None of us like to see our stocks go down day after day, especially when the fundamentals of the companies have not changed. Corrections and pullbacks are part of the market and they are healthy for future gains.
Dividend investors are in an envious position of accepting the fact that market fluctuations will see share prices drop and rise, but their income stream can actually benefit with the drops. Assume that with your portfolio of stocks, that you have a yearly income stream of $10,000 from your portfolio. You invest in mostly the largest mega cap blue chip stocks on the planet. When the market pulls back, the lower share prices offer the dividend investor the opportunity to actually increase their income stream by buying additional shares of stocks with solid dividends. Ask yourself if your income has dropped. If not, what has actually changed?
Those stocks now offer a higher yield just because their share prices have dropped.
3 Stocks To Consider Right Now
Bristol-Meyers (BMY): Price: $30.81/share, Dividend Yield: 4.40%, ESS Rating: Bullish
- The share price has dropped approximately 7% in 4 weeks. Correction territory, and if the stock drops another 3-5% would be a terrific bargain.
- Their pipeline of drugs in Phase II and Phase III has grown and it only takes one to add billions of dollars in revenues and enormous profits to the company coffers.
- The company missed on the top line (revenues) but beat on the bottom line (earnings) this last quarter. They are making money on less revenue, which does bode well as more products hit the market.
- A $55 billion enterprise value makes this an enormous company in the sector.
- Roughly $8 billion on operating cash offers strong flexibility for BMY to maneuver.
- 70% of all outstanding shares are currently held by institutions.
BMY has a strong history of increasing dividends, and even with a payout ratio of 124% the company generates enough cash to support current and future levels.
In the market sector is plays in, it will not take much for a "hit" drug to change the revenue, earning, and payout ratio dramatically. BMY has a proven track record in this regard.
General Electric (GE): Price: $20.06/share, Dividend Yield: 3.50%, ESS Rating: Bullish
- GE is on the path towards "dividend healing". Several years back they had to reduce dividends even though the company promised not to. Difficult times make for difficult decisions. Since that time, GE has reduced the size of its financial arm and has raised dividends regularly. I believe that this is just the start of the road back to becoming a dividend winner once again.
- A $550 billion enterprise value makes GE one of the most valuable company's on Earth. Even with their global footprint, this company can virtually do whatever it chooses, anywhere.
- Even with the weak global economy, GE had increases of 3% in revenues and 8% in earnings.
- A modest payout ratio of 52% supports the dividend now, and increases in the future.
- 70% of all outstanding shares are held by institutions as of now.
- $30 billion in operating cash gives GE enormous power.
- The share price is already in correction territory and is a bargain right now.
As you can see, GE was a dividend winner until the bottom dropped out of the market. Given their exposure to the financial sector the company did what it had to do.
As of 2009 it has once again increased dividends each year and I believe that this trend will continue for a very long time. With the current price correction of 10%, an investors cost basis is reasonable and adding this stock can offer great benefits for income growth now, and into the future.
Realty Income (O): Price: $37.50/share, Dividend Yield: 5.00%, ESS Rating: Neutral
- This is a best of breed REIT which specializes in leasing to retail chains with strong balance sheets on prime property locations.
- The dividend track record of O is phenomenal with over 510 consecutive months of dividend payments without missing one. Yes, this stock pays a monthly dividend, currently at roughly $.15/share.
- The company has a low amount of cash on hand but the cash that is generated is sufficient to continue paying the dividends.
- The fiscal cliff has no effect on the dividends paid as it is already paid to shareholders as ordinary income.
- 52% of outstanding shares are held by institutions.
- A rather high short interest ratio of about 13 could force a short squeeze as the share price recovers, which would accelerate the capital appreciation potential.
- The share price has dropped into correction territory by about 9.5% and could be bought now for both income and capital appreciation.
- An operating margin over 60% shows that this company can profit from its revenue.
The strong track record of dividend payments goes well beyond this chart. I show this chart because of the recent record of dividend increases.
A monthly income stream from a best of breed REIT in the commercial property sector is a very compelling reason to own this stock now, at a reduced shares price.
The Bottom Line
There are plenty of bargains popping up now, and a prudent investor will know why they are investing and what their goals are. A dividend seeking investor can increase income with quality stocks that have dropped in price.
Considering the stocks outlined here can offer an enhanced income stream as well as the potential for capital appreciation as the market forces return towards the positive side.