Top Dividend Stocks for Volatile Markets: Experts Weigh In

Here Are My Top 5 Dividend Stocks to Buy in August

Dividend stocks can offer a good alternative to growth opportunities during periods of market volatility. After a spectacular performance in 2023 and a roaring start to 2024, the capital markets have started to cool down as of late. Naturally, the recent selling activity can be attributed to a variety of factors including mixed job data, the Federal Reserve's monetary policy outlook, and of course the upcoming presidential election. During times like these investors may opt to exit more growth-oriented opportunities and seek safer, steadier positions. Let's explore five dividend stocks that I think look like screaming buys right now. Investors interested in reliable passive income don't want to miss out on these stocks. Generally speaking, a bank may avoid making a loan to a young company. And if it does, it likely won't be a material enough amount to provide adequate runway. Hercules differentiates itself from banks due to the way it structures deals. For example, while a bank may have a dollar threshold, Hercules generally offers larger term loan sizes but at a higher interest rate. Moreover, Hercules also generally attaches warrants to its deals, which act as a sweetener if a portfolio company ends up getting acquired or goes public. A good measure of a BDC's health is to look at its non-accrual investments. Essentially, these are investments that the company sees as highly unlikely to pay back principal and interest. For the quarter ended June 30, only 2.5% of Hercules' $3.6 billion portfolio was categorized as non-accrual status. Right now, Hercules trades at a price-to-book (P/B) ratio of 1.6, which is close to its highest level in 10 years. Its total return over the last decade is 229%, handily outperforming the S&P 500's total return of 184%. So even though Hercules stock isn't exactly cheap, I think the premium is well deserved. HTGC Price to Book Value data by YCharts With shares trading at a 10.4% dividend yield, I think now is as good a time as ever to load up on Hercules and prepare to hold for the long run. 2. Ares Capital Another BDC on my list is Ares Capital (ARCC -0.19%). Ares is quite different than Hercules, however, as the company has wider industry coverage and offers more sophisticated financial products. Furthermore, with 50% of its total portfolio allocated toward first lien senior secured loans, investors can rest easy that Ares is well positioned even in downside scenarios. ARES Total Return Level data by YCharts Per the chart above, investors can see that Ares has handily outperformed the S&P 500 as well as leading BDC-focused exchange-traded funds (ETFs) over the last couple of years. Considering how strong the S&P 500 has been since its massive sell-off in 2022, it's impressive just how much Ares has outperformed its peers and the broader market. While it may not be as attractive as a high-growth AI stock, Ares has quietly been a multibagger opportunity for its shareholders. Investors may want to consider augmenting their gains with this passive income player, as shares yield around 9.3% right now. When you're in the business of offering the lowest-cost solution, it can be hard to grow. As the chart above illustrates, AT&T's revenue has dropped considerably over the last decade. Again, an overcrowded market coupled with ongoing churn dynamics plaguing the communications sector isn't exactly a recipe for hypergrowth. Nevertheless, AT&T has demonstrated a disciplined approach to costs during this time of decelerating sales. For that reason, the company has been able to actually increase its free cash flow despite some dramatic ebbs and flows in the top line. It is important to note that some of this cash flow was augmented by AT&T slashing its dividend nearly in half back in 2022. Although that's not overly encouraging, I'll give AT&T's management some credit. As of the end of the second quarter, AT&T's net debt was $127 billion. This was an improvement of about $5 billion compared to the second quarter of 2023. Should AT&T remain focused on strengthening its balance sheet, I see little reason for the company to cut its dividend again. So while AT&T isn't going to supercharge your portfolio by any means, I think the stock offers a compelling turnaround opportunity. Moreover, AT&T's current price-to-earnings (P/E) ratio of 11.1 is hovering near all-time lows. While some may have soured on AT&T for good, I think now is a good opportunity to scoop up shares at dirt cheap levels and take advantage of the 5.7% yield. 4. Verizon Next up on my list is one of AT&T's biggest competitors, Verizon Communications (VZ -0.44%). The bulk of my thesis for investing in Verizon is illustrated in the graphic below. Last September marked 17 consecutive years of dividend raises for Verizon. Moreover, when speaking about commitment to subsequent dividend raises, Verizon's CEO Hans Vestberg said that he wants to "continue to put the Board in a position to do that" during the company's second-quarter earnings call. To me, Verizon is not only a reliable dividend opportunity; I think a raise could be on the horizon next month. Such action could inspire a little jolt in the stock, so I'd be a buyer right now. Verizon's P/E of just 15.2 pales in comparison to the S&P 500's P/E of 27.5. With shares yielding about 6.5%, now looks like a terrific opportunity to invest at a steep discount to the broader market. 