With the stock market trading in a tight range and most indicators telling us equities are wildly overvalued, it might be a good idea for investors to look at these top dividend-paying stocks in April that have a long history of providing capital appreciation and consistent annual dividend growth.
Balancing Risk and Reward with Top Dividend-Paying Stocks in April
With the S&P 500, Dow Jones Industrial Average, and other indices trading at or near record levels, it remains difficult for investors to locate undervalued stocks. This is especially true when you consider that the stock market, according to the CAPE ratio of the S&P 500, is overvalued by 66%. (Source: Yale University web site, last accessed April 9, 2015.)
The ratio currently stands tall at 26.8. That means that for every $1.00 of earnings a company makes, investors are willing to pay $26.80. To put that into context, the only times that ratio was higher was in 1929 and 2000.
To succeed in this kind of stock market, investors need to know how to balance risk and reward. Too much risk can leave you vulnerable to downturns. At the same time, too little risk means missing out on any moves to the upside.
What investor doesn’t like a stock that puts up consistent quarterly growth? Consistent annual increases in dividend growth can help investors stomach the cyclical ups and downs of the stock market.
You might think you want a stock that provides a dividend of 15%. But remember, dividends come with a risk/reward payout as well; the higher the risk, the greater the dividend reward.
To balance your portfolio, look for stocks that trade with the economy. For example, if you think the U.S. economy is moving in the right direction, look for consumer discretionary stocks (restaurants, furniture, automotive). If you think the economy is going to face headwinds, look at defensive plays—the stocks of those companies that make products that we use every day and can’t go without (toothpaste, soap, shampoo, cigarettes, etc.).
Top Dividend-Paying Stocks to Watch for April
Colgate-Palmolive Company (NYSE/CL)
Colgate-Palmolive Company is a $17.4-billion consumer products company with operations in 70-plus countries, selling its products in more than 200 countries and territories throughout the world.
Aside from Colgate and Palmolive, some of its most popular brands include “Speed Stick,” “Lady Speed Stick,” “Irish Spring,” “Tom’s of Maine,” and “Ajax,” as well as “Hill’s Science Diet,” “Hill’s Prescription Diet,” and “Hill’s Ideal Balance.”
Colgate-Palmolive is a great stock for income-starved investors, rewarding them with strong capital appreciation, dividend growth, and stock splits. It has provided dividends for more than 100 years and has increased its annual dividend yield for 52 consecutive years. The company currently provides investors with an annual dividend of 2.17% or $1.52 per share.
Since 2008, Colgate-Palmolive’s annual dividend has increased 82% from $0.78 per share to $1.42 per share in 2014. The company has a history of increasing its dividend payout in the second quarter.
Since 2008, the company’s share price has climbed more than 110%. The S&P 500 is up just 40%.
Reynolds American Inc. (NYSE/RAI)
No matter where the economy is heading, so-called sin stocks tend to stay in fashion. And when it comes to sin stocks, few industries do as well as cigarettes.
Reynolds American Inc. is the number-two cigarette maker in the United States. Some of its top-selling brands include “Camel,” “Doral,” “Kool,” “Pall Mall,” “Salem,” and “Winston.” The company also makes smoke-free Camel tobacco products.
The company provides an annual dividend of 3.27%, or $2.68 per share. On top of that, it has increased its annual dividend for more than 10 consecutive years. While many companies were slashing or suspending their dividend payouts during the Great Recession, Reynolds was increasing theirs.
Since 2008, it has raised its annual dividend 67% from $1.60 per share to $2.68 per share in 2014. Since the beginning of 2008, the company’s share price has soared roughly 240%. (Source: Reynolds American Inc. web site, last accessed April 9, 2015.)
Back on July 15, 2014, Reynolds announced its plans to acquire Lorillard, the third-largest tobacco company in the U.S. and maker of “Newport” cigarettes, in a transaction valued at $27.4 billion. The transaction is expected to close in the first half of 2015. (Source: Reynolds American Inc., July 15, 2014.)
Unilever N.V. (NYSE/UN)
Unilever N.V. is home to some of the most recognizable consumer products in the world. Available in more than 190 countries, Unilever’s more than 400 brands focus on everyday health and well being.
Some of the company’s world-leading brands include “Lipton,” “Knorr,” “Dove,” “Axe,” “Hellmann’s,” “Ben & Jerry’s,” “Sunlight,” “TRESemmé,” “VO5,” “Vaseline,” and “Sara Lee.”
Since 2008 (the start of the Great Recession), Unilever’s share price has climbed 54%; over the same time frame, its annual dividend has increased 53% from $0.98 to $1.50 in 2014. (Source: NASDAQ.com, last accessed April 9, 2015.)
Unilever is a strong company with healthy profit margins and plentiful earnings. It’s a great example of the kind of buy-and-hold stock investors seeking stable returns and consistent income should watch.