’re going to take a look at 4 dividend stocks to hold for the remainder of 2015, come what may in the market. All pay solid dividends, and most are dividend-raising champions.
AAPL Dividend Yield: 1.8%.
I’ll start with Carl Icahn’s darling, iPhone maker Apple Inc. (NASDAQ:AAPL).
Apple has become something of a punching bag of late, with fears of a China slowdown casting a shadow over the company. There also is a growing sentiment that the company Steve Jobs built into a wellspring of innovation might have lost its mojo. The iPhone is now nearly a decade old, yet it remains Apple’s primary cash cow.
Guess what? I don’t care.
Even if Apple never invents a major new product again, the stock is still attractive at today’s prices. AAPL stock trades at a very modest forward P/E of 11.5. And if you strip out the roughly $35 per share in cash and investments, you get a forward P/E of 7.9. That is absurdly cheap.
Meanwhile, Apple has quickly evolved into a shareholder-friendly, dividend-raising machine. Apple’s current dividend yield is a modest 1.8%, but Apple has proven its mettle as a hiker. Since initiating its quarterly dividend in 2012 at 37.9 cents (adjusted for its split), AAPL has bumped it up by 37%. And if the stock price slides much further, you can bet that Icahn will be agitating for another large stock buyback.
MSFT Dividend Yield: 3.3%
Next up is Apple’s erstwhile rival from the PC era, Microsoft Corporation (NASDAQ:MSFT).
Given the decline of the PC as a computing platform, Microsoft might seem like an odd choice. But under its savvy new CEO Satya Nadella, Microsoft is successfully transitioning itself beyond the Windows. Along with Google and Amazon, Microsoft has become one of the “Big Three” in cloud computing and services.
And given Microsoft’s much longer history serving the enterprise market, my bet is that Microsoft’s cloud business eventually leaves Amazon’s and Google’s in the dirt.
Microsoft is really a king among dividend stocks. It sports a dividend yield of 3.3%, making it one of the highest-yielding mainstream stocks in the S&P 500. And it’s also raising that dividend at a blistering rate, even while managing to lead the industry in capital spending. Over the past five years, Microsoft has raised its dividend at a 19% clip.
Can Microsoft keep it up? Absolutely. Don’t be put off by Microsoft’s seemingly high dividend payout ratio of 82%. Microsoft took a bath last quarter writing off bad investments. Once earnings normalize, the payout ratio should fall back below 50%.
MCD Dividend Yield: 3.5%
Next, we have a stock whose establishments I (somewhat embarrassingly) frequent more than my doctor would like: McDonald’s Corporation (NYSE:MCD)
I know, I know. Fatty fast food is passé in the era of chic and healthy fast-casual options like Chipotle Mexican Grill. But sometimes I justreally want a Big Mac and a Dr Pepper.
Yes, it’s lowbrow. And I really don’t care.
Wall Street hates McDonald’s right now. MCD stock has gone nowhere since late 2011, and analysts are about as bearish on the stock as I’ve even seen. But guess what: McDonald’s has been here before. Back in the late 1990s, its menu had gotten stale and its stores were starting to lose customers. Well, the company adapted, spruced up its menus and its locations, and then proceeded to have one of the most profitable decades in its history.
Right now, McDonald’s sports a dividend yield of 3.5%, and it has boosted that dividend at an 18% clip over the past 10 years. For that kind of growth to continue, McDonald’s will need to see some healthy profit growth too.
But given this company’s past record of turning things around, I don’t see that being a problem.
Prospect Capital Corporation
PSEC Dividend Yield: 12.7%
Prospect Capital Corporation (NASDAQ:PSEC) may very well be the most hated stock on Wall Street.
It seems that investors have never fully forgiven the company for cutting its dividend a year ago. Today, the stock trades for just 76% of book value.
And book value is not just an arbitrary accounting term in this case. Prospect’s book value represents real debt and equity investments that the company has marked to market every quarter by third-party valuation firms. Prospect’s book value is close to the real value you could get for its assets if you were to buy the entire company and sell it off for spare parts.
It’s hard to lose money buying a dollar for 76 cents. But that is exactly the pricing we have today in Prospect Capital. And if it takes the market months or even years to realize this value, that’s OK. We’re getting paid — a lot — to wait, via PSEC’s current yield of nearly 13%.
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