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Investing in stocks that pay dividends can be agreat way to build wealth over time, as companies that regularly dish out cash payments to their investors tend to outperform the market over the long-term. However, investors can't just pick any dividend paying company and expect to do well, as many other factors like the companies growthprospects balance sheet, and valuation also needto be factored in to the equation.
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Knowing that, we asked a team of Motley Fool contributors to share a dividend paying stock that they think is a great buy in the month of November. Read their suggestions below and judge for yourself if you agree with their assessments.
Dan Caplinger: One key aspect of a successful dividend stock is a consistent track record of raising its quarterly payouts on a regular basis. ForAutomatic Data Processing, such increases have become a good habit, with the company sporting a 40-year streak of consecutive annual boosts to its payout.
Traditionally, ADP implements its dividend increases during November, with last year's boost coming mid-month. The current yield of 2.4% is just above the rate of the average stock, but when you consider the long-term growth trajectory of the dividend, it makes ADP shares more attractive to those who are seeking greater portfolio income.
At the same time, ADP has fundamental strength in the current macroeconomic environment. When job growth is strong and unemployment levels are low, ADP benefits from more of its enterprise clients coming to it for payroll and human-resources help, and those favorable trends tend to show up in its bottom-line results. In its most recent report, ADP's employer-services business saw 7% sales growth on a currency-adjusted basis, with U.S. client payroll counts rising 2.3% and helping to support the segment's results. When you consider growth potential and solid income, ADP deserves a closer look from income investors.
Brian Feroldi: At first glance, you may think its odd for me to suggest that a biotech stock would be a great place to find a strong dividend payer, but I think investors have just that with Gilead Sciences today. The company only recently started paying a dividend earlier this year, its value price has its shares currently yielding 1.5%, and I think the odds are good that its yield will grow quickly over time.
Gilead has been growing like gang-busters over the past few years thanks to its dominance in treating two diseases, HIV and Hepatitis C. The company currently sells several drugs in each disease state, but the company's recent fantastic growth is owed largely its two Hepatitis C drugs,Harvoni and Sovaldi, that combined have brought in more than $14 billion in revenue in the first 9 months of this year alone.
Gilead also is looking to extend its lead in Hepatitis C, as it recently submitted a new drug for approval that has the potential to treat all 6 genotypes of the disease with a single, one daily pill, which is something that neither Harvoni or Sovaldi can currently claim.
Looking ahead, the company has a huge $15 billion share repurchase authorized, and with a balance sheet that boasts more than $23 billion in cash, odds are good that the company will raise its dividend substantially in the coming months and years.
And yet, despite everything that Gilead has going for it, shares are currently trading hands for only 10 times trailing earnings despite the fact that analysts are projecting profit growth of more than 16% annually over the next 5 years. I think thats a terrific bargain, and investors who are looking for yield and growth should give this company a look.
Matt Frankel:One dividend stock I'm considering for November isEquity Residential, a real estate investment trust focused on upscale apartment properties, which pays a 2.85% dividend yield as of this writing.
There are a few reasons I like Equity. First, Equity is a leader in its specialty. The company owns 388 properties consisting of more than 108,000 apartments, and has another 6,000 units under development. Equity has the highest credit ratings in its sector, which gives it access to abundant capital to take advantage of opportunities.
Second, the company has a strong history of good strategic management decisions, the latest of which involves selling $5.4 billion of the property portfolio and exiting the Denver and South Florida markets, which Equity's management feels no longer fit into the company's vision. Now, the company focuses on six key markets (New York, Boston, Washington, D.C., Seattle, San Francisco, and Southern California). All of these are high-growth markets with high barriers to entry, and as a result, rental demand is expected to grow faster than supply.
Finally, demographics are favorable for the apartment market in general. Equity estimates that 8.3 million new households will be created in the U.S. between now and 2019, and that 60-70% of these households will be renters. When combined with the lowest homeownership rate since 1967, it's looking like a good time to be in the apartment business.
Selena Maranjian: Fertilizer producerPotash Corp. of Saskatchewan is a particularly appealing dividend payer, with a recent yield of about 7%. The stock has fallen by about a third over the past year and has been struggling for longer than that, dealing with low prices for potash and the breakup of Russian potash cartels that had been keeping prices up.
There's a lot to like about PotashCorp, though. For one thing, it has fallen so far that it's now trading at an appealing price, with recent and forward-looking price-to-earnings ratios near 12, well below the five-year average of about 20. Its long-term prospects are good, too, since fertilizer is rather necessary for agriculture, and our planet's population keeps growing, adding more mouths to feed.
Based in Saskatchewan, the company has access to a lot of potash, giving it the advantage of being a low-cost producer, and its nitrogen and phosphates business serves to stabilize profits, as it can offset losses in potash when they occur. In addition, the company is winding down a multi-billion-dollar capital spending campaign that should position it for further growth and that will likely boost free cash flow.
PotashCorp's dividend isn't perfect. Shrinking income in recent years has driven up its payout ratio, and the company carries substantial debt, which can reduce its ability or willingness to hike its payouts significantly. Still, companies will go to great lengths to avoid cutting their dividend, and PotashCorp's current one offers a hefty yield these days. The stock is likely to reward long-term believers.
Sean Williams: If you're on the hunt for income stocks with a solid history of growth, considering looking no further than spices, seasonings, and condiments producer and distributorMcCormick & Co..
McCormick & Co. has a history of raising its dividend payment in November, and we could be looking at the 30th consecutive years it's boosted its payout this November. After paying out $1.60 in dividends over the prior four quarters, a boost seems probable with $3.75 in EPS forecast by Wall Street in 2016.
Despite trading near an all-time high, McCormick offers something that nearly all income investors seek: growth stability in any economic environment. Even if the U.S. enters a recession, which is inevitable at some point in the future, consumers' buying habits for condiments and spices aren't likely to see much change. In fact, eating out less could, in theory, boost McCormick's sales. Thus, McCormick finds itself insulated against significant downside since its business model can transcend what most cyclical stocks deal with. This also gives McCormick substantial pricing power to ensure its top-line continues to grow, even in the face of potentially weakened demand.
Aside from being a consumer staple, McCormick also has bountiful avenues to grow. Three recent acquisitions and its push into Asia and the Middle East should provide a footprint for the company to grow by the mid-to-high single-digits in the near to intermediate term. Though not cheap by traditional fundamental metrics, McCormick is akin to the tortoise: it's slow and steady, but it will cross the finish line for you.
The article 5 Best Dividend Stocks To Buy In November originally appeared on Fool.com.
Brian Feroldi owns shares of Gilead Sciences. Dan Caplinger has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Selena Maranjian owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Automatic Data Processing and McCormick. 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.
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