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Steven Cress talks to Kim Khan about his top dividend picks for the year. How dividend stocks may fare in 2025 (1:25). Highlighting Quant dividend grades (5:05). Why NewLake Capital Partners is a hold but still recommended (7:20). John Wiley & Sons’ great safety grade; Clorox’s good diversification and profitability (8:45). CareTrust REIT’s strong valuation (11:45). Northrop Grumman’s record backlog (13:30). Philip Morris for diversified yields, comparing it to Altria (16:10). VICI Properties’ great profitability (20:30).
Transcript
Kim Khan: Hello, everyone. My name is Kim Khan. I’m your host today. I’m a news editor and podcaster at Seeking Alpha, and I’m joined by Steve Cress, our Vice President of Quantitative Strategies, and he’s here to talk to us about dividend stocks today. Steve, thanks a lot for joining us.
Steven Cress: Yes, thank you so much for organizing this. I really appreciate it.
KK: So let’s get into the overall market landscape first and how Dividend Stocks might fare in 2025. On one hand, you have an S&P expected to return less than maybe a couple of years of the past bull market. On the other hand, you’ve got treasury yields still staying very high, putting – giving dividend stocks some competition there on the yield scale.
SC: Yes, very true. I think people are cautiously optimistic going into 2025, but there are definitely uncertainties there. And the market many people are also saying is due for a bit of a correction or reversion to the mean. That doesn’t mean that the market can’t do well over the course of the 2025, but it certainly does mean there is the potential for a pullback in the market. And there’s actually quite a few catalysts that could affect it.
One is just the uncertainty over inflation. I think as we were coming into this year, people expected the Fed to cut rates as much as three, maybe even four times. Right now, they’re just hoping for one cut to take place. So inflation has proven to be a little bit stickier than expected. The job market is still good. Labor is the biggest component of inflation. So it looks like inflation could be stickier than people thought, which means that interest rates may not go down. And I think, there’s some caution that people should take on board with that.
Also, from a political standpoint, there’s a lot of uncertainty over how regulations might change or new laws or new taxes. Certainly with tariffs, the current administration could be doing a little jawboning and trying to make some deals. But obviously, there is a potential that they do levy tariffs not only against China, but Canada, Mexico, and Europe. And historically, we have found tariffs to be inflationary.
So there are a number of things that could occur and could also act as catalysts that make the market pull back. So bottom line is diversification is really good for your portfolio.
Investors should continue to look at stocks with good fundamentals, but it doesn’t hurt to have a few defensive stocks or stocks that pay dividends in the portfolio.
And what we wanted to highlight today were our Top 10 Dividend Stocks for this year. And we identified 10 that have an average yield ranging from 1.74% to a whopping 10.56% and some that have had consecutive payouts for up to 47 years. So I’ll pause and see. Do you have any other questions at all?
KK: Okay, let’s say you get a 10-year yield through 2025. That’s going to be around 5%.
Your top 10 picks, they have an average close to 5%. But the idea is you also get the upside on the stock price for these because they are meant to be stocks that Quant Ratings are definitely bullish on. Right?
SC: Just by example, obviously if you’re own a treasury, you’re not really going to get the capital appreciation. If you own stocks, and we’re focusing on stocks that are going to provide capital appreciation and income generation.
So by example, over the last year our Top Dividend Stocks returned 17.5% in terms of the capital appreciation on the price performance and the dividend yield on average was 4.36%.
So that’s considerably higher than what you would have from a Treasury, and we would be looking for the same thing going into this year as well. So the hope is that these stocks will continue to appreciate and in fact the market does have a bit of a correction these probably will not go down as much as the market because you’re being paid to wait with the income that you’re receiving.
KK: So good argument not to just park your money and hide your head in the sand. Let’s talk about these 10 picks.
SC: I guess one of the things that I do want to highlight before I launch into it, and I know people want to hear the 10 picks.