5. Altria In my opinion, I've saved the best for last. Altria (MO 0.04%) is the tobacco company behind notable cigarette brands such as Marlboro and Black & Mild, and is also notably a Dividend King. The tobacco industry is no doubt experiencing an existential crisis. A larger cohort of consumers are becoming more mindful of health and wellness, making tobacco products a tough sell. But like all great companies, Altria has found ways to navigate this challenge. Management has stated that Altria's next phase hinges on "moving beyond smoking." Namely, the company is focusing more attention on vaping products as well as oral nicotine pouches as opposed to traditional smoking products. Although this transition is in its early stages, there are strong indications that this pivot is working. Last June, Altria acquired vaping company NJOY. At the time, NJOY products could be found in roughly 35,000 stores nationwide. Per Altria's second-quarter earnings presentation, NJOY's footprint has almost tripled to 100,000 stores. Although the aggressive expansion efforts might suggest NJOY is in high demand, the brand currently only owns about 5% of U.S. retail share. To me, this bodes well for NJOY's long-run momentum and validates Altria's investments and focus on smokeless tobacco. Another reason why I love Altria stock is that the company has been actively buying back shares for some time now. Through the first six months of 2024, Altria repurchased $2.4 billion of stock at an average price of $44.50. Companies may opt to buy back shares when management thinks the stock is undervalued. Considering Altria currently trades at about $51 per share, the company's repurchase program is looking pretty savvy right about now. Given its consistent history of raising its dividend, coupled with an exciting new chapter featuring the next frontier of the tobacco industry, I see Altria as an outstanding opportunity for investors seeking a combination of gains and reliable passive income.

Five 8% Yielding Blue-Chips For This Volatile Market

Looking for more investing ideas like this one? Get them exclusively at The Dividend Kings. Learn More " Since the VIX (S&P volatility index) was introduced in 1990, the average has been 19.5, indicating implied daily volatility of plus or minus 1.22%. We had six weeks from May to July 16 without a single down 1%-plus day. And then this happened. Stocks went from drifting straight up with very low volatility to steadily more frightening declines, and now stocks are melting up yet again. Stocks are now up eight straight days, an impressive 8%, with the Nasdaq up 11% and the Mag 7 up 12%. Much of that has been driven by NVIDIA (NVDA) and its almost 30% rally (44% off the Aug. 5 intraday low). Naturally, such swift gains might make you think, "Is this a bubble?!" How can it not be? Eight-day winning streaks are common following corrections like we just saw. It wasn't technically a correction -- just a 9.7% decline -- but one marked by the third-highest spike in volatility ever recorded. Following periods of intense volatility spikes, stocks tend to deliver exceptional returns. After periods of such intense volatility, the average short-term stock returns 40% within the following year. That's nearly 4X the average 12-month return since 1926. Following the top 20 VIX spikes in history, stocks have never failed to be positive the following year. The worst return was 9.8%, a year after the worst month for stocks in decades (October 2008). The good news is that 2024's 10% EPS growth is expected to be powered by secular solid growers led by big tech. Next year is expected to be even better, with 15% EPS growth and as much as 21% in some sectors. But those are today's forecasts. The future is always a series of probability curves, and forecasts can change rapidly if the economy falls into recession. Goldman Sachs is much less optimistic about next year's earnings, expecting just 6% growth. Mind you, the bottom-up accuracy rate over the last 20 years, according to FactSet, is 92%. Bottom-up consensus estimates are always superior to the top-down forecasts of even the most accurate forecasters. But why is Goldman so much less bullish? Perhaps because of data like this. The job market might be weaker than in some popularly followed data. Goldman expects the upcoming annual revision to jobs reports to show 50K to 80K fewer jobs than initially reported. If true, that could mean that job growth was close to zero in weaker months like July's report. It's essential to keep such scary headlines in context. "Record highs" mean "highest since 2014," and in July, 4.25% of Americans were worried about losing their jobs in the next year. Retail sales are holding up very well. The vibes might be recessionary, but the economy is stronger than the rolling two-year average and trending up, not down. Around Aug. 5, the average of six economic indicators was -0.1, which is the standard deviation below the two-year rolling average. Now it's 0.05 stds above average and trending toward +0.1 stds above average by Election Day. Goldman Sachs raised its recession forecast on Aug. 2 and just cut it from 25% to 20%. It says that on Sept. 6, it might cut it back to 15%, where it