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2 Dividend Stocks to Buy on Sale

By Daniel Sparks – Mar 30, 2016 at 5:45PM

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Trading well below their 52-week highs, these two stocks stand out as good choices for investors looking for a growing stream of income.

Dividend stocks are a great tool for investors looking for income. The tough job investors have, however, is sifting through dividend-paying stocks for the ones that offer the best value. To this end, here are a two ideas that might be worth a closer look: Apple (AAPL -0.60%) and JPMorgan Chase (JPM -2.51%).

Apple store. Image source: Apple.

With a 2% dividend yield, Apple has the lower dividend of the two. But, despite its unimpressive dividend yield, Apple deserves a closer look.

What stands out most about Apple as a dividend stock is the dividend's growth prospects. Paying out just about 22% of its earnings in dividends, the company's dividend has plenty of room for growth ahead. Indeed, Apple has promised to increase it every year.

Since Apple's dividend was initiated in 2012, it has increased at a rate of about 11% annually, on average. Going forward, there's no reason the tech titan couldn't maintain this average growth rate. If this scenario were to play out, Apple's annual dividend in five years would be about 68% higher than it is today.

As for the value in the stock itself, Apple is a steal. With a price-to-earnings ratio of just 12, this market leader isn't properly priced to reflect its powerful brand and loyal customer base.

As Apple has done in the past, management plans to announce a dividend increase when it reports fiscal second-quarter results in April. The report is scheduled for April 25. 

JPMorgan Chase
This bank stock's dividend yield of 3% is bigger than Apple's, but still not the sort of yield that would have dividend investors jumping out of their seats. So, what really makes JPMorgan stand out as a great dividend stock?

Image source: JPMorgan Chase. 

JPMorgan's strength as a dividend stock is its well-roundedness. For instance, not only is its 3% dividend yield decent, but its payout ratio, or its dividend payout as a percentage of earnings, is still low at about 29%. Not only does this fairly low payout ratio leave plenty of room for dividend stability if earnings take a hit, but it's also low enough to enable further increases ahead. Indeed, JPMorgan has increased its dividend every year over the past five years after briefly pausing it during the recession.

In a post-recession environment, JPMorgan has been a standard setter in beefing up its balance sheet, making the company's dividend more reliable than some other banks. Indeed, not all major banks were even approved to increase their dividend in 2015. But JPMorgan passed the Federal Reserve's annual bank stress test with flying colors.

With JPMorgan's stock down 9.5% year to date at the time of this writing, now is particularly a good time to consider buying this stock. The bank trades slightly below book value -- levels unheard of before the 2008 recession.

Neither Apple nor JPMorgan may boast a meaty dividend yield. But their durability and valuation make up for what their yields lack.

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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