It's Time to Get Greedy With These Dividend Stocks

Investors looking to prosper could do worse than following the advice of Berkshire Hathaway CEO Warren Buffett -- one of the most celebrated and successful investors of all time. Since 1965, the company has produced compounded annual gains of nearly 21% and increased by a mind-boggling 2,404,748%!

One of the Oracle of Omaha's most oft-quoted lines is this: "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."

From time to time, every company will go through issues, transitions, or growing pains. In times like these, investors become fearful, when perhaps they should be getting greedy. With that in mind, let's look at three dividend stocks that represent compelling opportunities: Hasbro (NASDAQ: HAS), Apple (NASDAQ: AAPL), and Starbucks (NASDAQ: SBUX).

A toymaker in turmoil

The liquidation facing retailer Toys R US has been dominating the headlines, highlighting the challenges facing the toy industry. Many investors are anticipating a doomsday scenario for companies like Hasbro, but the reality will likely be far different. For 2017, Walmart, Toys R Us, and Target were the company's three largest customers, accounting for 19%, 9%, and 9% of global sales, respectively, so Toys R Us wasn't even the company's biggest retailer.

Hasbro began making contingency plans since last year in the light of these issues. In its annual report, Hasbro said this of the situation:

"We expect the ongoing financial situation with Toys R Us, including its difficulties in the United Kingdom, will negatively impact our sales in 2018, with the greatest amount of that impact likely to be in the first half of 2018, and potentially for additional periods, based on ... how much the sales lost through Toys R Us are picked up by other retail and e-commerce channels."

Hasbro stock has fallen 10% since the Toys R Us bankruptcy announcement in September, and more than 25% since last July, pushing its yield to 3%. While it will likely take several quarters for Hasbro to realign its sales channels, kids aren't likely to stop asking for their favorite toys.

Hasbro's payout ratio may seem high at 70%, but that doesn't tell the whole story, as a charge related to recent tax reform skewed that number. Adjusting for this one-time event reveals that Hasbro is spending only 40% of profits to fund the dividend, and it just raised its quarterly payout by 11%.

Hasbro is currently trading for 27 times trailing 12-month earnings, a number that is similarly skewed. Adjusting for the one-time tax charge results in a much lower valuation of 15.

The Apple of your eye

The biggest fear faced by Apple investors is the slowing growth of the company's flagship iPhone, and those fears seemed to be confirmed with Apple's most recent financial report. Revenue grew just 13% year over year to $88.3 billion, while diluted earnings per share increased 16% to $3.89. These numbers were muted compared to previous quarters that saw the release of a major upgrade to the iPhone.

While slowing growth is a valid concern, the most recent quarterly results were skewed by 14 weeks in the year-ago quarter, compared to 13 in the current-year period. Adjusting for this additional week would have produced revenue that grew 21% year over year, and iPhone unit sales that increased 6%, rather than the reported 1% decline.

That's not the only reason to get greedy with Apple stock going forward. The company is devoting significant attention to growing other areas of its business. The services business is well on its way to achieving the company's goal of $50 billion in annual revenue by 2021, with $31.3 billion in the preceding four quarters. Additionally, its "other products" segment, which includes the Apple Watch, Apple TV, AirPods, iPod Touch, Beats products, and the HomePod, grew 36% year over year to $5.49 billion in its most recent quarter. Wearables, which combines Apple Watch, Beats, and AirPods, produced even more remarkable growth, up nearly 70% year over year.

Apple stock is a bargain right now, trading at just 14 times forward earnings estimates, and it is spending only 25% of profits to fund the payout, leaving plenty of opportunity for future increases. Many expect an announcement to this effect as early as May, which will meet or exceed that 10% increase the company has revealed in each of the last three years.

It's also worth noting that Buffett has continuously added to his Apple position over the last two years.

A steaming hot cup o' Joe

Until a couple of years ago, it seemed like Starbucks unparalleled growth would continue indefinitely. As late as 2015, the company posted domestic same-store-sales growth of 9% year over year. Investors fear those days of heady gains are gone now, with 3% comps last year, and only 2% for the first fiscal quarter of 2018.

The company is working to address the issues that resulted in slowing U.S. sales. Starbucks believes it has addressed the issue of throughput -- the inability to meet strong demand during the morning rush. And it is expanding the availability of cold beverages, as well as introducing its "mobile order and pay" app to all customers, not just those who are Rewards members.

Starbucks still has a massive untapped opportunity internationally, particularly in China. The store count in that country has more than doubled over the last three years, to 3,124 locations, and the company plans to grow that count to 5,000 by 2021. Its China market produced sales-comps growth of 7% last year, and an increase of 6% last quarter.

This year, the company still expects to open 2,300 stores globally, generate 3% to 5% same-store-sales growth, and achieve revenue increases between 9% and 11%.

Starbucks is currently trading at a P/E of about 26, a slight premium to the market, but that is at the low end of the stock's historic trading multiple. Back in November, the company raised its dividend by 20%, which currently yields just over 2%. Starbucks is currently paying out just 52% of its profits to fund the dividend, leaving plenty of room for future increases. The company also said that it has plans to return over $15 billion to shareholders over the next three years.

No guarantees

It's important to note that while these recommendations are solid companies with significant opportunities, there are no guarantees that they will ultimately succeed. That said, some investors are putting undue emphasis on the challenges these companies face, and that can present an opportunity to be greedy when others are fearful.

10 stocks we like better than StarbucksWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Starbucks wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

Danny Vena owns shares of Apple, Hasbro, and Starbucks. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Hasbro, and Starbucks. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.