Top 5 Dividend Stocks 2018
What Are Top 5 Dividend Stocks 2018 ?
2017 is coming to an end. I have several dividend stocks investors should think about holding onto or investing in for the coming year, below is the Top 5 Dividend Stocks 2018:
Target (TGT) is a dividend champion. The market usually gives these companies some respect for their history. However, Target traded down to $50 during summer of 2017. At the time, I was pounding out buy ratings. For instance, I told investors Target was on the clearance rack and bears were running away from a garbage narrative. Since then, TGT has rallied by a little over 20%. They also paid out another nice dividend. The pressure driving target’s share price lower came from a few key factors. The first is TGT’s reliance on apparel.
I believe many investors evaluate Target as a comparison to Wal-Mart. While both are dividend champions and both traded at similar share prices in 2016, they have huge differences. A dramatic portion of Target’s sales and earnings comes from apparel. If Target were compared to a 50-50 mix of Wal-Mart and any older apparel retailer, TGT’s performance would’ve been less disappointing. For instance, Sears (SHLD) is on the gradual road to bankruptcy. Any other ending is unlikely for SHLD.
J.C. Penney (JCP) is also struggling. JCP may have a materially better position than Sears. However, the trend of weak performance for department stores remains. Macy’s (M) has also struggled, but my wife works very hard to support the local Macy’s store by buying more clothes than I can possibly understand. Bon-Ton (BONT) is also facing severe problems. Lately, BONT has been trading around $0.40 per share. In 2013, BONT traded as high as $20 per share, give or take a little. The decline in department stores reflects a decline throughout the apparel space. This has been one of the major challenges for malls.
Target is still a very reasonable choice for dividend growth investors. It still offers a strong yield and excellent future growth. However, Target has rallied beyond the top of my current buy range for them. Consequently, I also view TGT as a hold. Dividend investors should simply look to hold onto shares and accumulate their dividend income. If they had the courage to buy over the summer, they will have locked in an exceptionally high yield on cost. At the moment, I feel investors are better served by considering a few of the stronger retail REITs. Target is not in a bad position, but there are still some clear buys with the retail REIT space.
Wal-Mart (WMT) is seeing incredible success with their online sales. Subsequently, the share price has been rewarded for the online growth. Previously, Amazon (AMZN) ruled online retail for years and some investors wondered if anyone would catch up. However, WMT is showing dominant numbers for total sales and the market is beginning to price it into shares.
I believe the most notable turning point from Wal-Mart was the acquisition of Jet.com. Part of that acquisition was bringing Marc Lore on board. Marc Lore is now the president and CEO of Wal-Mart’s e-commerce. I believe he is one of the few individuals who can challenge Jeff Bezos when it comes to the fundamentals of online retail.
I view WMT as a hold at recent prices. They were a buy when they traded at lower multiples. There is nothing wrong with future dividend growth for WMT. Investors seeking dividends should continue to hold shares and collect their income.
I’ve talked about two dividend stocks I purchased in the past but won’t at current valuations. Both companies are still great dividends stocks to hold in a portfolio. Let’s move onto some companies in the buy range.
The price on Philip Morris (PM) came down over the last several months. Investors should be focusing on the same thing PM is: IQOS. It is a huge factor in evaluating forward earnings and cash flows. I think many analysts are materially undervaluing the company’s prospects. Further, since the beginning of 2017, PM has been hammered with the strong dollar. Results, before currency exchange, are still looking great for PM. Those results have been coming despite Philip Morris investing a lot of money and infrastructure for IQOS. Yes, there are still some capital expenditures ahead. However, the research is done or in the very least seems largely done. A substantial amount of productive capacity for the IQOS devise is already online. Due to the frequency of use after purchasing the device, I expect continual ramping of sales volume on HeatSticks. IQOS is the device and HeatSticks are what consumer will be purchasing repeatedly.
IQOS represents the company improving their existing products. New products can be extremely useful, NVIDIA (NVDA) comes to mind. IQOS is not only replacing traditional smoking, but doing so in a healthier fashion. PM has internal studies showing an enormous reduction in the substances known to cause cancer in customers. While there is more work to be done, the company has very little incentive to mislead shareholders. Further, PM’s success and studies will have an impact on how IQOS does once Altria Group (MO) starts selling it domestically.
The growth in the new technology has been exceptional. PM was struggling with retailers being out-of-stock because the company couldn’t produce the product fast enough. As of Q3 2017, PM is still working on factories producing enough of their new products. That’s a good sign.
One final point on PM: their earnings. If investors are just looking at Philip Morris’ earnings, they are missing the bigger picture. PM is seeing exceptional earnings and growth before currency exchange. PM sells their products internationally and dealt with terrible exchange rates over the last few years.
Simon Property Group
Simon Property Group (SPG) is a strong REIT with a good balance sheet, great margins, high-quality leadership, solid revenue growth, solid NOI growth, solid AFFO, and an excellent dividend history. I consider SPG to be a fortress.
When valuating mall REITs, being able to sustain the dividend yield is important. How well does the AFFO cover the dividends?
SPG is the largest mall REIT and has the best scaling on its operating expenses. SPG has the best margins of any mall REIT. For the long-term buy and hold investor, SPG is my top pick for mall REITs at today’s prices. The downside risk for SPG should be materially smaller compared to peers. The share price for SPG rarely moves by as much as the sector (SPG has lower volatility).
Granite Point Mortgage Trust
Granite Point Mortgage Trust (GPMT) is interesting given the sector it’s in. Mortgage REITs on average are overvalued. GPMT is one of the few in the sector at an attractive valuation. However, their poor presentations haven’t helped their share price. The company has had a fairly solid year fundamentally. The company isn’t fully leveraged. This should be solved by next year, and there has been significant improvement. GPMT guided for a dividend raise in Q4 2017, but it would seem the market isn’t sold on the idea. The new dividend guided for a 20% increase. I also went into their leverage levels in that article and believe by the end of Q1 2018, GPMT could reach an optimal leverage level.
GPMT is materially undervalued relative to an excellent peer comparison: Blackstone Mortgage Trust (BXMT). While BXMT has a proven track record, I believe both companies will produce very similar ratios of net income on book value. However, Due to BXMT’s strong history, I wouldn’t be surprise if they command a 5% to 7% premium in valuation.
Top 5 Dividend Stocks 2018 Conclusion
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