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Investors who simply look at the broader markets will probably assume that there aren't a whole lot of great buys out there today, because we're either at or approaching all-time highs for the various indexes. If you dig deeper, though, you will find that there are still some decent-looking individual stocks to buy that are trading at decent valuations. Even better, some of those stocks are strong dividend payers.
So we asked three of our contributors to highlight a dividend stock they think is a good buy this October. Here's what they had to say.
A generic dividend stock is sometimes exactly what the doctor ordered
Sean Williams: Dividend stocks are the foundation upon which great retirement portfolios are built. If you're looking to nab a great dividend stock in October, my suggestion would be to consider drugmaker Teva Pharmaceutical (TEVA -3.04%).
Teva Pharmaceutical has a hybrid business strategy that features the production of generic drugs as well as branded therapies. Teva's biggest concern in recent years has been what happens once multiple sclerosis drug Copaxone comes off patent. At one point, Copaxone accounted for more than 20% of Teva's annual sales, so the introduction of generics was viewed as a big worry.
However, a number of key things have gone Teva's way. Through some legal wrangling, Teva was able to halt the introduction of generic Copaxone long enough to introduce an extended-release formulation of the drug and migrate a good chunk of its longtime customers to the new extended-release version. This meant that generics wouldn't eat into nearly as much of Copaxone's sales as Wall Street had initially expected.
Even more transformative for Teva is its $40.5 billion cash and stock acquisition of Actavis from Allergan to become the largest generic drug producer in the world. The deal broadens Teva's generic drug portfolio and sets the combined entity up for $1.4 billion in cost savings by the end of 2019. More important, Teva anticipates 14% adjusted earnings accretion in 2017 and 19% adjusted earnings-per-share growth in 2019. IMS Institute for Healthcare Informatics recently forecast that generic prescriptions in the U.S. could increase from 88% of all scripts written to 91%-92% by the end of the decade, which should set up Teva for success.
Currently valued at just 8.5 times Wall Street's fiscal 2017 profit forecast and paying out a healthy 2.6% yield, Teva appears to be a company dividend investors can trust in October.
A nice dividend -- and a growth story, too
John Rosevear: What if I told you that there's a century-old industrial giant that's run by sharp, shareholder-friendly managers, is poised for significant high-tech growth, pays a rock-solid 4.6% dividend, and trades at just four times its trailing-12-month earnings?
What if I told you that it's General Motors (GM -0.05%)?
Yeah, I know. It's hard to think of dumb old GM as a promising investment in 2016. But bear with me on this. It's a good story.
There seem to be three reasons that investors overlook GM: concerns about high-tech "disruption" of the auto business; worries that the U.S. new-car market has peaked; or just because when they think of GM at all, they think of a money-losing builder of junky cars.
I hear all of those concerns. But they're all misplaced when it comes to today's GM.
First, GM might already be outdisrupting the much-hyped Silicon Valley innovators. The new Chevrolet Bolt electric car has 238 miles of range and a starting price of just under $30,000 after federal incentives -- and it's a real product that will start shipping in just a few weeks.
Not only that, but there are self-driving Bolts testing on city streets in San Francisco, and Lyft plans to put them into service, ferrying paying passengers in a pilot program, within months. (Did you know that GM owns 9% of Lyft?)
Second, it's true that the new-car market is cyclical, and the U.S. market is probably at its cyclical peak. In the old days, that meant GM's profits would swing to losses as sales declined. But that's not a worry this time: This GM has a much-improved cost structure and will stay in the black at anything above a 2009-style sales trough. It has a $20 billion cash hoard to keep things going if profits slip in a downturn, and it plans to keep paying that dividend through the cycle.
Third, the days of junky GM products are long gone. This GM ranks near the top of J.D. Power's initial quality and vehicle dependability studies -- ahead of some of the vaunted Asian and German brands.
The days of big losses are gone, too. GM is a rock-solid company with a great management team. It's already posting strong profits, but CEO Mary Barra and her team have a comprehensive plan to boost GM's profits and margins even further over the next several years.
The caveat here is that you might have to wait a while before GM's stock price catches up to its story. But if you collect and reinvest that fat dividend in the meantime, you might be very happy with how things turn out.
In the running for Dividend Aristocrat status
Tyler Crowe: Ever since its initial public offering in 1998, pipeline and logistics company Enterprise Products Partners (EPD 0.18%) has raised its dividend every year. In fact, for more than 12 years the company has raised its payout to shareholders every quarter. Even though the company has strung together a long streak of dividend raises through both the Great Recession and this recent downturn in the oil and gas market, shares of Enterprise are still down more than 30% since the oil and gas market started to crash in mid-2014. For all the talk about investors starved for yield, Enterprise's stock carries a 6% yield and a history and a future that should be able to maintain and grow that payout for several years to come.
Most of the attention given to Enterprise is about its stability as an investment: The contracts it has with its customers ensure steady cash flow and a healthy balance sheet. What doesn't get as much attention, though, is the company's growth potential over the next several years. Granted, there are companies in the oil and gas pipeline industry that tout a multibillion-dollar backlog of projects to be completed over the next decade or so, but Enterprise's growth plans are nothing to shake a stick at. The company currently has $5.6 billion in assets under construction and has already put $1.9 billion into operation in 2016. Enterprise doesn't advertise its backlog like others, but chances are, the company has plenty of other irons in the fire to keep its dividend streak alive for some time. With shares still suffering from an oil price hangover, buying Enterprise stock this month looks like a good deal.
