Though the market has only risen slightly this year, with the S&P 500 up about 1% year TO date, stocks are still up significantly over longer time horizons. Over the trailing one- and three-year periods, for instance, the S&P 500 is up 12% and 28%, respectively. With stocks trading much higher than they were a few years ago, some investors may be looking to put their money in more quality, dividend-paying equities. This way, if stocks do undergo a correction, investors can at least count on some reliable cash flow from their portfolio.
Fortunately, there are still plenty of great dividend stocks trading at good prices -- even after the overall stock market's gain in recent years. Two dividend stocks worth considering are Costco (NASDAQ: COST) and JPMorgan Chase (NYSE: JPM). Here's a quick look at why both of these stocks are compelling bets for investors looking for income.
Dividend stocks don't get much better than Costco. But understanding why Costco is compelling as an income investment requires a little extra due diligence, as the company's dividend yield doesn't show the full picture.
Costco's dividend yield of 1.1% is understate, because this key metric fails to take into consideration the occasional special dividends Costco pays out. Sure, Costco's last four quarterly dividends amount to about 1.1% of Costco's current share price. But Costco paid a special dividend of $7 in May 2017 -- a dividend that more than triples Costco's trailing 12-month quarterly dividend payments of $2.07.
Of course, it's difficult to predict exact timing of Costco's special dividends, but the company has paid them out with some regularity. In 2012 and 2015, Costco paid out special dividends of $7 and $5, respectively.
Supporting Costco's dividend is
Strong and consistent growth supports Costco's dividend in the company's earnings per share, which has compounded at an average rate of about 9% over the past five years. Further, Costco's earnings growth has been even steeper recently. Earnings per share increased 21% year over year in the company's just-reported third quarter for fiscal 2018 when adjusted to exclude a one-time benefit to earnings per share in the year-ago quarter associated with Costco's special dividend.
I've long been a proponent of JPMorgan Chase's dividend. Banks, in general, have been great dividend stocks for decades. But high-quality banks like JPMorgan are particularly good dividend stocks. However, JPMorgan's dividend yield was pushed down to 1.8% earlier this year as the stock climbed higher, making the bank's dividend less attractive. But thanks to a pullback in the bank's stock recently, with shares falling 6% in the past three months, JPMorgan's dividend yield has jumped back up to an attractive level of 2.1%.
JPMorgan is also fairly attractive from a valuation standpoint. Its price-to-earnings ratio of 17 is fairly conservative for a bank with such impressive return on equity and earnings growth. JPMorgan's trailing 3-year mean for its return on equity, or its net income as a percentage of shareholders' equity, has hovered between 10% and 12% for the past five years, trending at about 11% more recently. Further, trailing 12-month earnings per share is up 17% year over year.
Sure, JPMorgan isn't as attractive of a dividend stock as it was two years ago, but it remains a well-rounded investment worth betting on for the long haul -- especially for investors looking for reliable income.
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