Dividends are an investor’s friend. Over the last 50 years, they’ve accounted for nearly half of the stock market’s total return. But in a market with increasingly high valuations, how do you find good values? Many of the so-called safe stocks, such as staples, have gotten increasingly expensive. According to Ned Davis research, the forward P/E ratio of the top 25 S&P 500 stocks by dividend yield is 17, vs. a 36-year average of 12.
With that backdrop in mind, here are 7 stocks for 2017 that provide adequate yield and are available at a reasonable valuation. Each of them has a yield exceeding 2.4% (the current yield on the 10-year treasury bond) and with a forward PE ratio under 17:
- Alliance Resource Partners (ARLP) is one of the few surviving coal operators that has actually prospered in the face of multiple threats regulatory and environmental challenges to its industry. Return on equity is excellent, over 20%. The company pays a very healthy dividend of 7%.
- CA Inc (CA ) provides information technology solutions to large companies around the globe and has been well-positioned to capture a larger market share of cloud computing services. It’s PEG ratio (price to earnings growth) is a paltry 0.64, which is excellent for a technology company of CA’s stature. The current yield is 3.25%.
- Ericsson (ERIC) is a network equipment company headquartered in Stockholm, Sweden. The company has struggled over the past few years but strong earnings growth in recent quarters suggests that the sell-off is overdone and presents a nice buying opportunity. The current yield is an outstanding 8.6%, reflecting in part the uncertainty around its product lineup.
- First American Financial (FAF) provides a range of insurance services and home warranty products for the residential real estate market. Earnings are growing nicely (17% yoy) and the recent 5% drop in its stock price presents a good buying opportunity for patient investors. The current yield is 3.8%.
- Fibria Celulose SA (FBR) is a pulp manufacturer headquartered in Sao Paulo, Brazil. The company offers a nice financial trifecta of very strong earnings growth, cheap valuations (p/e ratio under 7) and a healthy dividend of 12%. The company has very strong market share and should benefit from improving prospects for the Brazilian economy.
- Freightcar America (RAIL), as its name suggests, builds freight and railway cars. Sales and Earnings have grown over 40% over the last 5 years, and dividends have more than kept pace, growing 50% over that same period. Valuation is excellent, with a PE ratio under 8. The current yield is 2.41%
- Validus Holdings (VR) provides specialized business insurance services. They deliver consistent results and their gross profit margin exceeds 40%. The yield is 2.5%.