was on Aug. 1. Narratives are shifting by the week, with the growth scare still the biggest brick in the wall of worry that the market is climbing. But nowadays, it's easy to tell any economic story you want in charts. Any single indicator will never give you a complete view of the economy. That's why I use eight leading indicators. Each is a meta-analysis or model incorporating dozens of metrics. You can read the linked article to explain this chart, but the bottom line is that these numbers represent over 120 weekly financial indicators. Since 1971, the US economy hasn't experienced recessionary conditions as long as the trends have been negative (below average financial stress). Right now, every index and subindex say the economy is still growing. While using average valuations going back more than 100 years is not statistically valid, many investors get nervous looking at charts like this. But the good news for value investors, or anyone who feels uncomfortable buying stocks at such high absolute valuations, is that it's always and forever a market of stocks, not a stock market. If you can't shake the feeling that the market is wrong, even though it's "been wrong" for 15 years now, consider ultra-yield blue chips. You can find 7% or even 8% yielding blue chips with investment-grade balance sheets, very low-risk dividends, and S&P risk management that's in the top 33% of global companies. When you earn 7% or 8% yield, you only need 2% to 3% long-term growth, basically keeping up with inflation, to earn the market's historical 10% returns (7% inflation-adjusted since 1800). Stocks delivered 7% real return for 220 years and the last 100, 50, and 25. While past performance does not guarantee future returns, centuries of US stocks doubling inflation-adjusted wealth every decade indicate that 7% real return expectations going forward are reasonable. OK, this is all very bullish but speculative, right? If and only if S&P profits grow 2X as fast as they have in the past (and since 2020) into the future, could these total return potentials actually be justified? On the other hand, if you're getting a 7% to 8% blue-chip yield, you don't have to worry about 12% profit growth. All you need is companies to grow earnings and dividends at the same rate as inflation, and you can earn double-digit returns... while potentially using dividends to fund a comfortable or even rich retirement. Finding low-risk 8% yield from quality companies is challenging because I refuse to recommend junk yield that will likely face a dividend hike. So, for today's screen, I used the following criteria. Three of these companies are Super SWANs or Ultra SWANs, the highest quality companies. Two are more speculative, though not unsafe, and are A-rated by S&P, though their businesses are more cyclical. 8% yield vs 1.3% S&P, 3% Vanguard High-Yield, 4% SCHD, and 3% long-term risk-free cash yield (bond market consensus). 19% discount to historical fair value vs 5% S&P premium. For context, 19% is approximately the same discount as ETFs like SCHD, but with a low-risk yield that's 2X as high. Their average quality is blue chip with 80.6% dividend safety, which indicates a 1% risk of a dividend cut right now, less than 2% risk of a cut in a historically average recession, and a 4% risk of a cut even in another Great Recession level downturn. S&P rates these companies BBB+ stable, ranging from BBB to A stable. Their average 30-year bankruptcy risk is 4.63%, the approximate risk of losing 100% of your money if you buy them today. S&P rates not just credit ratings but also an overall long-term risk in more than 1,000 categories, including interest rate, regulatory, and cybersecurity risk. These five 8% yielding blue-chips are BBB+ stable rated, with long-term risk management in the top 12% of global companies -- that's the top 1/8th of long-term risk management. All that quality and low-risk income and at a 20% historical discount. While most high-yield companies have slow growth, such as SCHD's 6% growth rate, these five blue chips have consensus forecasts of 8% growth. For context: Analysts are very bullish on long-term growth prospects for large-cap growth. But what if you could achieve the same total return potential while getting a 10X higher yield? And it's not just the long-term return potential that's excellent. The five-year consensus return potential is 17% per year. And over the next year alone, their fundamentally justified return potential is 34%. That's not a forecast. It means that "if and only if these companies grow as expected and each returns to historical fair value, a 34% total return a year from now would be 100% justified." But remember, the S&P, under the most optimistic outlooks and scenarios, can't justify more than a 27% total return in the next year. The S&P is down to a 1.2% yield, while you can lock in an 8% yield today with these five blue chips. Whether looking for yield, value, or total returns, these five 8% yielding blue chips offer awe-inspiring potential and attractive attributes. But what evidence is there that they can achieve these incredible returns and income growth? For the last 23 years, these ultra-yield blue chips beat the S&P though with higher volatility (as you'd expect from just five stocks). These blue chips delivered an average annual return of 12.4%, less than analysts expect