The stock market has been flirting with 17,000 for the majority of 2014, but it has yet to break out significantly above this resistance. While the market sits flat, many analysts believe that the market is about to turn over into significant pullback. I happen to be one of those people, and I believe that the coming correction is far overdue.
When bull markets end, money often pours into dividend stocks. I prefer dividend paying stocks over growth stocks, anyway, but right before a market correction is an ideal time to buy. Why? Because if you pick up dividend stocks before money transfers into them from growth stocks, then you lock in high yields and also capture the upside.
As I share in my monthly income reports, I own (long) all of these stocks, and I hold dividend income as a significant part of my portfolio. In fact, that’s why I hope that the market corrects, because then more companies will be available at a discount. You can learn my entire investment strategy in this video.
Whether the market goes up, down, or stays flat, here are three dividend paying stocks that you should own right now:
#3: UHT – Universal Health Realty Income Trust
UHT is a Real Estate Investment Trust (learn about REITs here) that specializes in health care facilities. It’s no surprise that health care costs are on the rise, so this is a sector that has long-term staying power.
Although I prefer cash flow over growth, UHT has enjoyed a strong growth trend in addition to its attractive dividend history. In the last five years, UHT has gone up about 50%. That’s strong in any market, but it is especially strong for an income producing stock. It also factors in a major recent pullback that make UHT a great play right now (before the pullback, the stock was up 200% from five years ago, making now a great entry point).
Why now? There are two factors that make UHT an attractive play right now. First, it has grown steadily on the heels of the major pullback. From April 2013 to August 2013, UHT tumbled a whopping 33%. That was bad news if you owned UHT at the time, but its value has held strong in the past year, increasing 10% in the last year. Investors getting into the game now can enjoy the low price while capitalizing on the inflated dividend.
The inflated dividend, of course, is the second strong indicator behind this stock. UHT boasts a very attractive 5.87% dividend. Even more impressive is that UHT has increased its dividend every year for the past twenty-five years. You read that right – twenty-five years of consistent dividend increases. That means that even in times of difficulty (like 2013 for UHT), the income on the stock continued to climb.
The one concern about UHT is that it’s P/E gap is high, at approximately 40, suggesting that it may be overvalued. Then again, Facebook’s P/E gap is 81, and Netflix is 130, so there are plenty of even more overvalued companies that continue to grow in this market. If UHT falls in value, then I’ll just buy more.
#2: TGT – Target
Target’s dividend is a modest 3.4%, but it is an opportune time to grab Target at a discount. In the last ten years, Target has raised its dividend a whopping 750%, from .07 per share to .52 per share. Even more, they’ve continued to raise their dividend every year since before the year 2000, with that trend likely to continue.
Why now? A stock that raises its dividend as consistently and aggressively as Target is a good buy at any time, but it’s especially attractive now. Since the credit card debacle that caused Target to drop 25% from its high, Target’s dividend is a healthy yield at 3.4%. Expect that yield to go up over the years, since Target has a history of increasing it’s dividend every year. In fact, it has increased its dividend a startling 20% per year since 2010.
Furthermore, Target has bounced nicely since it’s low, increasing almost 10%, and a company with this staying power is likely to continue to trend up. It’s P/E gap is a healthy 20, meaning it has some natural room to go up in value. Target’s five year trend confirms this suspicion, especially when you factor in the pull back resulting from the Visa fiasco.
#1: AGNC – American Capital Agency Group
AGNC is another REIT, and it specializes in mortgages. It’s been my favorite REIT for years (disclaimer: it’s also holds the largest percentage of my portfolio).
I like AGNC for one reason: its dividend income is astronomical. The current yield of 11.34% is actually low by historical standards, and it should go up when the next dividend is announced. AGNC adjusts its dividends according to the stock price, and AGNC strong growth over the last year warrants a likely dividend increase.
Why now? Although AGNC has increased 25% since in 2014, it’s overall price is still low by historical standards. The stock got hit hard in 2013 due to the fear of rising interest rates, and it lost approximately one-third of it’s total value. That makes now a very good buying opportunity. As the stock goes up in line with its historical averages, so will its dividend.
When buying dividend paying stocks, I look for a few factors:
1) pullback opportunities, so that I catch the inflated dividend yield
2) long-term growth trends
3) a history of increasing dividend yields.
Each of these companies has all three of these criteria, earning the title of my three favorite dividend plays right now.
Curious how I invest my money for long term cash flow and wealth? Watch the Financial Freedom Formula video to discover how it’s done.