You'd think that with all this talk about negative yields in bonds and investors starved for yield, it would be hard to find high-quality dividend stocks selling at a decent price. Surprisingly, though, this isn't the case. If you look around, there are still plenty of dividend gems out there.
We asked several of our contributors to highlight a dividend stock they think investors should be looking at today. They came up with five: HCP, Inc. (NYSE:HCP), Magellan Midstream Partners LP (NYSE:MMP), The Dow Chemical Company (NYSE:DOW), Brookfield Renewable Partners LP (NYSE:BEP), and Chevron Corporation (NYSE:CVX). Here's a quick look at why each deserves a spot on your investing radar.
This healthcare REIT's yield is crushing the average S&P 500 income stock
Sean Williams (HCP): Income investors looking for an intriguing stock would probably be wise to give healthcare-based real estate investment trust HCP a closer look.
HCP has encountered a few bumps and bruises in 2016, with its HCR ManorCare skilled-nursing facilities underperforming Wall Street's expectations, and some pundits expecting interest rates to increase. Higher interest rates improves the yield investors can net from interest-bearing assets like CDs and bonds, which can in turn make dividend stocks appear less attractive and a bit riskier.
However, HCP has made some intriguing moves that should shore up its balance sheet by reducing its leverage, and it's now focused on aspects of its business that provide the best growth opportunities. As noted in the company's recently released third-quarter report, it's spun off its HCR ManorCare business into a separate publicly traded entity, and it entered into a definitive agreement to sell 64 communities to Brookdale Senior Living (NYSE:BKD) for $1.125 billion. This sale should allow HCP to make a good dent in its outstanding debt. It ended the quarter with $1.37 billion used in its line of credit and $8.23 billion in unsecured notes.
More importantly, the long-term metrics of America's aging population are working in HCP's favor. According to the U.S. Census Bureau, the 43.1 million elderly American population in 2012 is expected to swell to 83.7 million by 2050. This suggests that people are living longer lives than ever before and thus will be reliant on life-science companies to keep them active and healthy. As such, we're likely to see continued investment in drug and device research, which bodes well for HCP, a company that leases out life-science buildings over the long term. HCP should have strong lease pricing power from its medical office buildings, too.
Based on HCP's latest quarterly dividend of $0.37, the company is slated to pay out almost 5% over the next year. At more than double the yield of the S&P 500, it's probably worth a look.
A master limited partnership with unprecedented stability
Tyler Crowe (Magellan Midstream Partners): One of the big knocks on master limited partnerships over the past year or so is their propensity to carry huge debt loads, focus too much on growth for growth's sake and manage their cash balances as though business can only go up. This approach, unsurprisingly, led to some pretty epic stock-price crashes and slashed distributions. One partnership that has bucked that trend has been Magellan Midstream Partners.
Part of the reason Magellan has been able to continue to slowly but steadily raise its payout to investors is inherent to its business model. The company's largest income generator -- its refined petroleum product pipeline network -- is in large part regulated because of a lack of competition in many of its markets. This means the company gets to raise prices at a fixed, regulated rate. Also, since its pipeline network delivers fuel from refineries to wholesale distribution terminals, there is much less risk from lower volumes. After all, consumption of gasoline and diesel is pretty consistent.
On top of those advantages, Magellan's management team has been much more prudent when it comes to balancing growth, investor payouts, and financial discipline. Its investment-grade rating and net debt-to-EBITDA ratio of 3.9 makes it one of the more conservative balance sheets in the pipeline and midstream businesses, which translates to less cash to interest expense and more toward its payout to investors. With a distribution yield of 5% today and a long-standing streak of increasing its payout, Magellan should be on your dividend shopping list.
This one's a boring but attractive dividend stock
Neha Chamaria (Dow Chemical): When it comes to dividends, I love diversified companies. It's even better if the company is a leader in the industry, with a strong track record of delivering value to shareholders. Dow Chemical is one such dividend stock worth watching.
Don't go by its name, for Dow is a lot more than just chemicals. Its portfolio of five business segments caters to nearly every key industry, including but not limited to agriculture, infrastructure, electronics, consumer goods, energy, and automotive. This diversity, coupled with management's intent focus on high-margin businesses, has helped Dow nearly triple its net income and grow its free cash flow by almost 60% in the past five years. Not surprisingly, Dow's dividend has doubled since 2010. And don't forget that the company has paid a dividend every year for nearly a century now.
Unlike some analysts who believe Dow's fortunes now hang on its impending merger with DuPont, I think the company has already proved its capabilities and enjoys strong growth catalysts going forward. Dow's ongoing project at Sadara to set up the world's largest petrochemical facility is one such example. In other words, even if the merger falls through, I believe Dow has what it takes to grow its earnings and dividend at a decent clip for years to come. Just last month, Dow reported its 16th consecutive quarter of year-over-year growth in operating earnings and margins, proving management efficiency. With the stock trading at less than half its five-year average and industry P/E and yielding 3.5% in dividends, I think it's a great time to add Dow to your shopping list.
A powerful yield with clear future growth
Matt DiLallo (Brookfield Renewable Partners): Brookfield Renewable Partners currently sits at the top of my personal dividend stock shopping list. Here are the two reasons the hydro and wind power operator will probably be the next dividend stock I buy.
First, it pays a very lucrative distribution, which yields 5.9% at the moment. Supporting that payout is the cash flow from long-term, inflation-linked contracts and an investment-grade balance sheet. That financial security gives me pretty good confidence in the stability of the payout.
Second, Brookfield Renewable Partners has visible growth on the horizon. The renewable-power operator currently has a large internal development pipeline, which it believes can generate 5% to 9% compound annual cash flow growth. For example, the company is currently developing hydro and biomass plants in Brazil and two wind projects in Ireland that it will complete over the next two years. These organic growth projects are driving the company's forecast that it can deliver similar 5% to 9% annual increases in its already compelling payout. Further, the company plans to invest $500 million to $600 million each year on acquisitions, which will deliver incremental cash flow. To that end, it recently increased its stake in a hydro company in Colombia and bought a wind-development project in Ireland.
With a strongly supported current yield and clear growth opportunities on the horizon, Brookfield Renewable Partners is definitely a dividend stock investors will want to put on their shopping list.
Make your portfolio a bit more energetic
Dan Caplinger (Chevron): Being a Dividend Aristocrat demonstrates that a stock has delivered dividend growth for a quarter-century or longer, and energy giant Chevron put to rest any concerns that it might drop of the list by making a dividend increase last month. The $0.01 boost to $1.08 per share on a quarterly basis didn't exactly blow the roof off investor expectations, but given how difficult the energy market has been lately, even the token increase that extended Chevron's streak to 29 years of higher annual dividends was somewhat encouraging.
Going forward, Chevron expects to cut back on its spending in 2017 and 2018 in an effort to bring its cash expenditures in line with its incoming cash flow. That will be a dramatic shift from recent years, in which spending on massive projects like the Gorgon and Wheatstone liquefied natural gas projects has been immense. When expenses fall, it should free up more money, some of which could go toward further dividend growth in the future. Some have noted that reducing spending could hurt production in the longer-term future, but Chevron has some other interesting projects it can turn to for further growth. Especially for dividend investors who think oil will rebound, Chevron's 4% yield and growth prospects are extremely attractive right now.
Dan Caplinger has no position in any stocks mentioned. Matt DiLallo has no position in any stocks mentioned. Neha Chamaria has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Tyler Crowe owns shares of HCP and Magellan Midstream Partners. The Motley Fool recommends Chevron and Magellan Midstream Partners. Try any of our Foolish newsletter services free for 30 days.