You can forget about a Santa-Claus rally. That’s the message from the market this December. Both the Dow Jones Industrial Average and the S&P 500 are in correction territory, and are heading for their worst December performance since the Great Depression.
With the markets this perilous, top analysts are recommending dividend stocks as a way for savvy investors to hedge their bets. Regardless of market conditions, the dividend payment provides a steady source of income every quarter which, investors hope, should increase over time.
Here we turn to TipRanks’ Stock Screener to pinpoint the best dividend stocks out there right now. TipRanks uses a natural language processing algorithm to rank analysts based on their success rate and average return. That allows us to filter for high dividend stocks with a ‘strong buy’ consensus from only the top-performing analysts.
Let’s take a closer look at their five top dividend picks now:
Merck
Merck & Co is one of the world’s largest pharma companies, delivering revenue in 2017 of over $40 billion. The pharmaceutical giant is seeing big and steady sales of its cancer drug Keytruda.
Keytruda works by aiding the body’s own immune system to fight and kill cancer cells. “Merck has distinguished itself with excellent IO [immunotherapy] execution” cheered top BMO Capital analyst Alex Arfaei (Track Record & Ratings) on November 16.
He notes that the company recently boosted its dividend 15 percent. This means Merck now pays out 55 cents per quarter, up from 48 cents previously. That’s on a 2.96 percent yield — considerably higher than the average healthcare dividend of 0.75 percent.
According to Arfaei, the dividend increase coupled with a $10 billion share buy-back indicates management’s confidence in the company’s long-term growth prospects.
The analyst adds: “If Merck maintains ~40% long-term share of the U.S. IO market, this would imply sales potential of $9.4Bn by 2030. That is plausible given Merck’s strong execution in IO so far.” He is forecasting US Keytruda sales of $7.4Bn by 2030, but says this could prove conservative given the recent FDA approval for Keytruda + chemotherapy for non-small cell lung cancer (NSCLC).
Arfaei currently has an $80 price target on “strong buy” rated Merck. Indeed, in the last three months, Merck has received five consecutive buy ratings from top-ranked analysts. This is with an average analyst price target of $82 (10 percent upside potential).
Cisco
IT giant Cisco remains the dominant networking vendor with strong underlying fundamentals.
“CSCO’s strong balance sheet and cash flow continues to enable it to fund growth and enhance shareholder returns through ongoing dividend increases and share repurchases” points out five-star Tigress Financial analyst Ivan Feinseth (Track Record & Ratings).
Cisco currently boasts a lucrative yield of 3 percent, easily beating the tech sector average of just 1.12 percent. Looking forward, shareholders will soon enjoy a 9 percent increase in the quarterly dividend from 33 cents a share to 36 cents a share effective in February 2019.
Feinseth reiterated a buy rating on the stock on December 14. Although the analyst did not offer a price target, he does write that ‘significant upside’ exists from current levels. And we can see that the $53 average top analyst price target indicates sizable upside potential of 20 percent.
According to the analyst, CSCO continues to benefit from growth in IT spending, and the transition to a software- and services-based subscription model is driving increasing economic profit growth.
Overall, 10 out of 13 analysts covering the stock are bullish. That’s based on all the ratings published by best-performing analysts over the last three months.
CVS Health
Pharmacy chain CVS Health is buzzing right now. The company has just recently closed its massive $69 billion merger with health insurance stock Aetna.
The Street has applauded the deal, with Cantor Fitzgerald’s Steven Halper (Track Record & Ratings) writing: “We remain enthusiastic on CVS shares as we believe the combination with Aetna should drive meaningful growth, while reducing medical costs and improving the quality of care for members.”
He calls the risk/reward tradeoff compelling at current levels, and reiterated his buy rating with a $96 price target on December 13. This indicates 38 percent upside potential from the current $70 share price.
And from a dividend perspective, we are looking at a relatively high 2.88 percent dividend yield. On a quarterly basis this translates into a 50 cents payout. However, for 2018, CVS has held off raising its dividend in 2018 while it focuses on the completion of its Aetna acquisition.
Don’t let this put you off: “We believe once the two companies are consolidated that CVS will continue to resume its trend of consistent dividend increases to reach its targeted dividend payout ratio of 35%” Tigress Financial’s Ivan Feinseth told investors.
Over the last three months, 11 best-performing analysts have published buy ratings on CVS, with three analysts staying sidelined for now. That’s with a $96 average price target- suggesting shares can surge 37 percent.
Broadcom
Chip maker Broadcom has just posted strong results for the fourth quarter, prompting a wave of bullish sentiment from the Street. Management also raised the dividend by 51 percent.
Shareholders now receive a quarterly payout of $2.65 (up from $1.75 previously), adding up to a whopping $10.60 on an annual basis. As a result, AVGO shareholders now enjoy an impressive 4.25 percent yield, versus the tech average of just 1.12 percent.
“AVGO provides an attractive opportunity given a dominant market share, ~$6B in buybacks remaining, $8B+ of FCF, and a ~3%+ dividend yield” cheered Mizuho Securities analyst Vijay Rakesh (Track Record & Ratings) in a December 14 report.
What’s more, the five-star analyst also singled out AVGO as the semiconductor stock that “would most likely provide long-term value for clients.” This was with a buy rating and $295 price target (18 percent upside potential).
“Trading at the low-end of historical valuations, we believe AVGO is undervalued as it is well-positioned with a diversified revenue stream” explains Rakesh. He cites the acquisition of CA as providing further shelter from Apple fears and China slowdown while driving earnings, margins, and FCF leverage.
Rakesh isn’t the only top analyst singing the stock’s praises. AVGO earns a ‘strong buy’ Street consensus, with a $291 average price target (16 percent upside potential).
Royal Caribbean Cruises
Royal Caribbean is the world’s second largest cruise operator (based on fleet size). Word on the Street: this is a stock that’s certainly worth a closer look — especially for dividend-seeking investors.
The company recently boosted its quarterly dividend payout 17 percent from 60 cents per share to 70 cents per share as of September 2018. That’s with a 2.65 percent dividend yield, versus the 2.17 percent services sector average.
Stifel Nicolaus’ Steven Wieczynski (Track Record & Ratings) labels RCL ‘undervalued.’ He has just attended an event with Royal Caribbean aboard the much-hyped Celebrity Edge, the first new Celebrity brand build in over six years.
Wieczynski left the event with his bullish thesis on the stock ‘firmly intact’ and reiterated his buy rating on November 30 with a $157 price target (49 percent upside potential).
Re-emphasizing the message of the third-quarter call, management also took the opportunity to remind investors that its 2019 booked position is ahead of the same time last year on both rate and volume for all core products. According to management, this points to another year of robust yield and EPS growth.
Overall, RCL boasts 100 percent support from top analysts. In the last three months, five top analysts have published buy ratings on the stock. So no hold or sell ratings here.
Notably their $152 average price target suggests significant upside potential of 45 percent.
