With interest rates near-zero and bonds yields paltry, dividend stocks enjoyed a strong run in 2016. This has changed in 2017. Dividend stocks have fallen out of favor.
Investors expect interest rates to rise as President Trump’s plan to spur economic growth stokes inflation. A substantial number of investors, however, need income. Although interest rates may rise, they are unlikely to shoot up dramatically anytime soon.
Studies repeatedly show dividend-paying stocks that consistently increase dividends outperform non-dividend paying stocks. As such, this is a good time to scout for high-quality dividend stocks worth investing.
Here are some ideas:
Best Dividend Stock #1: Prudential Financial (PRU)
Insurers bore the brunt of abnormally low-interest rates in the aftermath of the Great Recession as interest income declined. Prudential Financial is one insurer that has performed well even in this challenging milieu. The insurer has grown sales both in the U. S. and abroad and generated strong net flows into its retirement and asset management businesses.
In the recently completed fourth quarter, Prudential earned $2.46 per share, beating the average analyst estimate of $2.32 by 6%. In 2016, the firm earned $9.71 per share and grew its book value per share by 13.6%.
The external environment is now looking brighter with the Federal Reserve hinting at three interest rate increases this year. Insurers also stand to benefit from President Trump’s plan to cut corporate taxes and ease regulatory restraints.
Although Prudential shares are up over 20% since the November 8 election, they still trade at a relatively modest 10.6-times forecasted 2017 EPS of $10.41 a share.
Extending its uninterrupted string of dividend increases into the ninth year, Prudential has increased its quarterly dividend by over 7% to 75 cents per share to imply an annual yield of 2.8%. The annual payment of $3 a share in dividends implies a payout ratio of about 30%, leaving substantial room for further increase in dividend.