today (I'll explain why in the risk section). These 8% yielding blue chips have delivered about 12% income growth for nearly a quarter century and are far more reliable than the S&P. In 2001, they yielded 2% less than today and delivered 12% returns with 5% average annual dividend growth. Of course, the nice thing about buying 20% undervalued blue chips is that you don't have to wait decades for potentially life-changing income and total returns. Average: 87% = 23.3% annually vs 35% or 12% annually S&P. 1-Year Fundamentally Justified Upside Potential: 34% vs 8% to 27% S&P. MPLX is a Master Limited Partnership, which means it has complex tax implications for investors in the US and overseas. MPLX uses a K1 tax form, which means that it's best owned in taxable accounts to take advantage of the tax-deferred nature of its distribution. Legal And General and BASF are UK and German companies, respectively. German companies have 26.375% dividend tax withholdings. You can get a tax credit only if you own German companies in taxable accounts. The withholding still occurs in tax-deferred accounts, but you can't get tax credits for 401Ks, IRAs, etc. In contrast, UK companies (other than REITs) have no dividend withholding, so it doesn't matter whether you own it in taxable or tax-deferred accounts. However, BASF is a more cyclical company, with an earnings bear market since 2011. BASF has been a dependable dividend payer, avoiding dividend cuts since at least 2010 in local currency. However, that might have been due to its low starting payout ratio, which gave it a lot of safety buffer. A-rated BASF can borrow to sustain the dividend in the short term, but if there's a global recession, it might cut its dividend as some analysts expect (though it's a minority of analysts). BASF is a speculative blue chip as it is expected to return to strong growth in the future, but it has to prove that it can deliver that growth. In other words, while the 8% yield appears relatively low risk today, that might not hold if the global economy is weaker than expected in 2025 or 2026. LGGNY has historically used a 35% to 50% payout ratio range to maintain dividend safety buffers. In 2020, Legal & General reiterated its progressive dividend policy, which reflects the group's medium-term underlying business growth, including net cash generation and operating earnings. In other words, LGGNY plans to raise or keep the dividend flat and never cut it unless necessary, even if EPS falls in any given year. LGGNY's payout ratio is expected to remain elevated for several years, LGGNY has a new business model (it sold its legacy insurance to Allianz in 2019) and annuity is more stable than traditional insurance. However, a 70% payout ratio is still unsafe when EPS can fall 25% to 50% annually. This A-credit rating company could sustain a year or two of payout ratios above 100%. Still, rating agencies could eventually pressure it to cut if it falls into a sustained earnings recession. And don't forget that every individual company has individual company risk. The S&P will always recover eventually, barring the permanent destruction of the US and global economy. No portfolio can protect against the apocalypse. Individual companies don't often recover from catastrophic declines. Our comprehensive safety and quality model uses over 1,000 metrics to measure income dependability and overall company risk. Avoiding permanent catastrophic declines of 70+% is critical to long-term success. But even if you own an Ultra Sleep Well at Night Aristocrat, like MO, volatility will still be present. These high-yield blue chips can be more volatile than the S&P, creating some major bear markets you must be willing to ride out. Statistically speaking, you should expect one month to be up or down 10% to 11% at least once per year. Since 2001, these 8% yielding blue chips have delivered 104% of the S&P's upside in rising markets and 99% of the downside in falling ones. But of course, some of those worst months occurred during months when the S&P was flat for up. When the market was up 2%, there was as much as a 10% decline for a 12% monthly underperformance. In other words, never forget that owning individual stocks and portfolios that look nothing like the S&P will result in tracking error. It's a feature, not a bug, but some investors will experience market envy or FOMO and quit in disgust, which can lead to costly losses in high-yield blue-chip investing. High-yield blue chips are never a bond alternative. Junk bond alternatives? Sure, they could serve as a reasonable alternative to junk bonds if you remember that bonds are first in the capital structure of companies (so the fundamental risk of losing 100% of your money is much lower). High-yield stocks are much more volatile than junk bonds. However, avoiding major market declines requires smart asset allocation depending on your financial and emotional risk tolerance. These 8% yielding blue chips showcase that it's always and forever a market of stocks, not a stock market. If you don't buy into the growth stock hype? Don't think that AI will drive 12%-plus long-term growth for the S&P? You can make a prudent bet that 8% yielding blue-chips growing dividends at 5% to 8% over time will deliver great returns and the income you need to retire in comfort and dignity, and possibly, safety and splendor.