I do want to highlight that we also have from a Quant standpoint, dividend grades. So we have two types of grades that we look at. We look at the grades, the Quant grades for capital appreciation which typically cover value, growth, profitability momentum and EPS revisions.
But we also have dividend grades and the dividend grades cover dividend safety, dividend growth, dividend yield and dividend consistency. And it’s very important as a dividend investor that you want to acquire a stock that has a safe dividend.
So we actually have grades on our dividends. And through our back test, we have found that if you own a stock that has a dividend safety grade from A+ to A-, that in the past 98.77% of those dividend cuts were averted by owning stocks with those dividend safety grades. We also found that 98% of stocks had averted dividend cuts by owning stocks with dividend safety grades between A+ and B-.
So again, if it fell in a range, dividend safety grade, if it fell in a range from A+ to B-, 98% of those cuts were averted. Conversely, we found that 93% of all stocks that cut their dividends had a dividend safety grade between C+ and F.
And something even more telling, 70% of all stocks that had a dividend safety grade of F had cut their dividend.
So these dividend grades are very, very valuable. And we don’t use them necessarily to predict the future price performance, but we do use it to give an indication of what the odds are that a company potentially could cut their dividend.
So I would highly recommend that, we have a portfolio tool on the Seeking Alpha platform, I would recommend that you load up your Dividend Stocks and see what those dividend grades are.
If your dividend grades fall anywhere, those dividend safety grades fall anywhere between A+ and B-, you’re very safe. Even if it’s like, C to A+, you’re typically in good shape. But you want to make sure that you don’t own any of those stocks that have a dividend safety grade that’s in the D+ to F range, because that is a danger zone.
Most of these stocks are Strong Buys, with the exception of one. And one that has a Hold that I am recommending is called NewLake Capital Partners (OTCQX:NLCP). That has a dividend yield of 10.56%. Even though it’s got a Hold, it ranks number one in its industry, which is one out of 13. And it has – it’s a tiny company. Its market cap is about $340 million, but it’s got a really solid balance sheet.
If you’re not familiar with NewLake Capital Partners, they’re a REIT that specializes in providing real estate capital to state licensed cannabis operators. And they pretty much have two type of facilities, one being for real estate properties, including cultivation facilities, and the other are dispensaries. So it’s a really good model because a lot of banks aren’t going to provide loans to companies that want to set up these kind of operations.
The growth of the company looks good, the value looks good, the profitability looks good. The company’s momentum, the stock price has come off recently and it does look like it’s bottoming, but because the momentum had dropped, that’s one of the reasons why it went from a Strong Buy to a Hold.
But I think it looks fairly solid in this territory. Looks like the stock price has some good support, so that’s why we’re continuing to recommending it. And it’s very, very attractive on valuation, the price over AFFO is 7.87x versus the sector at 14.2x. So very attractive valuation.
Our second stock pick is a publishing company called John Wiley & Sons, ticker symbol (WLY). It’s in the communication services sector and it has a forward dividend yield of 3.26%. In its industry, it ranks number one out of seven. They publish – as I said they’re a global publisher and they specialize in scientific publications, technical, medical, scholarly journals, all types of books and digital content.
So we really like it for its yield and it’s got great factors as well, as well as the dividend safety grade, which is an A+, which in my opinion is very attractive. I really like it. I like a strong dividend safety grade, but I like it even better when the dividend growth grade is anywhere between A- and A+.
Our next pick, number three company, very well-known, Clorox. This is a consumer staple company, ticker symbol (CLX). It currently has a yield of 3.08%. It’s got a very big market cap at almost $19.5 billion. And within its industry it ranks number one out of 13. Obviously people know Clorox for their flagship brand, but they also have a lot of other brands including Pine-Sol, Brita, and Glad. So there’s some good diversification in their portfolio.
