In times of uncertainty, dividend-paying stocks can bring stability to investors’ portfolios. Of course, a dividend yield alone isn’t enough. The underlying business has to be solid and performing well for the company’s share price to have a chance of holding up.
Further, with the dramatic increase in yields over the last 12 months, dividend stocks now have some stiff competition. Specifically, with “risk-free” assets like Treasuries yielding anywhere from 3.6% to 4.8% depending on duration, it’s hard to chase stocks solely based on their dividend yields.
While over the long-term, today’s prices may prove to be a bargain in stocks, short-term risks still exists. Why chase a stock paying 3% with the risk of losing capital when an investor can gobble up six-month Treasuries paying out 4.8% right now?
That’s the dilemma investors face. That said, let’s look at a few dividend-paying stocks for 2023.
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This call on Broadcom (NASDAQ:AVGO) is dependent on the stock pulling back a bit. While Broadcom is still dishing out a 3.1% dividend yield, the stock has been on fire lately.
Shares bottomed back in October, and the stock has rallied 44.5% since. In fact, Broadcom is now trading at its highest level since May. While we don’t necessarily need to see the stock retest its lows, a pullback sure would be nice.
That said, a stock that has clear strength vs. its industry and the overall market is something to pay attention to — especially in a tough environment like this. This is referred to as relative strength.
So what is it that investors clearly like about Broadcom?
Aside from its 3.1% dividend yield, Broadcom actually provides growth. Consensus estimates call for roughly 6% revenue growth this year and 8.5% earnings growth. Even after the stock’s monstrous rally, shares trade at just 14.5-times this year’s earnings estimates.
I would love this name on a dip, but I can see why investors are buying it now. Broadcom has it all: Yield, valuation, relative strength and growth.
Realty Income (O)
A recession isn’t exactly the most attractive time to buy a REIT operator. For that reason, it may be worth waiting on Realty Income (NYSE:O).
At some point though, investors will have to give this name some respect. Realty Income shares never went on to take out their pre-Covid highs, while most stocks were able to do so. In fact, it’s been muddling along, mostly stuck between $55 and $70 for the last few years.
I don’t know if Realty Income shares will go back down to the lower end of that range. What I do know is that this is one of the most dependable income stocks in the market.
Shares pay out a 4.6% yield and the dividend is paid out monthly. Further, the company has made 630 consecutive monthly payouts (more than 52 years) and has raised its dividend in 101 consecutive quarters. That’s right; not consecutive annual increases, but consecutive quarterly increases.
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Walgreens (NASDAQ:WBA) is a bit of a wild card here, but with its 5.25% dividend yield, I didn’t want to exclude it.
At the risk of sounding far too cautious, I again would love to see a deeper dip in Walgreens stock. Shares have been wavering a bit, and recently dove lower after reporting earnings on Jan. 5.
That’s despite a first-quarter top- and bottom-line beat and a pretty good outlook for the year. Regardless, the stock hit multi-month lows on the move. If the selling really picks up pace, it’s not out of the question that Walgreens stock makes new 52-week lows and takes out $30.
That said, investors ought to keep an eye on this one whether it’s at $36 or sub-$30.
While analysts expect slight revenue growth this year, they are forecasting a ~10% dip in earnings. But considering this stock is trading at just 8-times earnings with a 5.25% dividend yield, value investors may find this one of interest.
With a payout ratio of just 42%, the dividend appears safe as well.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.