The Dow Jones Index has dropped about 1000 points in the past several weeks. Most of that decline has occurred since the election. Many investors were hoping that the election results would provide clarity and it has. Taxes are going to rise in 2013 due to what is likely to be the end of the Bush tax cuts. That means capital gains tax rates are likely to jump and that means many investors with gains are going to consider selling everything from stocks to entire businesses. Obamacare is now here to stay and that means about 20 new taxes will be implemented on everything from a surcharge on medical devices to a new tax on gains from the sale of a home.
It also appears likely that taxes on dividends will rise and that has put pressure on many popular dividend stocks. In short, the certainty of the election results has brought the reality of the fiscal cliff and a changing tax environment to the forefront for investors. While it might take time for the markets to digest all of the changes, it makes sense to consider some recently created buying opportunities in select dividend stocks. There is a good chance that taxes on dividends won't go as high as some expect if a fiscal cliff deal is reached, and even if the rates do rise, dividend stocks could still be poised to outperform bonds, and of course, money market and savings accounts. At the end of the day, investors will still be hungry for yield and that means these dividend stocks (both of which have experienced a significant pullback and yield more than double the S&P 500 Index yield of about 2%) are worth buying:
Vodafone Group PLC (VOD) shares were trading around $28 to $30 per share in August, September and early October, but the market correction, and concerns over the recession in Europe, have all combined to take this stock down to about $25. Vodafone is a leading provider of mobile communications services including: voice, data, Internet, and other services. It is based in the United Kingdom but it operates in other countries as well and it owns stakes in companies like Verizon (VZ), which has also seen a stock plunge from recent highs of about $47 to just around $42. Both Vodafone and Verizon shares appear oversold and could be poised for a rebound. Telecom stocks are relatively stable and once investors refocus on the fact that Vodafone has a generous dividend and rebound potential, the share price is likely to perk up.
Telecom stocks are relatively stable and once investors refocus on the
fact that Vodafone has a generous dividend and rebound potential, the
share price is likely to perk up.
Here are some key points for VOD:
Current share price: $25.56
The 52-week range is $25.41 to $30.07
Earnings estimates for 2012: $2.51 per share
Earnings estimates for 2013: $2.59 per share
Annual dividend: yields about 6%
Armour Residential REIT (ARR) shares have plunged in recent days. The stock was trading near the 52-week high in October at about $7.50 per share, but it has dropped to around $6. A perfect storm has hit this stock, which includes a sharp market drop, a sell-off in dividend stocks due to concerns about taxes, and concerns about the mortgage REIT sector. Armour is a real estate investment trust that invests in adjustable rate and fixed rate residential mortgage-backed securities that are either issued by or guaranteed by U.S. Government agencies or U.S. Government sponsored entities. This includes Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation, (Freddie Mac). This entire sector has come under pressure because the Federal Reserve's QE3 program has lowered interest rates. Low rates have caused many homeowners to refinance at lower rates thereby reducing profits for companies like Armour. It makes sense for stocks in this sector to have a correction, but it seems that the sell-off has been exaggerated since these companies can still pay very high yields in spite of mortgage refinancings. Plus, the QE3 program has lowered borrowing costs for mortgage REIT companies, which offsets some of the margin pressure. An added bonus is that this company pays dividends on a monthly basis, which creates a very regular income stream for investors.
Here are some key points for ARR:
Current share price: $6.09
The 52-week range is $6.04 to $7.98
Earnings estimates for 2012: $1.18 per share
Earnings estimates for 2013: $1.07 per share
Annual dividend: $1.08 per share which yields about 16%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.