Dividend stocks are getting hammered, but you already know that.
The public swings between “stocks will always go up” to “the sky is falling.” Reality, though, tends to take the boring middle ground.
Last month, traders fretted over oil prices. Next week, they’ll obsess over China. For those new to investing, today’s problems seem like uncharted territory.
None of this is new, of course. We’ve made it through recessions, world wars, and financial crises. The world isn’t going to end now.
So if we go down the dull middle path, what should you do with your money? You could do worse than income investing. If stock prices are stuck in neutral, the theory goes that dividends can still crank out decent returns.
The good news? The recent drop in stock prices has turned some dividend stocks into cash machines. Here are five:
|Bank of Nova Scotia||$49.7B||5.2%|
|International Business Machines||$120.6B||4.3%|
Source: Google Finance
Let’s say a few words about these dividend stocks.
The energy patch has been crushed. Drillers have slashed their dividends as low oil prices make it impossible to turn a profit. Pipeline stocks like Enbridge Inc (NYSE:ENB) and Inter Pipeline Ltd (OTCMKT:IPPLF) have been caught in the carnage.
Pipelines, though, are far more like a tollbooth than an oil company. They don’t drill for oil themselves. Rather, they collect a fee on each barrel that flows through their network. As a result, their cashflows (and their dividends) are steady like bond coupons.
Bank of Nova Scotia (NYSE:BNS) is a wonderful business. High barriers to entry prevent rivals from eating into margins. Few growth prospects mean the bank passes on most of its income to shareholders. Patient investors who lock in this high yield now will likely be rewarded as the years tick by.
Duke Energy Corp (NYSE:DUK) is easy to figure out. The firm is a well-run utility serving millions across the Southeast and Midwest. People pay their power bills. You get a dividend. Stable. Simple. Profitable. If business stalls, utilities like Duke will crank out the best returns around.
Finally, International Business Machines Corp. (NYSE:IBM) is a cash machine. Last year, the company returned more than $8.3 billion to investors via dividends and buybacks. This comes out to a total shareholder yield of seven percent. No wonder Warren Buffett loves this business.