Regardless of how well or poorly the stock market is performing, one thing is for certain: Dividend stocks are always in style.
I've often said that dividend stocks are the foundation of a great retirement portfolio -- and for good reason. For starters, companies that pay dividends usually have a long history of profitability and a sound long-term outlook. A business that doesn't have a clear path to growth typically isn't going to pay a dividend. In other words, buying dividend stocks often means buying into high-quality, profitable companies with long histories of success.
Image source: Getty Images.
Secondly, dividend stocks can help hedge the stock market's inevitable downward swings until it turns around again. Since 1950, based on data from Yardeni Research, theS&P 500has corrected lower by at least 10% (when rounded to the nearest digit) on 35 occasions. Owning dividend stocks is a great way to help hedge against these market swoons. As an added bonus, since dividend stocks tend to attract long-term investors, they can sometimes also be far less volatile during corrections.
Lastly, dividend stocks give you the ability to take advantage of compounding over time by reinvesting your payout back into more shares. Doing so allows your ownership in a business to grow, as well as your corresponding payout. Compounding is a tactic some of the smartest money managers use to increase the value of their funds over time.
But some of the best dividend stocks can be found floating well below investors' radars. Here are three bargain bin high-yield dividend stocks you've probably been overlooking this spring.
It's been a bit of a rough decade for U.K.-based GlaxoSmithKline (NYSE: GSK), but income investors may want to strongly consider this high-yield dividend stock for their portfolios.
The big issue for GlaxoSmithKline has been the loss of patent protection on Advair, its blockbuster COPD and asthma medication, and the expectation that generic entrants would soon flood the market. Interestingly enough, years after Advair lost that protection there still aren't any generic versions of the inhalable drug on the market. This has allowed Glaxo to hang onto billions in annual sales -- Advair generated $4.47 billion in sales in 2016, but was once an $8 billion a year drug -- although it's faced significant pricing pressure on its key drug. This overhang is what's put pressure on the company's share price for years.
Image source: GlaxoSmithKline.
Now for the good news: GlaxoSmithKline has a new line of respiratory products, and while their uptake hasn't been as quick as the company would like, we're seeing more in sales from new drugs than losses in revenue from mature drugs. Both Breo Ellipta and Anoro Ellipta are getting over their early insurance speed bumps, with sales of Breo and Anoro growing to $795 million and $258 million last year. Both drugs have $1 billion-plus annual sales potential, as do Glaxo's other respiratory therapies (Arnuity and Incruse).
Beyond just COPD and asthma, GlaxoSmithKline has made itself quite the footprint in HIV maintenance therapies. The company's majority holding in ViiV Healthcare, a partnership with Pfizerand Shionogi, has allowed it to benefit from the strong sales of Tivicay and Triumeq. Triumeq sales alone jumped to $2.23 billion last year, and with no cure in sight for HIV/AIDS, ViiV and Glaxo's maintenance therapies should continue to benefit.
GlaxoSmithKline is currently paying out a 4.9% dividend yield and is valued at a reasonable 15 times Wall Street's projected profits in 2017. This has all the hallmarks of a bargain-bin high-yield dividend stock worth buying this spring.
Another bargain-bin high-yield dividend stock that's fallen on a bit of hard times lately is Detroit's own Ford (NYSE: F).
There's no two ways about it: the Blue Oval has been stuck in reverse for the better part of the past year. Its market share in the U.S. has been modestly sliding, and the company's March results showed a mammoth 21% decline in units sold in China with its joint-venture partner. In March, Ford also announced a $295 million charge tied to vehicle recalls. Meanwhile, Ford shareholders have watched as Tesla, a company currently losing millions of dollars, has surpassed Ford's market cap.
Though these aren't ideal scenarios, many of Ford's issues appear temporary, making this a potentially opportune time to scoop up its stock.
2017 Ford F-150 King Ranch. Image source: Ford.
For example, the 21% decline in March sales was attributed to the Chinese government paring back tax breaks on vehicles with smaller engines. Ford notes that despite this smaller tax breaks, vehicles with larger engines saw increased sales volumes in Q1 2017 compared to the prior-year quarter.
Additionally, China remains very much in Ford's future growth plans. The company is currently constructing a plant in China to build its premium Lincoln-brand vehicles. Once completed, the plant could begin rolling vehicles off its production line by 2019. And, since the vehicles are manufactured in China, they may be able to avoid a tariff, giving the Lincoln brand an edge. Not to mention that Ford is also beginning to build electric vehicles in China to appeal to the government's focus on greener vehicles.
Within the U.S., I'd opine the angst surrounding recalls is temporary. Ford's F-Series pickup has, for 40 years now, been the best-selling truck in the U.S., and Ford is very regularly near or at the top in most customer loyalty surveys. It also hasn't hurt that prices at the pump has been well off their highs for a few years, which has encouraged consumers to buy SUVs and trucks. Trucks and SUVs offer higher margins than sedans, so this is a long-term trade-off Ford would make any day.
Sporting a forward P/E of less than seven and a dividend yield of 5.2%, these are pedal to the metal numbers for income seekers.
If you want yet another bargain-bin high-yielding stock to consider buying this spring, L Brands (NYSE: LB), the company behind Victoria's Secret and Bath & Body Works, is worth a look.
Though it probably needn't be said, the consumer is a fickle creature and retailers do, from time to time, deal with hiccups. L Brands has mostly avoided these hiccups due to the unbelievable strength of the Victoria's Secret brand. Recently, this strength has turned into weakness. Recently reported March same-store comparisons saw Victoria's Secret sales fall 13% year-over-year. Some of the blame can be placed on the negative impact of Easter shifting into April, but the exit of swim apparel at Victoria's Secret has been a big hindrance.
Image source: L Brands.
Like Glaxo and Ford, the recent news hasn't been great, but there aren't any real long-term concerns. Same-store comps will clean up nicely once swim apparel is removed from the year-over-year comparisons, and consumers should remain as addicted as ever to brand-name merchandise.
Furthermore, L Brands has been focused on expanding its reach in China. The company has opened two stores in the considerably faster-growing country, but that amounts to 0.2% of total Victoria's Secret stores open as of March. It's going to time for these extra expenses and investments to pay off for L Brands, but it should boost the company's longer-term growth rate.
L Brands is also rethinking its approach of marketing to the consumer. Part of its ongoing restructuring includes fewer promotional mailers. While this has probably had something to do with the weaker sales at its flagship Victoria's Secret line, over the long run it'll place more emphasis and value on its core brands, probably increasing consumers' desire to own them.
Valued at 15 times Wall Street's projected 2017 EPS and paying out a healthy 4.8% yield, L Brands is a reasonably priced stock that could be nabbed off the sale rack by income seekers.
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