Dividends are perhaps the best way to add an income stream to your portfolio, but not all dividend-paying stocks make great investments. Because the world of income stocks can be tough to navigate, we asked five of our contributors to share their favorite dividend stocks for August.
Here's what they had to say.
With interest rates finally poised to start heading higher, it's no surprise to see investors selling dividend-paying stocks en masse. Many of my favorite high-yielding dividend stocks have been hit hard recently, making now a great time for long-term investors to add a little bit of income to their portfolios.
One small-cap stock I like a lot right now is Seaspan Corporation ( ATCO 2.04% ), one of the largest containership owners in the world. Seaspan's business model is easy enough to understand: The company buys huge containerships and then leases them out on long-term, fixed-rate charters. These contracts give the company tremendous revenue and profit visibility, and because the company currently has 23 new-build ships on order to be added to its fleet in the coming years, revenue and profit should continue to move higher.
The company's stock has fallen hard over the last year due to concerns of a slowdown in China and a rise in interest rates, and the generous dividend policy has the stock currently yielding 8.2%. You may think that yield is simply too high to be sustainable, but the company has more than enough net income flowing in to cover the dividend.
Seaspan's financial statements can be a little bit challenging to understand, as the company's use of financial derivatives obscures reported earnings, but when you look beyond the headlines, you see a dividend that is very sustainable. Better yet, because the company has a "progressive dividend policy," as revenue and profits grow, so should the dividend. That makes now a great time to give this beaten-down, high-yielding stock a look.
The need to feed the world has only grown over time as populations increase and arable land gets used for development. PotashCorp ( POT ) produces potash, phosphate, and nitrogen-based fertilizers to help farmers enhance crop yields, and its stock pays an attractive dividend that currently produces a yield of 5.5%.
Part of the opportunity for PotashCorp investors comes from the fact that the stock has been depressed for several years now. Crop prices have come down from past record levels, hurting demand from the agricultural community. At the same time, changing relationships among global suppliers, especially in the former Soviet Union, have disrupted supply management in the potash market and helped contribute to even lower prices, hurting short-term profits.
In the long run, though, PotashCorp has the demographic trends toward greater food demand in its favor. With the stock currently suffering a typical cyclical downturn, income investors have an opportunity to buy shares at a relatively low price and lock in an attractive dividend yield. Moreover, PotashCorp is considering a sizable acquisition that would only expand its presence in the global market. Put all of these things together, and now's a good time for dividend investors to take a closer look at PotashCorp.
One dividend stock on my radar for August is ExxonMobil ( XOM 1.12% ), which just reported less-than-stellar earnings. Not only did the company miss expectations, but its earnings were its lowest in three years.
And yet, despite the negative headlines, there are reasons to be optimistic about ExxonMobil's future. First, Exxon's production actually increased by 3.6%, and liquid production increased by an even more impressive 11.8% year over year. This doesn't mean much when oil prices are at multiyear lows, but it could put the company in a strong position to capitalize once prices do recover.
Secondly, Exxon has exposure to all areas of the oil business, and a few of its operations (such as refining and chemicals) actually benefit from low crude oil prices. Further, ExxonMobil has the cash and credit to capitalize on the weak times. The company raised $8 billion in March, and there is speculation that it may try to acquire some of its smaller, weaker peers at a discounted price. During tough times, strong companies have the opportunity to get even stronger, as we saw in the financial sector in 2008.
Finally, perhaps the most compelling reason to buy ExxonMobil is that it's cheap. Shares have lost 20% of their value over the past year, and the dividend yield has swelled to 3.7%. ExxonMobil has a 32-year history of consecutive annual dividend increases, even during tough times. In fact, the company increased its dividend by 7% in 2009, even though its earnings fell by 55% from the year before.
With Exxon at its lowest price-to-book valuation in over 20 years, now may be a great time to buy this sector leader at a great price.
Ford just last week announced its second-quarter earnings results and absolutely trounced Wall Street's tepid estimates. It wasn't hard to be skeptical about Ford's results, considering the weakness in Europe, slowing growth prospects for China's economy, and Ford's lowering its profit forecasts last year as it beefed up its marketing campaign. However, Ford's focus on innovation and the in-cabin experience for drivers appears to be paying off.
For the quarter, Ford delivered essentially flat year-over-year revenue but grew its adjusted EPS by 17% to $0.47 -- a clean $0.10 per share ahead of analyst expectations. The company's global market share continued to expand as well, rising 0.1% to 7.6% as of Q2 2015, with 12 of 16 planned auto launches completed per its report. Most importantly, Ford stuck by its full-year profit guidance of $8.5 billion to $9.5 billion this time around, thanks in large part to continued strength in the F-150 following its redesign and surprising strength in its European commercial business.
Overall, Ford is very capable of delivering $2 in EPS as soon as 2017. For investors, it means the opportunity to buy a company that currently trades at less than eight times its projected 2017 EPS and yields 4.2%. You'll have a hard time finding a company trading at a deeper discount with such an impressive yield.
Visa's current yield may be lower than the 2%-3% offered by many other dividend stocks, but the credit card titan has grown its dividend by 45% in just the last two years. In addition, whatever Visa lacks in current payout, it has more than made up for in share price appreciation: Its stock is up more than 60% during that time.
Most importantly, Visa is poised to deliver many more years of steadily rising dividends and capital appreciation to its shareholders. As the largest credit card payment network, spanning more than 200 countries and territories, the company is in an excellent position to profit from the massive global shift toward electronic payments and away from cash transactions. Visa's tremendous scale advantages, powerful network effects, and trusted brand combine to form a wide protective moat around Visa's ever-rising cash flow.
Management remains committed to passing this cash flow on to investors in the form of stock repurchases and increased dividends in the years ahead, making now a great time to consider picking up some shares of Visa.