The markets have been rallying in April and that means many dividend stocks aren't as appealing as they were even a month ago. However, there are still some underrated dividend stocks trading at attractive prices. If you're on the hunt for income-producing stocks, any of the three listed below could be good fits for your portfolio:
1. Walgreens
Walgreens Boots Alliance (WBA -1.86%) is coming off yet another solid quarterly performance of modest growth coupled with a consistent profit margin. On April 2, the company released its second-quarter results that included a 3.7% sales increase from the prior-year quarter. Its profit margin of 2.6% was in line with prior quarters as well.
While the coronavirus pandemic is shutting many businesses down, Walgreens continues to be vital for patients. And the company's looking for more ways to add value, recently announcing that its Find Care platform will now help patients connect to telehealth services. It also enables users to do a COVID-19 risk assessment. And with the pharmacy retailer offering drive-thru and delivery services to its customers, Walgreens is making it easy for its customers to practice social distancing while getting their prescriptions quickly.
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Shares of Walgreens currently trade at just 11 times earnings; in the past, it's been above 13. The healthcare stock currently pays a quarterly dividend of $0.46, which means investors can earn an annual yield of approximately 4.2% per year. That's well above the 2% yield investors can expect from an average S&P 500 stock. And investors who hang on to Walgreens' stock will likely see their payouts rise over the years as well; in July 2019, the Dividend Aristocrat raised its payouts for the 44th year in a row.
2. IBM
International Business Machines (IBM 0.48%) provides investors with a great way to diversify their portfolios by adding a dividend-paying tech stock into the mix. The company released its first-quarter results on April 20 and although its revenue was down from the prior-year period, total cloud revenue grew by 19%, jumping to 23% when factoring for the impact of foreign currency and divested businesses. Red Hat, a company it bought in 2019 to add to its hybrid cloud division, also grew its sales, which were up 20% (adjusted for currency).
As more companies do business online and remotely during the coronavirus pandemic, IBM may continue to see strong growth this year, especially in its cloud-based businesses. However, the company is not providing a forecast and withdrew its guidance for the year. CEO Arvind Krishna said on the earnings call that "these are unprecedented times, and this quarter is not the time to declare that we have clarity."
But one thing there is clarity on is the dividend. Senior VP and CFO James J. Kavanaugh stated the company is "fully committed to our dividend." Last year, the company increased its payout for the 24th year in a row. Currently, IBM pays its shareholders a quarterly dividend of $1.62. On an annual basis, that equates to a yield of 5.4%, putting it above even Walgreens' impressive payout. Like Walgreens, IBM is also trading around 11 times its earnings, which is also well off the highs of more than 15 that it reached during the past year.
3. Citigroup
Citigroup (C -0.30%) released its first-quarter results on April 15. The numbers weren't impressive, as the bank's bottom line fell by 46% from the prior-year quarter. This was mainly because the bank increased its loan-loss reserves by $4.9 billion in anticipation of some tougher economic times ahead. Revenue, however, increased by 12%, highlighting that the bank continued to do well during the quarter.
And while there is some risk ahead for Citigroup and other financial stocks heading into a possible recession, the company isn't talking about cutting or suspending its dividend. CEO Michael Corbat stated on the company's earnings call, "We feel that we've got a lot of capacity in terms of capital and things that we can do before we get near triggering any conversations around dividend." The dividend payment does not appear in danger for now. There will always be the risk that if the pandemic goes on long enough, Citigroup will have to make a change, but that's a risk facing any dividend stock these days.
Citigroup's currently trading around just six times its earnings, making the stock the cheapest buy on this list in terms of earnings. In the past year, investors were paying more than 10 times its earnings. While there's a bit more risk involved, the bank stock's still a solid long-term buy and that's why it's one that should show up on investors' radars today.
The bank's increased its dividends regularly since 2015 and investors currently earn $0.51 every quarter, for an annual yield of 4.7% per year. While its streak may not be as impressive as the other two stocks on this list, investors can still earn a great payout by holding shares of Citigroup.
Which is the best stock to buy today?
So far in 2020, all three stocks have struggled, with IBM being the only one to outperform the S&P 500:
Given the sharp drop in price, Citigroup may be one of the more alluring buys today given its potential to rebound. However, this would not be a suitable option for risk-averse investors. Both Walgreens and IBM are safer options for more conservative investors to choose from today. And with a higher yield and strong demand for cloud-based services, it's hard not to give the edge to the tech stock.