The profitability grade for Clorox is an A+. They’ve got really strong EBIT margins. Very strong return on common equity as well, strong return on capital. So great metrics. If you go to the Seeking Alpha platform and you pull up CLX, you’ll be able to take a look at the profitability card and look at all the underlying metrics that contribute to that A+ profitability grade.
In terms of the growth grade, it receives an A-, which is great too for consumer staple company because you don’t really see a lot of strength out of consumer staple companies. So that’s a terrific growth rate.
KK: I think Clorox’s high growth grade is really interesting because we faced markets where consumer staples have really been pummeled versus the broader market gains. And to have a company that maybe as the bull market shifts itself to a little more of defensive sectors, having a leader in that space would be a big boon.
SC: I mean, you commonly don’t see this kind of EPS growth for a company of this sort, but the forward EPS growth rate is 12.86% versus the rest of the consumer staples sector at only 6.3%, and that’s on a diluted basis.
On a GAAP basis, the forward growth rate is 79% versus the sector at 9%. So just like incredible growth numbers there for Clorox.
And in terms of the dividend growth grade that receives an A+. So it’s got really strong metrics for some things that I look at which are not commonly looked at, but are important metrics that we’ve back tested for dividend safety or log of unadjusted stock price, that’s an A, 90 day coefficient of variation is an A+. And degree of operating leverage is an A for the company with a multiple of 9.4X versus 1.17 for the sector. So it’s really got some great features in terms of the dividend safety grade as well.
Our next company is a REIT. It’s called CareTrust REIT (CTRE). This company has a dividend yield of 4.32% within its industry. It ranks two out of 17. This company also has some great factors.
If you’re not familiar with it, they primarily invest in skilled nursing facilities and senior housing properties across the U.S. and they lease properties to a diverse group of national senior housing operators. So it’s a national company. It gives you that diversification. It’s in both senior facilities and skilled nursing facilities. So excellent growth areas, as we see a huge shift in demographics going forward.
In terms of their growth. It’s also very strong. The AFFO forward growth rate has a grade of B+. So when you look at these grades that we have, by the way, Kim, they are relative to the sector. So it lets you know when you’re looking at that metric that it’s actually far stronger than the sector. So it gives you sort of an instant characterization. So when I see that B+ for growth, I know it’s stronger than the sector. But then I could just look at the absolute value, the growth rate is 4.57% versus the sector at 1.69%.
So very, very strong growth there in terms of the valuation. If we’re looking at metrics like total debt to capital, it’s an A+. If we look at total debt to equity, it’s an A+ as well. If we look at a conventional metric such as PE, it’s an A-. So great valuation framework and very strong growth framework for the company as well.
Getting away from the REITs, we have a sector that’s done very well over the last year and the stock within that sector is Northrop Grumman, ticker symbol, (NOC). This is probably one of the lowest yields in the group.
But again our focus here is capital appreciation and income. So we sort of average out where that yield is. The forward dividend yield on this is 1.74%. Within its industry, the company ranks number five out of 57. It’s got a tremendous market cap at $68 billion.
For those that are not familiar, they have a broad range of military defense equipment offerings including aircraft, drones, missile defense systems and ammunition.
NOC is one of the largest defense contractors in the U.S. and also supplies customers internationally as well. The company reported a record backlog. This is just huge. It had a record backlog in the third quarter of $85 billion with a book-to-bill ratio of 1.2x. So NOC looking very, very strong as well. And the dividend growth grade on this company is an A-. Again, I really like to see strong dividend growth grades.
Our stock at number six is Ituran Location and Control, ticker symbol, (ITRN). A little bit different too. This is actually in the IT sector, so we’re mixing it up. Previous one in aerospace and defense. This company in the IT sector. It’s one of the very few stocks in the IT sector that you see with a great yield.
The forward dividend yield on this stock is 4.74%. The company within its industry is ranked number four out of 44. And it’s got a Quant Strong Buy rating. The company’s 10 year CAGR for dividend growth rate is 15% versus the sector at 10%. And its interest coverage ratio is 37x, which is absolutely huge, shows that it’s more than capable of covering its dividend.
