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5 Dividend Stocks to Buy After the Pullback

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I don't know which is more impressive: That the town of Wichita Falls, Texas, has suffered 100-degree heat for 44 days straight, or that the Dow just came within inches of postings nine days of consecutive losses -- its longest losing streak in 33 years.

You're probably more interested in the latter. And after stocks' pullback, and a flight-to-safety in Treasuries, the average Dow stock now yields more than 10-year bonds. History is kind to stocks when that situation occurs.

Does that mean markets are about to hit a big upswing? No. But it means a few high-quality stocks now deserve more of your attention. Here are five such candidates.  

Waste Management (NYSE: WM  ) shares have dropped almost a fifth over the past month, amid disappointing earnings. That's pushed its dividend yield up to 4.4%, and caught the attention of my colleague Anand Chokkavelu.

"I didn't note any permanent impairments" in the company's earnings reports, Anand wrote this week. "Waste Management's stock has dropped to its 52-week lows without any signs of long-term fundamental weakness."

Waste Management now trades at 15 times earnings, compared with an average of 24 times earnings over the past two decades. High-quality companies deserve high-quality valuations. Waste Management doesn't have one right now. Take advantage of that.

Intel (Nasdaq: INTC  ) is one of the few tech companies with a dividend policy worth talking about. Among Dow stocks, it holds the weird honor of having one of the highest dividend yields and one of the highest estimates of future growth. That discrepancy shouldn't last long. Moreover, Intel's 3.8% yield is supported by just 38% of its free cash flow. This dividend seems unreasonably high compared with the company's growth potential, yet it could be so much higher. Take advantage of that, too.

Paychex (Nasdaq: PAYX  ) processes paychecks (or did the name tip you off?) for small- and mid-sized employers. (Rival ADP (NYSE: ADP  ) handles the big boys.) Naturally, high unemployment hurts Paychex's business -- but not as much as you might think.

Since 2006, the national unemployment rate has nearly doubled. Yet Paychex's earnings per share have increased 16%, and dividends per share have doubled. Shares are down 12% over the past month, pushing the dividend yield to 4.6% -- about twice the market average. Earnings will get a nice bump if employment or interest rates rise, since Paychex earns interest on cash it holds for customers. Have patience. This high-quality company will treat long-term investors well.

Kimberly-Clark (NYSE: KMB  ) is a household giant, parent to names like Kleenex, Huggies, and Cottonelle. Now yielding 4.4%, it's one of the more attractive dividend plays among high-quality large-cap companies. Earnings are under pressure as commodity costs squeeze margins. But this shouldn't impact dividends, which have used just 55% of free cash flow in recent years, leaving room for error. A consistent and growing dividend has made Kimberly-Clark one of the best dividend stocks to own over the long run. There's little reason to think that will change in the years ahead.

Southern Company (NYSE: SO  ) could be a safe bet if you think the recent market pullback indicates something bigger than a blip. I've been writing a series of articles lately tracking the dividend-adjusted returns of several companies. To my surprise, boring utility companies' total returns usually equal the market average -- high dividends matter that much! Importantly, these companies tend to achieve a market-average return with far less volatility.  If a wi ld market has you spooked and wanting out, consider a utility stock like Southern Company. You'll score good returns without the vertigo.

Looking for more? Check out The Motley Fool's report, "13 High-Yielding Stocks to Buy Today." It's free. Just click here.                                                                         

The Motley Fool owns shares of Waste Management. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Kimberly-Clark, Southern, Intel, Paychex, Automatic Data Processing, and Waste Management, and creating a diagonal call position in Intel. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Morgan Housel owns shares of Paychex and Southern company. Follow him on Twitter @TMFHousel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (83)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 04, 2011, at 3:38 PM, DWeeB1967 wrote:

    Wrong ticker for Kimberly Clark (should be KMB).

  • Report this Comment On August 04, 2011, at 5:33 PM, steveelcpo wrote:

    I took about half a pickup truck load of left-over boards and sheet rock from a remodeling project to the Waste Management landfill this morning and discovered their "minimum fee" is now over $48. To cap it off, I discovered that there is a requirement for wearing a neon green reflective safety vest, which they conveniently sell for $10 (made in China and probably costs them about 50 cents). If you don't buy the vest, you can't get on their property. What a company!!!!

  • Report this Comment On August 04, 2011, at 7:12 PM, dmdurand wrote:

    And I thought they wern't a family busuness. Wrong again.


  • Report this Comment On August 05, 2011, at 4:01 AM, ne11y wrote:

    Maybe these are great stocks to buy - but where do you get the cash when you've been wiped out by the sell-off. The general advice is "sit it out, don't sell!" isn't it?

  • Report this Comment On August 05, 2011, at 8:05 AM, Candomaxbar wrote:

    You have to sit and wait...last time my husband sold off and lost almost 100,000. I sat on mine and when the market came back I was fine, gained back + my losses. You only lose money if you sell, you have only lost on paper......Things will turn around eventually.


  • Report this Comment On August 05, 2011, at 1:36 PM, mikecart1 wrote:

    I thought Waste Management was just a pseudo name for what the Sopranos did outside of the mob.

  • Report this Comment On August 13, 2011, at 2:48 PM, Threedollarbill wrote:

    @Candomaxbar--I agree with your advice too. Invest in the market for long term. The ups and downs are hard to predict, so don't let that bother you--tune out the media, the hype, etc, if possible. Add to your portfolio when there are dips and downs, when the market goes up, if you need to sell a company or two or take a gain, do that then. And stay diversified, and you should do ok.

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Related Tickers

10/25/2016 4:00 PM
INTC $35.10 Down -0.16 -0.45%
Intel CAPS Rating: ****
KMB $113.73 Down -0.18 -0.16%
Kimberly-Clark CAPS Rating: ****
PAYX $55.84 Down -0.33 -0.59%
Paychex CAPS Rating: ****
SO $50.97 Up +0.12 +0.24%
Southern Company CAPS Rating: ****
WM $62.74 Up +0.16 +0.26%
Waste Management CAPS Rating: *****