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Wall Street’s Best Dividend Stocks 310

The economy remains strong, prompting the Federal Reserve to raise interest rates another 25 basis points, and signaling that two more rate increases are in the cards for the rest of this year. The unemployment rate for June did rise from 3.8% to 4%. But the housing market remains healthy and estimated second quarter earnings growth for the companies in the S&P 500 Index is 20%. If that number is correct, it will be the second best earnings growth that we’ve seen since the third quarter of 2010.

Wall Street’s Best Dividend Stocks 310

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Congrats to the Top Picks 2018, Mid-Year

The markets have seen more volatility in 2018 than last year, with the Dow Jones Industrial Average showing net gains of just 57 points for the year. But the good news is that our contributors have walloped that score!

Capturing first place is Ingrid Hendershot of Hendershot Investments, who recommended The TJX Companies (TJX). When recommending this company, Ingrid said, “The TJX Companies is the largest off-price retailer, giving it tremendous buying power and solid relationships with more than 18,000 merchandise vendors in 100 countries around the world. “Same store sales have risen each year over the last four decades with the exception of only one year, a truly remarkable retail achievement.

“TJX announced a 20% increase in its dividend for fiscal 2018, marking the 21st consecutive year of dividend increases. In addition, management plans to repurchase approximately $1.5 billion to $1.8 billion of its stock during fiscal 2018 and still end the year with $3.3 billion in cash and investments.

“Long-term investors shopping for a bargain should consider The TJX Companies, a well-managed HI-quality business with strong brand loyalty, outstanding cash flows, steadily growing dividends and substantial share repurchases.”

Nancy’s Take: TJX beat earnings’ estimates by $0.11 last quarter and four analysts have raised their EPS forecasts for the company in the last 30 days. The stock still looks attractive, both fundamentally and technically.

In second place is Intel (INTC), recommended by Charles A. Carlson, editor of DRIP Investor. Here’s what Charles had to say about Intel: “Intel (INTC) is the sort of “old” tech company that is gaining favor on Wall Street because of its pivot toward higher-growth markets in the technology space.

Intel is remaking itself. Wall Street is starting to catch on to the transformation at the company, but there is still plenty of upside remaining in these shares.

“I look for the transformation to continue in 2018, which should be reflected in better growth rates and higher profits. The yield enhances the stock’s total return.

“The technical action has been quite impressive, as the stock recently broke out from a three-year trading range.

“The stock is a low-volatility way to play the high-volatility tech sector and should outperform the broad market in 2018. It is my top pick for conservative investors over the coming year.”

Nancy’s Take: INTC has long been a favorite on my shopping list, as well as the 25 analysts who have recently increased their earnings forecasts. The company beat EPS estimates by $0.15 last quarter and is expected to grow at an annual rate of 15.6% over the next five years.

Chloe Lutts Jensen, Chief Investment Officer of Cabot Dividend Investor, picked UnitedHealth Group (UNH), currently the third-best gainer for our 2018 dividend stocks.

Chloe had multiple reasons for selecting UnitedHealth, saying, “United Health Group (UNH) is the world’s largest health care company.

The company’s primary business is still health insurance, but more recently, it has diversified into pharmacy benefit management, running its own health centers, and providing health care-related services and technology.

“UnitedHealth’s vertical and horizontal integration give the company an advantage in delivering healthcare profitably. For example, when members of the company’s insurance plans are treated at company medical centers, insurance payments remain within the company.

“UnitedHealth’s operating margins are a rock solid 7%, and the company’s balance sheet is strong. Revenue growth is high and steady—revenues have increased in each of the past 10 years, by an average of 9% per year.

“Thanks to its solid dividend history and 31% payout ratio, UnitedHealth earns a perfect Dividend Safety Rating of 10 out of 10 from IRIS, our dividend stock rating system. The stock’s Dividend Growth Rating of 9.0 is also excellent, reflecting UNH’s recent dividend growth rate of 29%.

“And the stock has low volatility: it has slowly but steadily climbed almost 40% over the past year, unfazed by months of Obamacare repeal efforts as well as the more recent CVS-Aetna merger.”

Nancy’s Take: UNH looks very strong; 23 analysts currently rate the stock ‘Buy’ or ‘Strong Buy’ and only one has a ‘Sell’ rating. The company beat EPS estimates by $0.15 last quarter, and is expected to post growth of 16% per year during the next five years.

Adrian Day, of Adrian Day’s Global Analyst, has continued to like Ares Capital (ARCC) as his favorite stock pick, for several years now. Here’s why: “Ares Capital Corporation (ARCC) is the largest and one of the most conservative Business Development Companies, lending money to small and mid-sized companies, which, like REITs, distribute essentially all of their net income to shareholders.

“It also has among the best returns over the years and yet is one of the cheapest right now. There is a reason. Ares is digesting the acquisition in early 2017 of American Capital, which was the second largest publicly traded BDC. ARCC is rolling over ACAS’s low-yielding assets into the more typical high-yielding BDC loan, but until that process is further along, it is not able to increase the dividend on its now-higher share count.

Nancy’s Take: 12 analysts currently rate ARCC ‘Buy’ or better, with 4 ‘Holds’. Thriving with the economy, earnings estimates are rising, yet the stock remains undervalued, trading at a P/E of 8.9, less than half of the industry average of 19.7.

Rounding out our Top 5 is Oppenheimer Holdings (OPY), selected by Douglas Hughes of Hughes Investment Management. In his recommendation, Douglas noted, “Oppenheimer Holdings (OPY) now makes up over 60% of all funds, and while many may think that is too much, the only way to get rich is to not diversify; you only diversify when you are rich.

“OPY is under the radar. But the relative strength is building quickly each week. Fair value in this market with no deal (to buy the company) is $30.00 to $33.00, or 50% more upside still.

“At OPY, the insiders always buy shares each year and never sell any, and even the company bought a bunch back.

“The company is so small a deal is the only thing that makes sense in this low interest rate world. Someone could buy OPY for almost nothing. So, while the stock is certainly trading more like a deal could come any day, it is steal cheap.

“On OPY, you could have made and can still make something like ten times your money if you time the move right. This is how value investors get rich over time, with very few losers.

$36 is a fair price for the company, with no deal by the end of 2018.

Nancy’s Take: This small-cap bank ($384m) looks like a great takeover candidate. The bank is expected to grow by 15% annually over the next five years and beat analysts’ EPS estimates by $0.16 in its latest quarter. Profitable regional banks are ripe for the picking in this economy.

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Congratulations to all of our contributors for a great first half of 2018!

Following are updates to many of our 2018 Top Picks, a couple of new Top Picks, and several more ideas to strengthen your portfolios.
To read the rest of this month’s issue, download the PDF.


The next Wall Street’s Best Dividend Stocks issue will be published on August 8, 2018
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