The markets are struggling of late as concerns surrounding the coronavirus outbreak have brought many stocks down. The good news for value-oriented dividend investors is that there could be some attractive buying opportunities as a result of this market weakness. Below are three dividend stocks that are now trading near their 52-week lows and that pay investors better than the 2% dividend yield they can get with an average S&P 500 stock:
1. Pfizer
Pfizer (NYSE:PFE) is down more than 17% over the past 12 months, compared to the positive 8.5% returns investors would have earned holding the average S&P 500 stock. Pfizer was moving in line with the index until July, when things started to fall apart after it announced an underwhelming second-quarter earnings result, and that it would be divesting from Upjohn, which has its portfolio of off-patent drugs.
While the company still has many drugs in its portfolio and worldwide sales, investors remain unconvinced about the strength of the drug manufacturer’s future growth — which is why the stock’s failed to get back to the level it was before the earnings/divestment announcement.
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But the good news for dividend investors is that the company’s payouts will continue. Quarterly payments of $0.38 are now yielding 4.3% per year and are likely to grow over the years. Pfizer has been increasing dividend payments since the end of the financial crisis, and in five years its payouts have grown by 36% from the $0.28 that the stock was paying in 2015. This averages out to a compounded annual growth rate of 6.3%. And with free cash flow of around $10 billion in each of the past 10 years, there’s little reason to expect that the company will stop raising its payouts anytime soon.
Shares of Pfizer are currently trading at 12 times their earnings and could be a great pickup for value investors.
2. Aflac
Aflac (NYSE:AFL) doesn’t offer healthcare products, but it does provide supplemental health insurance for individuals and options for business owners to help insure their employees. It also offers life insurance policies, and the company claims to serve over 50 million people around the world. In 2019, Aflac reported more than $22 billion in revenue and profits of $3.3 billion. Aflac’s top line has been between $20 billion and $23 billion over the past six years, showing minimal volatility and growth. Its profit margin has also been fairly strong, remaining above 11% during that time frame as well.
Although the stock is down 15% over the past year, the decline has happened mainly over the past few weeks as concerns around the coronavirus are up and investors are likely concerned that insurance claims this year could be significant for the company. However, that’s not likely to be a long-term issue for Aflac, and it’s not the first time a wide-scale illness has caused problems for insurance providers. The company’s strong financials put it in an excellent position to weather the storm.
The fall in price has put Aflac at a new 52-week low, and the company just raised its payouts from $0.27 every quarter to $0.28. The stock is now paying investors a dividend yield of 2.7% annually. Aflac is a Dividend Aristocrat and has increased its dividend for 37 straight years.
Aflac’s another solid value buy, trading at 10 times earnings.
3. GM
General Motors (NYSE:GM) has seen its shares tumble more than 20% over the past year — it’s been the worst-performing stock on this list. The company’s faced a work stoppage, trade concerns, and now a coronavirus outbreak that could interrupt its production yet again. The problems are largely outside of GM’s control, but the stock is near its 52-week low and is now paying a dividend yield that’s a bit higher than normal.
Although the company hasn’t raised its payouts for multiple years, its $0.38 quarterly dividend means investors who buy shares of the automaker today can earn about 5% per year. It’s the highest dividend yield on this list. There is some risk here, especially if the company faces the prospect of lower production levels this year as a result of the coronavirus outbreak. In its most recent quarter, GM posted a loss for the first time since 2017. Prior to that, GM’s net income was safely above $2 billion in each of the past six quarters.
For now, GM still in good shape, with more than $23 billion in total cash on its books as of Dec. 31, 2019. Last year it paid out dividends totaling $2.4 billion. Investors willing to take on some risk could be rewarded both through dividends and capital appreciation, as the stock is currently trading at a very modest seven times earnings.
Which stock is the best buy today?
All of these stocks face challenges, but the safest of the three is Pfizer. Its strong fundamentals put it in a good position to handle the adversity relating to the coronavirus and, unlike Aflac, it won’t see a big influx of insurance claims that will chip into its bottom line. GM’s vast operations make the company more susceptible to a slowdown, and longer production times mean the impact of an interruption could be much more problematic for the company and more likely to span multiple quarters. This leaves Pfizer as having the best mix of dividends, value, and stability.
However, all three dividend stocks still look good. As with any stock on the markets today, dividend investors will need to closely monitor the impact the coronavirus has and any near-term issues it may cause.