Dividend stocks can make for a wonderful part of any investor's portfolio. And while low interest rates have helped drive a lot of dividend stocks up to premium valuations, there are still solid dividend investments to be had if you're patient and know what to look for.
We asked three of our contributors to write about some of their favorite dividend ideas -- specifically, dividend stocks investors should put on their shopping lists right now. They gave us Bank of America (BAC 1.38%), with its reasonable valuation and dividend-growth prospects; chipmaker giant Intel Corporation (INTC -2.86%), with its aggressive move into what could be a trillion-dollar industry; and Federal Realty Investment Trust (FRT), which has grown its payout every year for almost five decades, while still having plenty of growth left in its future.
Shopping for great dividend stocks? Keep reading to learn why these three companies should be on your list.
Banking on dividend growth
Jason Hall (Bank of America): There are legitimate reasons to be concerned about what megabank Bank of America's (BofA) stock will do in the short term. Like most financial companies, BofA saw its shares go on a tear following the election of Donald J Trump as President of the United States, setting expectations that it would benefit from reduced regulations, lower taxes, and a more business-friendly federal government, in general. At the same time, it's expected that interest rates will rise, a belief that was recently confirmed when the Fed voted to raise overnight rates by 25 basis points.
But a lot of the thesis above is based on hopes for potential actions by the Republican administration and congressional majority, and not anything that's actually happened so far. For this reason, along with other concerns, Bank of America shares have fallen more than 10% since the beginning of March.
Yet even with the uncertainty about the potential easing of bank regulations and concerns about Bank of America's stock price falling in the short term, the company is still worth a high spot on your short list. Its shares trade for right around book value, which is cheap compared to almost every other big bank.
Furthermore, interest rates are going up, which should drive higher profits for Bank of America. This will likely allow it to increase its dividend. CEO Bryan Moynihan wrote about this, at length, as being a priority in his most recent letter to shareholders.
While BofA's dividend only yields 1.2% at current prices and payouts, this could be an excellent time to invest in future dividend growth. There are a few things to keep an eye on, but the odds seem better than even that this big bank will be able to pump up its payout going forward.
A PC giant returns to form
Travis Hoium (Intel): Tech companies tend to go in cycles, dominating one market and then missing out on the next, because they're still raking in money from the market that's being disrupted. But successful tech companies find a way to learn their lessons, and urgently enter the following market trend, returning to profitability.
This is something that's going on with Intel. The company dominated the world of PCs, but when the market shifted to mobile devices, it was caught flat-footed, with chips that didn't meet customers' demands. Management has learned some hard lessons during the last decade, but after flopping in mobile, they're determined not to miss the next trends in the cloud, Internet of Things, and autonomous vehicles.
The $15.3 billion agreement to buy Mobileye N.V. (MBLY) is an indication of Intel's seriousness in autonomous vehicles and connected devices. The deal gives Intel a front-row seat in the development of autonomous-driving technology, and will allow it to marry Mobileye's tech with Intel's data-center products. An integrated suite of products to offer to automakers and technology companies could be a winning combination, and something that would be tough for rivals to duplicate.
What I think you're seeing now is Intel becoming a technology leader for the next generation of tech devices. And that's a great position for investors shopping in the tech sector.
A track record of success
Brian Feroldi (Federal Realty Investment Trust): Real estate investment trusts, or REITs, are a fertile hunting ground for income investors, since these companies are required by law to pay out 90% of their taxable income as a dividend. One REIT that I think is deserving a spot on any income investor's watchlist is Federal Realty.
Federal Realty specializes in buying high-quality retail properties that are located in major coastal markets. The company's strategy is to own and operate properties that combine shopping, dining, living, and working in a single destination. These properties attract affluent customers, which, in turn, attract high-class tenants. That allows Federal Realty to charge a premium, which its customers are happy to pay.
This strategy clearly works, as Federal Realty has increased its dividend for 49 years in a row. That's the longest track record of increases in the entire REIT industry, and it spans multiple periods of economic turmoil. You can't do that without a business model that works.
While Federal Realty has been in operation for decades, it's still a growth company. Over the past five years, it has grown its funds from operations -- a REIT proxy for earnings -- by more than 7% annually. Between rent increases, acquisitions, and continued property development, I see no reason why it can't produce similar results on a go-forward basis. That makes Federal Realty a great stock to put on your radar.