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What Are Dividend Stocks?

Dividend stocks refer to publicly listed companies that pay dividends to existing shareholders. Most US-based dividend companies pay an identical quarterly dividend throughout the fiscal year.

Here is an example:

• Company Y2Z declares a quarterly dividend of $1.25 per share
• Therefore, the company will pay $1.25 per share for each quarter of the fiscal year (for example, in January, April, July, and October)
• An investor with 1,000 shares would receive four payments of $1,250

Why Should You Consider Buying Dividend Stocks?

While the dividend yield stands out, investors should look beyond the yield and analyze the underlying companies on other metrics. Dividend stocks are not short-term trades, but long-term passive income-generating investments.

Here are a few things to consider when evaluating dividend stocks:

• Investors should favor dividend durability to ensure the company can sustain the dividend, even during times of economic uncertainty
• Favor dividend stocks with a well-established dividend history
• Undervalued dividend stocks can provide an additional portfolio boost
• Focus on companies with a business model that does not struggle during economic difficulties
• Invest in dividend stocks that have consistently grown their dividend

What Are the Downsides of Dividend Stocks?

Investors who chase dividend yields could find themselves holding troubled investments. High-yield dividend stocks look good on paper, and the math is appealing, but they come with risks. For example, Two Harbors Investment Corporation (TWO) has a dividend yield above 16.5%, but faces tremendous operating issues and balance sheet woes.

Here is a shortlist of dividend stocks investors could consider as their next investments:

• Pfizer (PFE)
• Chevron (CVX)
• Amcor (AMCR)
• Realty Income (O)
• First Community Bankshares (FCBC)
• Merck (MRK)
• PepsiCo (PEP)
• ExxonMobil (XOM)
• UnitedHealth Group (UNH)
• US Bancorp (USB)
• Medtronic (MDT)
• Verizon Communications (VZ)
• EOG Resources (EOG)
• Schlumberger (SLB)
• Lockheed Martin (LMT)

First Community Bankshares Fundamental Analysis

First Community Bankshares (FCBC) is a bank holding company and the parent company of First Community Bank. It has 53 branches and over $3.2 billion in consolidated assets. Its subsidiary, First Community Wealth Management, offers trust management, estate administration, and investment advisory services with over $1.5 billion of combined assets. First Community Bankshares is also a member of the Russell 2000.

So, why am I bullish on First Community Bankshares despite its recent sell-off?

The yield could be better, but valuations and the P/B ratio indicate an undervalued dividend stock. I like the payout ratio, which is 45.3% covered by earnings. The latest earnings release was reasonable, and its forecasted growth rate of 7.6% matched the expected industry growth rate. Investors will receive a quarterly dividend of $0.31 per share. First Community Bankshares has paid dividends for 40 consecutive years, and last year’s dividend hike marked the 15th consecutive dividend increase.

First Community Bankshares Fundamental Analysis Snapshot

The price-to-earnings (P/E) ratio of 13.25 makes FCBC an inexpensive stock. By comparison, the P/E ratio for the Russell 2000 is 33.65.

The average analyst price target for First Community Bankshares is 41.00. It suggests moderate upside potential from current levels.

First Community Bankshares Technical Analysis

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• The FCBC D1 chart shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan.
• It also shows First Community Bankshares trading inside a horizontal support zone.
• The Bull Bear Power Indicator is bearish but has been trending higher since August with an ascending trendline, and the potential for a sustained bullish crossover.

My Call

I am taking a long position in First Community Bankshares between 35.64 and 37.39. The valuation and the P/B ratio indicate unlocked value. FCBC has an excellent dividend history, and I like its growth strategy of small but strategic acquisitions. I will buy the dip in FCBC.

Realty Income Fundamental Analysis

Realty Income (O) is a real estate investment trust (REIT) and one of the few dividend stocks that pays monthly dividends. It has registered the trademark “The Monthly Dividend Company.” It invests in free-standing, single-tenant commercial properties subject to NNN Leases. O is also a component of the S&P 500.

So, why am I bullish on O despite price action trending sideways since May?

With 15,450 properties totaling approximately 335.3 million leasable square feet, and Dollar General, Walgreens, and Dollar Tree as its three largest tenants, I am confident in O and its strategy. It has over 1,600 clients across 91 industries with a portfolio occupancy of 98.5%. Realty Income has paid a dividend for 662 consecutive months. The NNN Leases shift maintenance and insurance costs to tenants, creating predictable cash flow. O announced a $0.269 per share monthly dividend.

Realty Income Fundamental Analysis Snapshot

The price-to-earnings (P/E) ratio of 56.78 makes O an expensive stock. By comparison, the P/E ratio for the S&P 500 is 29.85.

The average analyst price target for O is 62.39. It suggests decent upside potential for this monthly dividend stock.

Realty Income Technical Analysis

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• ​The O D1 chart shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan.
• It also shows Realty Income inside of a horizontal support zone with a pending breakout.
• The Bull Bear Power Indicator is bullish and has been improving over the past trading week.

My Call

I am taking a long position in O between 57.82 and 58.98. I appreciate its acquisition and investment strategy. O has just announced its 662nd consecutive monthly dividend. Valuations are high, but the P/B ratio suggests an undervalued dividend stock. It is one of the top dividend stocks in my portfolio.

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