Coming in at number seven, we have a financial services company, PNC Financial Services, ticker symbol, (PNC). They have a forward dividend yield of 3.19%. Within the financial services sector, it ranks number seven out of 66. Huge company with a market cap of close to $80 billion.
Of course, many people are familiar with this stock in the United States. It’s a diversified bank. It’s everything from retail to commercial loans. A number of different banking segments, asset management, wealth management, traditional banking. So very, very diversified.
In terms of PNC, some of the factors that I like is that it’s solid in terms of its valuation framework. Comes in with a B grade. Growth grade is a B. Profitability is an A+. When we’re looking at the dividend grades, dividend safety is an A. So it’s just about as safe as you can get. And the growth grade comes in a B-, which is plenty strong as well. So lots of metrics to like the company on.
Coming in at number eight is a tobacco company, Philip Morris (PM). So that comes in the consumer staples sector. So really, again, we’re trying to offer some diversification with these stocks and the yields are fairly diversified.
Again, we want capital appreciation and income generation for Philip Morris that has a dividend yield of 4.56%. Very, very large company at $184 billion, currently ranks number one out of eight within its industry at this time. Obviously, people are very familiar with this company. They’ve been around since 1847 and they’re the leading global manufacturer of tobacco and smoke free products.
In 2023, Philip Morris owned roughly 46% of the cigarette retail share in the United States, that’s like a huge number. If you just take a step back and you think about it, 46% market share is just absolutely incredible. But the company has also made a big move in the alternative nicotine space where they acquired more than 93% of Swedish Match.
The company has an A+ for profitability, which is terrific. Its valuation and growth is really in-line with the sector, but the company is extremely profitable. As I said with that A+ in profitability. In terms of the dividend, the safety grade is a B+ and the dividend growth grade is an A+. So it’s really nice that this company consistently grows their growth dividend. And in fact the dividend consistency grade is A- for the stock.
KK: I took a little closer look at Philip Morris just because it’s one of those kind of old dividend aristocrat names that everybody has heard of for their income investing. I don’t know how many of our listeners will remember the call for Philip Morris commercials that’s kind of going way back, but certainly we know the name.
And I dug into Philip Morris International vs Altria (MO). Just to check out what was the difference in taking that pick versus the Altria name. And I think it came down to dividend safety was one of the big things with Altria coming out just for the C+.
SC: If we were to take a look at the two stocks. So ticker symbol for Philip Morris is PM. For Altria it’s MO. In terms of the price return, we’ve gotten a little bit of a better price return over the last 52 weeks with Philip Morris up about 34% and Altria up about 26%.
So they’re sort of neck and neck. But the big thing is, from a Quant perspective, we do have a Strong Buy on Philip Morris and we only have a Hold on Altria. And the difference, the main difference being is in the growth grade.
The growth grade for Philip Morris is a C, which is in line with the sector. But for Altria, it’s a D growth grade. And, you know, if you’re focused on capital appreciation, it’s going to be hard to find it with companies that have a growth grade of D. So that really stands out to me between the two of them.
Also as you mentioned, the dividend safety grade for Philip Morris is a B+, and for Altria it’s a C+. And my preference is, if we want dividend safety, I like those grades to be between B- and A+ if possible.
So coming to stock number nine, it is (RTX), which is in the industrials sector. This has a yield of 2.12%. Within their industry, they currently rank three out of 57, very big company as well. It’s got a market cap of $158 billion. They’ve had 35 years of consecutive dividend payments and 31 years of consecutive dividend growth, meaning that for 31 years have continued to increase their dividend.
This is an outstanding stock in terms of income generation. The dividend safety grade is a B+ and the dividend growth grade is an A-. So to get companies that have those strong dividend grades and that are also a Strong Buy as well, you’re hitting on all cylinders. You’re cooking with gas when you can find that.
