Although trying to time the market is usually a useless venture, historically September has been the unkindest month of all for investors in the broad-based S&P 500, with an average return of minus 1% between 1928 and 2015. October, though up an average of 0.4% between 1928 and 2014, is also among the most volatile, with the average downswing equating to a drop of 4.7%, the second-worst behind September.
Why am I drowning you in fun but generally useless market-timing facts? Because it's the perfect segue to discuss the stock market's most timeless investments: high-quality dividend stocks.
The market's top dividend stocks aren't immune to stock market downturns, but history shows that over time dividend-paying stocks tend to vastly outperform companies that don't pay dividends. The reason for this is dividend-paying companies act like a beacon for investors, notifying them that a company's business model is sound enough to share a percentage of its profits with investors. In turn, this dividend can help modestly buffer your potential downside during a stock market correction, and it can be used to compound your wealth via dividend reinvestment.
With this in mind, let's have a look at some of the top dividend stocks that you can consider buying in October. As always, please consider these as suggestions for you to begin your own research rather than concrete assessments that these stocks will head higher.
General Motors (NYSE:GM)
What's the one thing that could put GM's 30-million plus auto recalls cleanly in the rearview mirror? How about a scandal involving Volkswagen.
Sometimes one company's pain is the gain of another. In this instance the loss of consumer trust stemming from Volkswagen's stunning admission that it "cheated" on diesel engine emissions tests by using software designed to subvert the tests could be just enough for shareholders to hit the gas on GM again. It's also worth noting that bad PR in the auto industry rarely lasts more than a few quarters, so GM's brand image with consumers was likely due to stabilize in the near-term anyway.
Beyond just benefiting from Volkswagen's miscues, GM has other factors working in its favor. After waiting more than a half decade to redesign its GMC Sierra and Chevrolet Silverado, the 2014 debuts of both vehicles have led to a surge in sales. After tallying 480,414 Silverados sold in the U.S. in 2013, and 184,389 Sierras, the Silverado looks to be on pace to eclipse 550,000 sales in 2015, and the Sierra could make a run at 225,000 vehicles. Updated aesthetics, improved durability, and better fuel mileage are key reasons why GM's trucks are selling better.
As long as we remain in a low lending rate environment, which makes vehicles more affordable, and crude oil stays near multi-year lows, keeping prices at the pump down, GM and its forward P/E of six and dividend yield of nearly 5% are probably going to remain quite the attraction.
Rising healthcare costs got your down? Let a healthcare real estate investment trust cheer you right up! HCP is a REIT that invests in and leases out buildings in the healthcare field, including hospitals, skilled nursing and long-term care facilities, life science and biotech research office buildings, and even senior housing.
Think about this for a moment: we have an aging U.S. population that's living longer than ever, and healthcare spending is expected to reaccelerate to a growth rate of 5.8% per year between now and 2024. That represents a major money-making opportunity for all facets of the healthcare sector, from drug developers to senior housing businesses. And what better way to take advantage of this push for extra spending than to build a real estate portfolio filled with these assets?
Furthermore, the Federal Reserve's continued accommodative stance on interest rates appears poised to ease the pain of top dividend stocks like HCP. Although I believe it's a bad move for traders, as lending rates rise it's commonplace for income investors to abandon dividend-paying stocks in favor of safer growth prospects, such as CDs or bonds. With the Fed likely targeting only a 2% federal funds rate, and potentially taking years to get there, I doubt that high-yield REITs like HCP will be cast to the backburner anytime soon.
Consider HCP and its nearly 6% yield among your top dividend stocks to consider for October.
Another strong candidate to put extra money in your pocket is payroll processing provider Paychex (say that three times fast, I dare you!).
I suspect there are two big catalysts headed Paychex's way that could wind up benefiting its business in a big way. First, the U.S. economy has been on a six-year long rebound, resulting in the lowest unemployment rate (5.1% in August) since April 2008, when the U.S. could even claim a 5% unemployment rate. More working Americans, be it part-time or full-time, means more payrolls processed for Paychex. In the company's most recent quarterly report, it recorded an 8% year-over-year revenue jump and a 10% rise in EPS, so you could certainly suggest it's firing on all cylinders.
The other catalyst is that an eventual rising rate environment is going to be a nice benefit for payroll processing services like Paychex. The businesses that Paychex services often transfer the funds to cover employee paychecks days or weeks in advance of payday. Paychex doesn't just twiddle its thumbs, so to speak, with this cash -- it actively invests this lump sum in safe, short-term, fixed income investment tools and securities that allow it to boost its net income. Even if the Fed only boosts rates by 1.5% to 2% over the next three years, it could make a substantial difference in Paychex's interest-based investment income.
Currently yielding 3.6%, Paychex is a top dividend that I'd encourage you to consider for October.