While the Fed continues to talk about hiking interest rates, it still hasn’t happened. And banks continue to pay laughable interest rates, just a fraction of a percent on savings accounts, and not more than 2% for most CDs.
Not surprisingly, investors seeking yield continue turning to stocks to try to generate greater income from their assets. Dividend stocks are among the best options for many folks to earn cash from their assets in these low-interest rate times.
We are happy to present our list of the top dividend stocks for 2016 to help investors find the right ones to help them earn yield.
Procter & Gamble. P&G is one of American’s iconic companies, founded 178 years ago. Headquartered in Cincinnati, the company has an unparalleled reach selling a vast array of products.
Among their brands, you find Crest toothpaste, Bounty paper towels, Oral-B toothbrushes, Vicks cough products, Gillette razors, Head & Shoulders shampoo, Dawn cleaning products to name just a few.
The company’s shares have fallen back pretty sharply in 2015, stressed by the strong dollar, which has hurt sales in dozens of foreign countries. The company has also recently divested close to 100 brands to focus on the core 80 or so that account for much of the company’s operations.
Based on normalized $4 per share earnings, the company is also trading under a 20 PE, a bargain compared to recent levels.
Diageo. With the holidays upon us, many people will be stocking up on spirits. For most people, that means purchases from Diageo will be in order.
Diageo is a British company that produces and sells Guinness, Johnnie Walker, Smirnoff, Ciroc, Captain Morgan, and Baileys, among other brands. It also owns a 34% stake in Hennessey. The company is, among other things, the world’s single largest producer of whisky.
Alcohol shares have traditionally been among the market’s strongest. It is the definition of a defensive industry, sales are virtually immune to economic cycles.
Diageo shares have performed strongly, but have traded largely sideways since 2012. Weakness in emerging market sales, particularly in China, have dampened investor enthusiasm for the company. However earnings are growing and the dividend is being steadily raised.
Shares yield 3.7% now and also trade at a 19 PE. For the alcohol industry, this is very cheap, normally these stocks trade at 25 PE ratios. Brown Forman, maker of Jack Daniel’s and Southern
Comfort, by comparison, trades at a rich 32 PE ratio currently and yields just over 1%; much closer to those bank CD rates that we’re trying to improve upon.
For Exxon, it’s a difficulty, but the company will come out stronger. Exxon has among the strongest balance sheets in the world, maintaining its coveted AAA credit rating. According to the S&P credit rating agency, that makes it even safer than the US government, which was downrated to AA+ a couple years ago.
Investors in Exxon are buying into a business that thinks in terms of decades, rather than quarterly results. The share price vacillates over shorter spans, but over the longer run, Exxon absorbs the volatility of energy prices and comes out more powerful.
As the cycle drags on, Exxon will wait, and once other energy producers cry uncle, Exxon will come in and buy up their assets on the cheap. The company’s vast pipeline/logistics and petrochemical manufacturing assets allow Exxon to remain significantly profitable even during these dark hours for oil and natural gas.
Exxon will continue to pay its dependable yield, now at an agreeable 3.7%, and scoop up oil and gas assets for the future at bargain prices. Five or ten years from now, when oil recovers and the cycle gets hot, you’ll still be getting that great yield on your capital and also have a large gain on the stock price additionally.