Should You Buy These 3 Dividend Stocks?
Last week I talked about the reasons behind this year’s stock market summer swoon. I explained why investors are selling stocks after several recent negative economic reports. They’re worried the data suggest the US economy is slipping back into recession.
However, I also told you I think investors are overreacting to the news.
The reason… a recent Bloomberg survey shows 67 top economists believe US economic growth will rebound in the second half of the year. Based on this bullish outlook, I urged you to use the recent market weakness as a buying opportunity.
And apparently many of you agree.
My email inbox is literally overflowing with requests from readers. Each one asks essentially the same question… which stocks do I think investors should buy now?
As I’m not one to disappoint, I’m going to share three of my best stock ideas with you today. But before I do, I’d like to give you a little background on how I picked them.
With the market falling, my number one concern right now is limiting potential downside risk. The best way to do that is to buy stocks with attractive dividend yields.
Why, you ask?
Because investors tend to hang on to dividend paying stocks even when the market is correcting. Most dividend stock investors buy them for the long haul. Often they’re investing for the income as much as the potential appreciation.
So I began my search with stocks offering dividend yields of at least 3%.
But I’m not interested in just any stock paying a dividend.
I’m looking for dividend paying stocks also offering solid long term growth potential. You want stocks that will appreciate in value when the market starts moving higher again.
I focused on stocks with long term earnings growth projections of 10% or more.
Last but not least, I want to make sure we get good value for our investment dollars. The last thing we want to do is overpay for a stock while the market is correcting. How do we do this?
We buy stocks with PEG ratios less than 1.0.
You see, these stocks are trading at a discount to their projected long-term growth rates. When the market takes off, these stocks offer the best potential to appreciate in value.
Now that you understand my selection criteria, let’s take a closer look at three stocks to buy right now…
The first stock is Intel (INTC), the largest manufacturer of semi-conductors in the world. Intel pays an annual dividend of $0.72 per share, which works out to a dividend yield of 3.42%.
What’s more, the company offers solid long-term growth potential. They’re expected to grow earnings by 10.2% annually over the next five years.
And at a recent price of $21.19, the shares are slightly undervalued relative to their projected earnings growth. The stock’s PEG ratio is 0.91.
It’s hard to see how you can go wrong buying Intel at these prices.
The next stock I like is Chevron (CVX)… one of the largest integrated energy companies in the world. Chevron pays a hefty annual dividend of $3.42 per share for a dividend yield of 3.15%. The company is expected to grow earnings 12% annually. And the shares are badly undervalued with a PEG ratio of just 0.63.
Clearly, CVX is a perfect example of an undervalued stock offering strong growth potential and a juicy dividend yield.
The third stock to buy now is a mid-cap chemical maker by the name of Olin (OLN). Olin pays an annual dividend of $0.80 per share for a dividend yield of 3.82%. Of the three stocks, they offer the highest projected earnings growth at a stunning 40% annually. And, they offer the best value with a PEG ratio of just 0.27.
If you’re looking for a strong income generating stock with sky high growth potential, Olin’s your best bet.
No question about it, the market is serving up a number of tasty buys right now. Take advantage of the summer swoon by adding one or more of these fast-growing, undervalued stocks with attractive dividend yields to your portfolio today.
Category: Dividend Stocks
