December 12, 2018
With a potential interest rate increase around the corner, investors are creeping back into banking stocks. That's not too surprising, given that banks are big beneficiaries of higher rates. Rising interest rates equals rising profits for many financial institutions.
Personally, though, I'm not a fan.
As my long-time readers know, I used to be a banking analyst with the Federal Reserve. So, I know all too much about the industry, including all the "dirt" behind big scandals involving banks like Wells Fargo. As a result, I remain leery of big bank stocks.
We also need to consider the flattening yield curve. The yield curve, in my opinion, has been flattening out for more than six months now–and that is not good news for big money center banks. This is because a flatter yield curve squeezes their operating margins. In other words, the steeper the yield curve, the more money banks make. The flatter the curve, the less money they make.
So, while financial stocks are growing in popularity with the financial media, I don't recommend buying them right now. Instead, your focus should be on stocks set to lead the market's recovery after the October/November correction. I'm talking about dividend growth stocks.
Consider this: Treasury yields have fallen significantly in recent weeks. The chaos around the world–the impending Brexit, negative GDP growth in Germany and Italy, etc.–has ignited a flight to quality with the U.S. serving as an oasis. As a result, the 10-year Treasury yield recently dipped below 3%, and it is now sitting at about 2.9%.
With Treasury yields falling, many income investors are now pouring into dividend growth stocks since they yield more than a bank and Treasuries. They're also great for tax-sensitive investors, as they're largely taxed at 23.8% max federal. So, I am confident that they will lead the stock market recovery in the coming weeks.
With that in mind, let's take a look at three dividend plays that are great spots to park your money.
Medifast, Inc. (MED) is a nutrition and weight-loss company that provides several programs to help people lose weight and eat healthier. The company is known for its Medifast Meals, which are fortified with nutrients and vitamins and feature low-fat protein and fiber. So the meals provide essential nutrition, while helping people lose weight.
During the third quarter, Medifast's total revenue soared 80.3% year-over-year to $139.2 million, which was a new record for the company. Third-quarter net income surged 106% year-over-year to $13.8 million, or $1.14 per share. That was in line with analysts' expectations.
Given the strong third-quarter results, Medifast increased its fourth-quarter and fiscal year 2018 guidance. For the fourth quarter, the company expects revenue will range between $137.3 million and $142.3 million, and earnings will range between $1.15 and $1.20 per share. This is well above the Street view of $130.2 million in sales and earnings of $1.16 per share.
Plus, Medifast has a history of upping its quarterly dividends. In fact, Medifast increased its quarterly dividend by a whopping 56% this week. The company will pay a dividend of $0.75 per share, up from the $0.48 per share dividend paid in the previous quarter. The stock has a current 2.2% dividend yield.
Clearly, Medifast offers a solid combination of income and growth: It has an A-rating in both my Portfolio Grader and Dividend Grader. I recommend MED in my Breakthrough Stocks and Growth Investor newsletters.
NextEra Energy (NEE) is the world's largest utility company, generating more wind and solar energy than any other company in the world. It also owns and operates generating plants powered by natural gas, nuclear energy and oil.
The company reported solid third-quarter results, with earnings of $2.18 per share topping estimates for $2.14 - a 1.86% earnings surprise. Revenue was strong, coming in at $4.4 billion, although a little short of the estimated $4.9 billion. Looking forward, management continues to expect FY earnings of $7.45 per share to $7.95 per share, which tells us that the company still has good earnings momentum.
NextEra Energy also has a steady history of maintaining its dividend, as it's paid a dividend for an incredible 131-straight quarters. Most recently, the stock went ex-dividend on November 29. Shareholders of record on November 30 will receive $1.11 on December 17. The stock has a 2.43% dividend yield.
The Boeing Company
The Boeing Company (BA) is the world's largest aerospace company and leading manufacturer of commercial jetliners, defense, space and security systems, and service provider of aftermarket support. It also supports airlines and U.S. and allied government customers in more than 150 countries.
The company reported a strong third quarter. Earnings of $3.58 per share beat the consensus estimate of $0.11. Revenues were $25.15 billion, $1 billion more than expected. Company management also raised full-year earnings estimates to $14.90 per share to $15.10 per share, well above previous guidance of $14.30 per share to $14.50 per share. Boeing also expects full-year revenue to come in at a record $100 billion.
Thanks to strong fundamentals, Boeing has consistently paid and increased its dividends over the years. The company has paid a dividend for 84-consecutive quarters. BA offers a 2.1% dividend yield at current prices. The company paid out a dividend of $1.71 per share on December 7, which was a 20.4% increase from a year ago.
To summarize, I expect dividend stocks to do very well in the current market environment, and these three stocks in particular are primed to profit. Whether you subscribe to my premium newsletters or not, I recommend these three stocks for new money.
That's all for this week. I'll be back in touch on Monday with the latest upgrades and downgrades in Portfolio Grader, so stay tuned!