If you are planning to buy income-producing stocks, now may be a bad time to pick those that have appreciated substantially in the recent period. While rising share prices indicate the market's enthusiasm about owning these stocks now, we think it is better to be fearful when others are greedy. The bond markets are pricing in another crisis and long-term Treasury yields are at record lows right now. High quality dividend stocks have seen strong investor demand as a result. We think these stocks are overbought now and prices may correct in the near future, creating better entry points later for enthusiastic long-term income investors.
The Coca-Cola Company (KO)
Coca-Cola Company is a $173.4 billion beverages manufacturer and marketer. The company pays an annual dividend of $2.04 a share, which translates into a dividend yield of 2.60%. This is the rate almost on par with that of the industry as a whole and around 60 basis points above the yield on the S&P 500. The company has paid its dividend since 1920, and has been raising dividends at an average annual rate of nearly 10% over the past ten years. Coca-Cola has a dividend payout ratio of 54%. Its current P/E is 20.3 and its forward P/E is 17.3.
Since the beginning of the year, Coca-Cola's stock has increased 10.6% and 5% over the past 20 days. The bullish momentum in the stock has driven the stock price to $77.56, close to its year-high. Warren Buffett's Berkshire Hathaway (BRK.B) had $14 billion invested in this stock.
Kimberly-Clark Corporation (KMB)
This $31.4-billion producer of paper-based products such as "Kleenex" facial tissues pays an annual dividend of $2.96, which, at the current stock price, equals to a dividend yield of 3.80%. This yield is half a percentage point above the average for the industry and 180 basis points above that on the S&P 500. The company has paid dividends since 1935. It has a dividend payout ratio of 70% and has been raising dividends at an average annual rate of 9.5% over the past decade. The stock is currently trading at $79.69, around its 52-week high, with a present P/E of 18.5 and a forward P/E of 14.4. Since the beginning of the year, Kimberly-Clark Corporation's stock has increased almost 9% and 6% over the past 20 days.
Hershey Co. (HSY)
The $15.5 billion chocolate maker pays an annual dividend of $1.52 a share, which translates into a dividend yield of 2.20%. This yield is on par with an average yield for the industry as a whole and slightly higher than that on the S&P 500. The company has paid dividends since 1930. It boasts a dividend payout ratio of 50% and has been raising dividends at an average annual rate of 9.3% over the past ten years. The stock is trading at its present P/E of 23.6 and a forward P/E of 19.5.
Hershey's stock has appreciated 13% since the beginning of the year and 9.2% over the past 20 trading days to $68.74 a share, its new 52-week high. Billionaire Jim Simons' Renaissance had $142 invested in this stock at the end of last year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.