When a retailer has a sale, it's often celebrated with banners, signs, and commercials telling customers not to miss out on the spectacular deals. But when stocks go on sale, fear and uncertainty tend to rule the day, and retail investors often miss the best opportunities.
The big issue is trying to time the bottom of a market dip. It's nearly impossible and you're better off not trying. One strategy that does seem to help is incremental purchasing, also called dollar-cost averaging. This is generally a winning strategy for long-term investors because the market can make big swings in price over the short term, but it generally goes up in the long term.
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There were significant price drops for all the main indices in 2018 and 2020, but the market rallied back relatively quickly in each case. Will it be the same quick rally this time? It's too early to tell; however, long-term investors have the advantage. Remember, time in the market is better than timing the market. And a steady stream of dividends will help weather market storms as they blow through. With that in mind, here are three dividend-paying stocks worth considering that are available right now at sale prices.
Image source: Getty Images.
1. Starbucks
This restaurant chain titan has had a horrendous start to 2022. Starbucks (SBUX 0.10%) stock is down about 38% year to date and has retreated 42.7% from its 52-week high. The company's reliance on China for growth and growing concerns about employee unionization have scared off some investors. However, the sell-off is looking overdone, especially in light of offsetting positive developments.
NASDAQ: SBUX
Key Data Points
First, the company's founder, Howard Schultz, returned in April to take an interim CEO position, and has already made a splash. Schultz suspended the share repurchase program immediately. Share buybacks are usually great for shareholders, but not when they come at the expense of the business. The company has been accumulating debt to maintain this program instead of using the cash to invest in the future. As shown below, the increase in long-term debt has significantly increased interest expense.
Data source: Starbucks. Chart by author.
Schultz is considering increasing employee benefits and appears committed to improved relations between employees and management. The returning CEO also just purchased $10 million worth of Starbucks stock himself, showing his confidence in the company's potential.
Starbucks stock currently pays a dividend that yields 2.7%, and the stock is trading lower than it has since the pandemic crash. Patient investors can collect an attractive yield as Schultz attempts to turn the tide.
2. Microsoft
The champions get pulled down right along with the pretenders when the stock market corrects. This is the case with Microsoft (MSFT +4.64%). The stock is down about 22% year to date and about 25.2% from its 52-week high. The price-to-earnings ratio of 27 is the lowest since 2020.
NASDAQ: MSFT
Key Data Points
Meanwhile, the company performs exceptionally well and has two massive growth opportunities. Microsoft is expanding its presence in the cloud infrastructure market with Azure. Azure and other cloud services revenue were up 46% year over year in the third quarter of fiscal 2022. The company is also furthering its presence in the gaming industry with its planned blockbuster acquisition of Activision Blizzard. This will make Microsoft the third-largest gaming company on the planet. The deal is expected to close next year, provided it receives regulatory approval.
Microsoft returns gobs of capital to shareholders through dividends and share repurchases. Share repurchases are terrific vehicles to withstand market downturns. When the stock price dips, the company can repurchase even more shares, leveraging investors' gains when the market turns bullish.
Data source: Microsoft. Chart by author.
As shown above, Microsoft has returned more than $125 billion, or over 6% of the current market cap, to investors in only four years. This should give investors tremendous peace of mind even during bear markets.
3. Vici Properties
It looked pretty bad for the Las Vegas Strip and casinos nationwide just two short years ago when COVID-19 struck. Some questioned whether casinos would survive as casino revenue plummeted. But Vici Properties (VICI 0.79%) is not a casino operator. It is a triple-net lease real estate investment trust (REIT) that owns the properties in which many casinos operate. A REIT is a tax-advantaged entity that must return at least 90% of its taxable income to shareholders to qualify for the advantage.
NYSE: VICI
Key Data Points
Vici increased its revenue during 2020 and gave shareholders a dividend raise, as it has every year of its short existence. This resiliency is a desirable trait in today's market. And now, the casino entertainment market has made a roaring comeback.
Vici is currently trading about 13% off its 52-week high, and the dividend yields about 5%. The company reports that 97% of its rental agreements are subject to inflation escalators -- a must during today's macroeconomic environment. The company has completed the acquisition of MGM Growth Properties, which added 15 properties to Vici's impressive portfolio, bringing the total to 43. The dividend has increased every year since Vici was created in 2018 and the increasing adjusted funds from operations (AFFO) suggests this will continue.
The attractive dividend yield, strategic acquisition, growing dividend payout, and increasing AFFO make Vici a compelling option for dividend growth investors.
