3 Best Dividend Stocks to Buy Now
By: Jonathan Wolfgram,
Three best dividend stocks for investors to buy now offer portfolio diversification and feature equities with a history of reliable dividend growth that also provide asset appreciation.
Investing a substantial share of a portfolio in a “hot” sector to capture the upward momentum can offer strong gains — however, this strategy works mostly for institutional investors and frequent traders. Long-term investors should diversify their portfolio across equities that are not only in different sectors but equities that are also at different stages of their business cycle.
To find these best dividend stocks for their portfolio, investors must look beyond the main performance metrics when conducting their stock analysis. A high dividend yield might be attractive at first glance but could be the result of a slumping share price. A natural question is whether that share price decline is caused by major long-term deficiencies in the company’s fundamentals or just a temporary pullback.
A share price decline driven by underlying fundamental issues would be a good reason to pass on an equity. A temporary pullback, however, could be an opportunity to take a long position in an equity at a discounted price and reap the benefits of capturing the capital gains from any share price rebound.
The three best dividend stocks on this list have multiple characteristics that make them worthy of consideration right now. All three equities have dividend yields in excess of 4.5% and all three equities have strong fundamentals that make them reliable options for any investor’s portfolio.
3 Best Dividend Stocks to Buy Now: #3
Old Republic International Corp (NYSE:ORI)
Old Republic International Corp is an insurance underwriting business operating primarily in the United States and Canada. It offers a number of specialized insurance products, with the majority of its revenue coming from its General insurance and Title insurance segments. The former accounts for around 60% of the company’s revenue, insuring automobiles, homes, workers’ compensation and other parts of the property-casualty industry. The latter offers title insurance products to real estate investors, making up just under 40% of ORI’s revenue.
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The company’s current $0.21 quarterly payout has been remarkably consistent, having increased its dividend every year for nearly four decades, making it a member of the Dividend Aristocrats. ORI has paid a dividend for 79 years, most of its nearly century-long existence.
In addition to this long tenure of dividend payments, the company has an impressive yield of 4.75%. This is much higher than the industry average of 1.8%, and has still grown 5% in the trailing 12 months where the industry dividend rate dropped 26.1%
In addition to the $0.20 regular quarterly dividend, ORI paid a $1.00 special dividend in both September 2019 and January 2018. The combined annual dividend payout of $1.80 (or $1.75 in 2018) meant ORI had an actual dividend yield of 8.0% for the year.
Because of its stability and high dividend payments, the company is poised to perform well as a long hold and is currently undervalued. In its recent third-quarter report, ORI achieved a 22% gain in operating earnings per share (EPS) from last quarter and reported a book value of $20.39 per share. The stock is now trading for roughly 78% of that value. ORI trades for eight times this year’s earnings, considerably lower than the last several years where it has traded for closer to 12 times earnings.
ORI seems priced optimally for a buy. As of the market’s close on December 3, 2020, ORI’s shares are sitting at $18.34, considerably below both its target price of $22.00 and its pre-COVID value around $20 per share.
3 Best Dividend Stocks to Buy Now: #2
Safety Insurance Group, Inc. (NASDAQ:SAFT)
Safety Insurance Group, Inc. is a company headquartered in Boston, Massachusetts, insuring private passenger automobiles and homes. It was founded in 1979 and although its primary focus is automobiles, SAFT also provides property and casualty insurance products that include homeowner, dwelling fire, business owner and umbrella policies.
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The company’s current $0.90 quarterly dividend distribution corresponds to a $3.60 annualized dividend distribution and a 4.8% forward yield, having grown an average of 5.2% per year over the last five years and 7.2% per year over the past 10 years. SAFT’s annual dividend distribution has grown by $0.20 nearly every year in the last 10 years, with only one year, 2016, where it kept its dividend payment the same at $0.70 per quarter and $2.80 per year.
In addition to its continuous growth, the company’s current 4.8% yield is more than twice the 2.1% average yield of all companies in its industry. It outperformed the S&P 500 average dividend yield of 1.5% even more, giving triple the average distribution.
In its recent earnings report on Nov. 4, SAFT reported $2.53 EPS for its third quarter, beating the analysts’ expectations of $1.45 by 175%. The company also had a return on equity of 11.49% and a net margin of 10.17%.
With a target price of $88.00, SAFT is likely undervalued, and despite it’s poor year-to-date (YTD) return of -16.7%, the company’s earnings per share have grown 27.4% in the trailing 12 months, consistent with its average yearly EPS growth of 21.4% per year. Trading at $74.50, it is just over 25% lower than its 52-week high and has the potential to make a strong recovery.
3 Best Dividend Stocks to Buy Now: #1
Valley National Bank (NASDAQ:VLY)
Valley National Bank was founded in 1927 and has since worked in commercial real estate, residential and commercial loans with a core strategy of investing in high-quality credits.
Historically, it has operated in New York and New Jersey, while headquartered in New York City, New York. But a recent acquisition in Florida has expanded the bank’s market and led to an increase in profit and a successful few years along with it.
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Since 2014, VLY has kept its quarterly dividend level at $0.11 per share, or $0.44 per share, annually. It maintains an impressive yet sustainable dividend rate of 4.7% by controlling its loan losses and keeping a successful operation in Florida. Its trailing 4.7% dividend yield is considerably higher than the 2.0% industry average, and its 55.7% payout ratio makes the company a powerhouse dividend payer.
In the trailing two months, VLY’s share price has soared. In November, it zoomed 20.42% and in October it climbed 11.53%. This means VLY outperformed the S&P 500 by 11.62% and 14.30%, respectively. In addition, and in the midst of the COVID-19 pandemic, the company also posted its highest-ever quarterly earnings of $0.25 per share. Analysts expect it to keep this EPS in the fourth quarter.
While no longer as cheap as it was earlier in 2020, VLY is still 23% below its 52-week high and trending upward. The company has a successful cost-management strategy that has allowed it to grow net interest income by 27% in the last quarter and improve its efficiency ratio from 79% to 48%. These results demonstrate financial strength in a quarter that devastated most other regional banks, indicating VLY’s reliability and potential for long-term success.
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Jonathan Wolfgram is an editorial staffer who writes website content at Eagle Financial Publications. He graduated from the University of Minnesota with Bachelor’s degrees in Finance and Philosophy. Jonathan writes for www.DividendInvestor.com and www.StockInvestor.com.