Amid the current low-interest-rate environment and rising market volatility, investors have been flocking to dividend stocks since the onset of the COVID-19 pandemic. The economic recovery expected with the vaccination drive has also been shifting investors’ focus toward value stocks this year. A second strain of the virus that has caused a resumption of lockdowns in major European countries, as well as problems associated with the global distribution of vaccinations, continue to buoy the appeal of dividend stocks.
Furthermore, the decline in U.S. job growth in December, as announced by the Bureau of Labor Statistics today, makes the dividend stock case still more favorable.
We think companies such as International Business Machines Corporation (IBM), Enbridge Inc. (ENB) and Prudential Financial, Inc. (PRU), whose dividends are yielding more than 5% at their current prices are attractive investment bets. They are the leaders in their respective sectors and have reliable dividend payout histories. Moreover, each of these companies has increased its dividend payouts consistently over the past five years, reflecting their ability to generate cash flow.
International Business Machines Corporation (IBM)
IBM provides integrated solutions and services worldwide. The company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.
On December 21, IBM entered an agreement to acquire European cloud management services firm Nordcloud to boost its hybrid cloud consulting capability. This will advance IBM’s cloud migration and transformation capabilities and bolster the growth of its hybrid cloud platform.
IBM collaborated with Avertra, a global integration services and consultancy organization two days ago to help accelerate clients’ digital transformation in the energy and utilities industries. This should help IBM provide a common global infrastructure across all workloads that can run more intelligently and securely.
IBM pays $6.52 in dividends annually, yielding 5.04% at its current price. It has a payout ratio of 77.2%. The company’s dividend payments have grown at a CAGR of 5.4% over the past five years.
IBM has reported a gross profit margin of 49% in the fiscal third quarter ended September 30, 2020, up 160 basis points from the year-ago value. Its EPS has increased 550% year-over-year to $1.43 over the same period. And its pre-tax income from continuing operations has increased 20% year-over-year to $1.83 billion.
Analysts expect IBM’s revenues to increase slightly year-to-year to $74.77 billion in fiscal 2021. The consensus EPS estimate of $11.63 for the ongoing year indicates a 38% improvement year-over-year. IBM has gained 7.6% over the past six months.
How does IBM stack up for the POWR Ratings?
A for Trade Grade
B Buy & Hold Grade
A for Industry Rank
B for Overall POWR Rating.
It is currently ranked #15 of 46 stocks in the Technology – Hardware Industry.
Enbridge Inc. (ENB)
ENB is an energy infrastructure company, operating networks of crude oil, liquids, and natural gas pipelines, regulated natural gas distribution utilities and renewable power generation. The company functions through five segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services.
In November, ENB began construction of its Line 3 Replacement Project in Minnesota after receiving authorization from the Public Utilities Commission. The project is a safety and maintenance focused private investment in Minnesota’s energy infrastructure, which consolidates ENB’s dominance in the region.
ENB pays $2.61 in dividends annually, yielding 7.9% at its current price. It has a payout ratio of 133.6%. The company’s dividend payments have grown at a CAGR of 10.5% over the past five years. ENB’s total revenue has increased 14.5% sequentially to C$9.11 billion in the third quarter ended September 30, 2020. Its net earnings have increased 4.3% year-over-year to C$990 million over the same period.
The consensus EPS estimate of $0.46 for the fourth quarter (ended December 31, 2020) indicates a slight improvement year-over-year. The stock has gained 8.2% over the past six months.
ENB is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Peer Grade and a “B” for Buy & Hold Grade. In 47-stock Foreign Oil & Gas Industry, it is ranked #2.
Prudential Financial, Inc. (PRU)
PRU is a financial wellness leader and active global investment manager offering a range of financial products and services internationally. The company operates through four divisions, namely: Retirement Solutions and Investment Management, Individual Life and Group Insurance, International Insurance division, and Closed Block division.
On December 3, the domestic life/health insurance subsidiaries of PRU were affirmed their Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings of “aa-” by AM Best. The ratings reflect RRP’s balance-sheet strength and impressive risk management capability.
In partnership with PRU, PruVen Capital launched itself as an independent venture firm on December 9, with $300 million in capital. The venture fund will invest in transformational startups in insurance, financial services, real estate, digital health care and enterprise tech to create both financial and strategic value for its stakeholders.
PRU pays $4.40 in dividends annually, yielding 5.4% at its current price. It has a payout ratio of 44.8%. The company’s dividend payments have grown at a CAGR of 12.5% over the past five years.
PRU’s total revenue has increased 7.8% year-over-year to $13.34 billion in the third quarter ended September 30, 2020. Its net income has increased 4.9% year-over-year to $1.49 billion over the same period, while total assets under management and administration increased 9% year-over-year to $1.95 trillion.
Analysts expect PRU’s revenues to grow 4% year-to-year to $13.86 billion in the current quarter ending March 31, 2021. The consensus EPS estimate of $2.49 for the about-to-be reported quarter (ended December 31, 2020) indicates a 6.9% improvement year-over-year. The company has an impressive earnings surprise history, as it beat the Street’s EPS estimates in three of the trailing four quarters. PRU has gained 37% over the past six months.
It is no surprise that PRU is rated “Buy” in our POWR Ratings system. It has an “A” for Trade Grade, and a “B” for Buy & Hold Grade and Industry Rank. In 34-stock Insurance – Life Industry, it is ranked #11.
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IBM shares were trading at $128.70 per share on Friday afternoon, down $0.29 (-0.22%). Year-to-date, IBM has gained 2.24%, versus a 1.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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