5 Big Dividends To Add To Your Watchlist

Brett Owens, Chief Investment Strategist
Updated: April 25, 2016

There’s a common misconception when it comes to dividend paying stocks. They’re conservative, lumbering, defensive assets only to be used as a portfolio-balancing act. In other words, “boring.”

But dividend payers have a terribly misunderstood reputation. True, they operate as defensive stocks – but they can also be great instruments of profit. Imagine owning a stock that not only produces solid growth but also pays you a bonus for owning it every quarter. Now picture this investment in an industry that no one else is paying attention to making these stocks deeply undervalued and under-appreciated.

Good news – there is. High-yielding dividend stocks are great value pick-ups for investors in this market. The yield on the 10-year treasury is a dismal 1.85% and investors are hungry for fat yields. Unpopular investments or companies that aren’t in the spotlight tend to be ignored and price disparities can be exploited by those who know what to look for. For value investors, “boring” translates into opportunity.

There hasn’t been a more unpopular industry lately than energy. Wall Street avoids these stocks like they’re members of a leper colony, but their mistake could be your opportunity. The oversupply issues along with the war that OPEC has seemed to declare on other oil and gas producers like US shale oil has kept prices low for more than a year. Longer term, oil prices will likely be higher rather than lower.

Here are five out of favor stocks that pay dividend yields up to 7.6%, and also possess solid management and undervalued businesses.

Ensco plc (ESV) is a $2.8 billion U.K. based oil and gas drilling company with the distinction of being the second largest offshore driller in the world. The stock was recently upgraded by both Morgan Stanley and Deutsche Bank after a secondary offering was announced. The stock trades well below its industry average of nearly 35-times earnings and has a long term EPS growth rate of 10.8%. The dividend yield is a beefy 5.3% as well giving investors plenty of ways to profit from this trade.

Another offshore oil driller from the U.K is Noble Corporation plc (NE). Talk about a company that’s been beaten up and rejected by Wall Street, Noble is down around 25% year-over year. But through the last quarter the stock has put up staggering numbers, rallying an astonishing 60%. Still, this stock is still undervalued as evidenced by its book value being more than double its current price and its long term EPS growth rate of nearly 21%. Its hefty dividend yield of 5.2% is another added bonus for this fast growing company.

The third U.K.-based oil driller on the list is a name most investors should recognize – BP plc (BP). Since its infamous fallout from the Deepwater Horizon accident, BP has committed itself to giving back to the environment and its investors as well. The company has fared well in the face of low oil prices and looks too undervalued right now for investors to keep ignoring. The stock comes with an eye-popping 7.6% dividend yield.

Another oil staple is the Chevron Corporation (CVX). This massive $194 billion energy conglomerate trades as if it’s unaware of any problems in the oil industry with gains of nearly 15% year-to-date and more than 30% for the quarter. It carries a relatively low debt burden as compared to its peers with a long-term debt-to-equity ratio of only 0.22 while also carrying a healthy dividend yield of 4.2%. It’s managed to avoid the troubles that most other oil companies have been dealing with thanks to its shrewd management team and unburdening of unprofitable segments while it patiently waits out the oil crisis.

France-based Total S.A. (TOT) rounds out our list. Like Chevron, Total S.A. has managed to post a gain for the year at 11.5%. The company’s secret is its diversified business model and production business that’s able to operate and put up gains even during this environment of stagnant oil prices. It pays a 5.6% dividend yield that’s well secured by cash flows, regardless of how long the oil downturn lasts.

A production freeze would send these energy stocks soaring but as I mentioned last Wednesday I’m concerned about energy stocks in the short term. Money managers are as bullish on crude oil as they’ve been since last July, which means prices are probably heading lower rather than higher. I’m forecasting a 30% pullback in the goo to clear their bullish bets, and I’d wait until then before considering these energy names.

Contrarian plays do often pay off for investors, but it’s all about the timing. And if you’re looking for a growth-oriented approach to high dividend yields with immediate upside ahead, the healthcare sector is where you want to be right now.

The healthcare industry is experiencing a paradigm shift in demographics with 77 million baby boomers entering their retirement years. It’s ripe for the picking and the dividend yields that can found in the healthcare space are juicy. Three hot niche plays offer annual yields of 6.6%, 7% and 8.9%, not to mention the solid growth we’re seeing in these companies.

These healthcare plays won’t stay a secret from Wall Street for long and you’ll want to buy them before word gets out on these stealthy winners. Click here to find out the names and tickers of each, along with full buy analysis.