After months of trading in a tight range, the S&P 500 is finally making a move. Tragically, but not surprisingly, it’s to the downside. Currently at around the 2,000 mark, the S&P 500 is down almost three percent since the beginning of January. For the week ended August 21, the S&P 500 is down more than four percent.
For those who have been listening to the talking heads on TV, the sell-off may come as a bit of a surprise. For those who have been paying attention to the stock market and second-quarter results, the recent slide isn’t a surprise.
After all, investors can only prop up a weak market for so long. First, the Dow Jones Industrial Average has been trading below its 200-day moving average for roughly a month now. This is the first time this has happened since 2011. On top of that, the MACD, the market’s momentum indicator, has been trending lower since mid-2014. Those are two negative indicators for the technical health of the markets.
What about fundamentals? According to the most recent data, companies on the S&P 500 have reported a one percent decline in earnings—the first decline in profits since the third quarter of 2012. As for revenue, S&P 500 companies reported a decline of 3.3% in the second quarter. This is the first time since 2009 that sales for S&P 500 companies have declined for two consecutive quarters. (Source: factset.com, August 21, 2015.)
When times get tough, most investors run for the safety of dividend stocks. But even there, investors have to be really cautious about what they invest in. With a drop in revenue and earnings, cash flow has to be protected.
During the second quarter of 2015, 562 companies announced dividend increases. While this sounds solid, 696 did so in the second quarter of 2014. It’s one thing to freeze dividend payouts. But what about a decrease? During the second quarter of 2015, 85 companies decreased dividend yields. This is a 50% increase over the 57 companies that decreased earnings in the first quarter. And it represents the highest number of dividend decreases since 2009! (Source: cnbc.com, August 21, 2015.)
If you are looking to invest in stocks that provide dividends, make sure you look for stable companies that have increased it annually for at least five or six years. That shows they (generally) see consistently increasing dividend yields as part of their long-term strategy.
Why not just go with a high-yield dividend stock in the short term? Because there is always a risk/reward trade-off. Because really high dividend yield stocks are riskier, there is a chance their share price could take a hit. And their dividend yield could get cut. Meaning, you lose out on capital appreciation and income growth.
Below are three of the best long-term dividend stocks to watch in August and September.
3 of the Best Dividend Stocks
McCormick & Company, Incorporated (NYSE:MKC)
Because this market is a little unsettling and most stocks are giving up ground, when it comes to rewarding investors, it’s good to look at companies that have raised their annual dividend yield for 10 or more straight years.
With $4.2 billion in annual sales in 2014, McCormick & Company, Incorporated (NYSE:MKC) is the world’s number one spice maker. In addition to providing investors with long-term capital appreciation, McCormick has paid an annual dividend every year since 1925 and has raised its annual dividend yield for the last 29 years. (Source: mccormickcorporation.com, August 21, 2015.)
Since 2007, the year before the markets crashed, McCormick’s dividend yield has increased 84% from $0.82 per share to $1.51 per share, or 1.95% in 2014. If the company follows the same payout schedule, it will raise its annual dividend again in 2015 to $1.63 per share.
United Technologies Corporation(NYSE:UTX)
United Technologies Corporation (NYSE:UTX) is an American conglomerate operating in the aerospace/defence industry. The company’s share price took a hit in July when it announced that second-quarter revenue fell five percent year-over-year to $16.3 billion; mostly as a result of a strong U.S. dollar.
UTC has paid cash dividends on its stock for every year since 1936. Equally as importantly, the company has increased its annual dividend for each of the last 22 years. Since 2007, the company’s annual dividend yield has increased 101% from $1.17 to $2.36 in 2014. The company currently pays an annual dividend of 2.75% or $2.56 per share. (Source: utc.com, August, 21, 2015.)
Despite stocks getting routed, UTX continues to have great long-term potential. And, with an operating cash flow of $7.1 billion, should continue to reward investors seeking increasing annual dividends.
Altria Group Inc.(NYSE:MO)
The perfect defensive stocks, Altria Group Inc.’s (NYSE:MO) long-term capital appreciation and 4.2% dividend yield ($2.26 per share) should help offset the turmoil hammering global stocks.
For the five years ended December 31, 2014, Altria’s total shareholder return was 230.4%—outperforming the S&P 500s return of just 105.1%. For income-starved investors, Altria has increased its dividend 49 times in the past 46 years.
Most recently, on August 21, the company’s board of directors increased the regular quarterly dividend by 8.7% to $0.565 per share from the previous rate of $0.52. The quarterly dividend is payable on October 9th to shareholders of record as of September 15th. (Source: altria.com, August 21, 2015.)