3 Dividend Stocks to Buy in September

By Markets Fool.com

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Dividends have accounted for nearly half of the total return of the S&P 500 index over the past 30 years. Of course, a juicy dividend doesn't do you much good if you pay too high of a price and the stock tanks. It's important to find the right dividend stock, a task made more difficult by the plethora of options available. Thankfully, these three Foolish contributors have some ideas.

A beaten-down department store

Tim Green: It's been a tough year for department stores, and Kohl's (NYSE: KSS) is no exception. The retailer has been struggling with slumping comparable-store sales, reporting a 1.8% drop during its latest quarter and a 2.8% drop through the first six months of the year. But Kohl's is managing through this weakness, boosting profits by reducing costs and inventory. During the latest quarter, adjusted EPS rose 14% despite the sales decline.

Like all retailers, Kohl's faces the long-term threat of e-commerce. But the company is somewhat unique among major department stores. Kohl's operates very few of its stores within malls, saving it from the problem of weak mall traffic hurting other department stores. And the company is pushing forward with its own e-commerce initiatives. During the latest quarter, online-generated demand increased by a mid-teens percentage, according to CEO Kevin Mansell. The number of customers buying online and picking up in store, a service that online-only retailers can't offer, also increased compared to the previous quarter.

Kohl's omni-channel transformation still has a long way to go, and the difficult environment the retailer finds itself in will likely continue to pressure the company's performance. But one upside of a slumping stock price is a rising dividend yield. With Kohl's stock down 15% over the past year and down 44% since peaking in early 2015, the stock now offers a dividend yield of 4.4%. Dividend growth will likely be slow going forward, given the tough environment, but Kohl's looks like a great dividend stock for those willing to bet that the market has become overly pessimistic.

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An upscale hotel operator

Brian Feroldi:One dividend stock that should appeal to income investors isPebblebrook Hotel Trust(NYSE: PEB), a real estate investment trust that is focused on hotels. The company's business model is tobuy high-end hotels at bargain prices and then spruce them up to turn them into cash machines. Then, when the time is right, the company sells them for a tidy profit.

Pebblebrook has been running this game plan for a few years now and the company's results show that its strategy is working. Adjusted funds from operations (AFFO), which is a key metric for REIT stocks, have grown by a solid 22% annually over the last five years. Pebblebrook's dividend has grown by an equally impressive 23% over the same time period.

The company's recent results hint that there is still a long runway of growth left for the company. Last quarter AFFO jumped by a solid 12.5%, and at the same time management sold three of its properties for a healthy premium. That gives the company plenty of dry powder to acquire new hotels and keep the growth story going.

Looking ahead, management dialed back its full-year AFFO guidance a bit because of a weaker corporate demand environment than expected. It's currently calling for full-year AFFO growth of about 5%, projecting a range of $2.63 to $2.73. That values shares at just over 11 times full-year estimates, which is an attractive price for a company that is currently yielding 5% and has a history of strong growth.

A small but growing dividend

Neha Chamaria: RPM International (NYSE: RPM), a manufacturer of coatings, sealants, and specialty chemicals, caught my attention recently when it delivered strong quarterly numbers and topped it off with solid earnings guidance. Driven by acquisitions and new products, RPM's core consumer segment delivered 10% growth in sales during the last quarter. For its fiscal year 2017, RPM expects its earnings to grow 10% to 12% on mid-single-digit percentage growth in sales.

Those incremental profits should ensure greater dividends for shareholders in the near future as RPM also boasts strong cash flows. In fact, it's among the few companies that converted 100% of its net income into free cash flow during the past 12 months. That translated into a payout ratio of below 40%, which leaves ample scope for RPM to comfortably boost its dividend, even if earnings don't grow as expected next fiscal year. RPM's last dividend hike of 6% in October 2015 marked its 42nd consecutive year with a dividend increase.

A dividend yield of 2% might look small, but RPM's growth prospects are only getting brighter. Given management's focus on and recent streak of successful integration of acquisitions to bolster growth amid challenging business conditions, RPM's dividend looks poised to edge higher in the years to come and September is a tempting time to buy.

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Brian Feroldi has no position in any stocks mentioned. Neha Chamaria has no position in any stocks mentioned. Timothy Green owns shares of Kohl's. The Motley Fool recommends Pebblebrook Hotel Trust and RPM International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.