The company also has a really impressive track record of exceeding expectations. It’s exceeded expectations for their earnings announcements for the last 20 consecutive quarters, which is just a terrific number and analysts still continue to remain very positive. In the last 90 days, 18 analysts have actually revised their earnings estimates up and zero have revised it down. So we continue to like that stock as well.
And the final one, back to the real estate sector is VICI Properties, ticker symbol (VICI). This has a great dividend yield at 6%. Within its industry, it ranks number one out of 11. Market cap on it is about $30 billion. They have one of the largest portfolios within the hospitality and entertainment industry.
Their iconic brands include Caesars Palace, MGM Grand, and The Venetian, all located on the Las Vegas Strip. The valuation grade looks really good. Overall valuation grade is B+, but when you look at some of the conventional metrics, such as PE, it’s actually an A+. The multiple is 10x versus the sector median at 31 x.
They also have a great profitability grade at A+, which highlights they have an EBITDA margin of 96%, and they have an interest coverage ratio of 4.4x. So more than enough cash to cover their dividends.
And that’s it, those are our 10 stocks for 2025.
KK: Well, the MGM Grand is getting a big renovation this year. We were reporting the other day. They’re doing their entire tower again. And then not too long after that, they’re going to have the Vegas As playing down the block.
SC: Yeah. Well, I think history shows when they do these renovations, it really draws crowds in. People love to go to the newer casinos with all the bling. It’s a model that works.
KK: MGM was saying that they’re focusing on the new visitor profile, which is people who spend big but don’t gamble so much, and they just want events and experiences instead of just going down to the blackjack table all night.
SC: I got to say, I’m one of those individuals. I’m not a big gambler. I feel like I take enough risk with the stock market, so I’m not looking to do that in my free time. But I will say, I have often gone to Las Vegas just to one, enjoy the weather. You can consistently get warm weather there without having to worry about rain. And there’s lots of great restaurants and shows and experiences. So I definitely probably fall into their profile.
KK: So it’s definitely exciting time for dividends. We just saw that (GE), now GE Aerospace is getting back in the game with a big dividend boost and a $7 billion buyback program. So it’s something that already is kind of gaining traction.
Investors, you’ve got Steve’s 10 picks for 2025 and you’ll get a lot more information on that in our story on Seeking Alpha. And that link will be in the Show Notes section of the podcast. And you can get to it easily and do some — do a lot more research on that.
Steve, how do you think the dividend arena is shaping up as the year starts?
SC: Whenever we have pullbacks in the market, I love to acquire the dividend stocks. To me, I tell people don’t pay attention to the talking heads. The market’s doing great, don’t pay attention. If it’s doing poorly, don’t pay attention. Just be out there, with a plan at least minimally, monthly, consistently be buying and just ignore all the noise.
But I will say, when we do get those pullbacks, I probably split like I pick up the companies that have great fundamentals because typically when you have a pullback, some of the stocks that fall the hardest are the ones that have done the best.
And it’s because people want to raise money and there’s a flight to safety, so they sell the really good stocks, which is a mistake. So I would say, acquire the good stocks. But it’s also a great opportunity to acquire those stocks that pay dividends because, a falling tide is going to bring down all ships. So the dividend stocks may not fall as much. So that will offer some protection to your portfolio.
But during the pullbacks, the yields go up, prices go down, yields go up, and it’s a great period to actually acquire stocks with dividend yield as well.
So I would say, if we do get a correction this year, I would be buying dividend stocks as well as stocks with good fundamentals. But I don’t think it hurts to, being that the market has had such a good runup, it’s probably not a bad idea to have a little bit more diversification and add some of those dividend stocks right now.
Feel free to take a look at the article if you have the chance. It’s titled Top Dividend Stocks for 2025. And you’ll be able to follow me if you like to get more articles along these lines.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.