Chevron and other dividend stocks to help ride through market volatility

Harriet Lefton of TipRanks
Key Points
  • The dividend payment provides a steady source of income every quarter which, investors hope, should increase over time.
  • Stocks with a history of increasing their dividend each year have also produced higher returns with considerably less risk than non-dividend-paying stocks.
Traders work on the floor of the New York Stock Exchange.
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Given the current volatility of the market, dividend stocks are becoming an increasingly popular way for savvy investors to hedge their bets.

Regardless of market conditions, the dividend payment provides a steady source of income every quarter which, investors hope, should increase over time. And investors can boost their holdings by reinvesting that income into more shares.

According to Bank of America, dividends can be a sign of corporate financial health. In a commentary on its website for brokerage customers, the firm says, "Dividends may help to mitigate portfolio losses when stock prices decline, and over long time horizons, stocks with a history of increasing their dividend each year have also produced higher returns with considerably less risk than non-dividend-paying stocks."

TipRanks, a service that ranks Wall Street analysts, identified the top analysts and found which dividend stocks they like right now. It used a natural language processing algorithm to rank analysts based on two factors:

  • Average return of buy-sell recommendations.
  • Success rate of buy-sell recommendations.

TipRanks allows users to screen for "best analyst consensus" stocks across the different sectors, revealing stocks with a "strong buy" best analyst consensus rating. Then it scanned a database to find the most popular dividend stocks by top analysts right now.

Here are four favorite dividend stocks from the best-performing analysts.

Chevron (CVX)

With 31 consecutive years of dividend growth, Chevron easily qualifies as a "dividend aristocrat." This is an elite group of only 53 companies worldwide with 25 or more consecutive years of dividend growth. Most recently, Chevron directors agreed on a quarterly dividend of $1.12 a share, a 3.93 percent dividend yield.

Shares are currently trading at $115, down from over $130 in January. Prices have been under pressure since the company reported fourth-quarter results. According to Cowen & Co. analyst Sam Margolin, investors are concerned about the company's Australian liquefied natural gas business and growth in the Permian oil basin.

However, he says both are still fundamentally intact. As a result, Margolin reiterated his buy rating on Feb. 22 with a bullish $160 price target, which is 40 percent higher than where the stock currently trades.

Similarly, J.P. Morgan's Phil Gresh has just raised his price target $5 to $135. He calls the fourth-quarter results "messy" but says: "We think that the current valuation is a favorable entry point for a company that we expect to have a balanced long-term story around production growth, FCF generation, and return of capital through at least 2022 with fairly low execution risk."

Overall, this strong buy stock has seven consecutive buy ratings from top analysts in the last three months. Meanwhile the average analyst price target is $142, or 24 percent higher than the current price.

Broadcom (AVGO)

Semiconductor giant Broadcom Limited has just paid a dividend of $1.75, up from $1.02 the previous quarter. With a dividend yield of 2.7 percent, Broadcom has an impressive dividend growth record of eight years and counting.

President Donald Trump blocked Singapore-based Broadcom's $117 billion hostile takeover of Qualcomm on March 12. He attributed the unusual decision to national security concerns.

Even without Qualcomm, analysts still see Broadcom as one of the best investments out there. Indeed, with share prices lagging slightly, analysts say this is an attractive entry point to a stock with both sequential growth and margin expansion catalysts.

Oppenheimer analyst Rick Schafer wrote on March 16: "Now past the QCOM saga, we expect AVGO to return to its playbook finding and executing 'bitesized' accretive deals. We remain long-term buyers with a $315 target."

He adds: "We believe AVGO has one of the most strategically and financially attractive business models in semiconductors." Going forward, the company enjoys multiple catalysts including a sustained competitive advantage in high-end filters and a "sticky" nonmobile business. Plus management has the sought-after ability to drive enviable growth/profitability in a host of business environments.

Broadcom is consistently one of the most popular stocks on the Street, with 19 buy ratings and only one hold rating. The $325 average analyst price target translates into 33 percent upside potential.

Philip Morris International Inc (PM)

Marlboro-maker Philip Morris pays out a lucrative dividend yield of just over 4 percent. This translates into a relatively high annualized payout of $4.28, or $1.07 per quarter.

Right now, PM is capitalizing on its new commitment to a "smoke-free" future. According to the company, around 5 million consumers have already chosen to switch from cigarettes to its tobacco heating system IQOS. PM says that because real tobacco is used, the product is more appealing to cigarette smokers. From a health perspective, heating rather than burning the tobacco stops the harmful ignition process that produces more than 6,000 chemicals.

Cowen & Co. analyst Vivien Azer approves of the strong push into this new product category. "Excitement around iQOS continues to be a hallmark of the PM story, as the company continues to capitalize on their first-mover advantage in Heat-Not-Burn," wrote Azer last month. In light of this, she reiterated her buy rating and $120 price target on Feb. 10.

Bear in mind this "strong buy" stock has 100 percent support from the Street right now. In the last three months, analysts have published five back-to-back buy ratings on the stock. Plus, with an average analyst price target of $123, analysts are predicting upside potential of over 21 percent.

Lam Research (LRCX)

Lam Research is a pure-play on memory-chip manufacturing tools. The company currently pays a dividend of $0.5 per quarter on a relatively low yield of 0.92 percent. However, this is expected to substantially improve in the next few months.

At an "upbeat" analyst's day on March 6, management announced an expanded dividend and share buyback program. On the news shares surged 5 percent, to $207, and have kept rising since.

"As we expected from mgmt's previous remarks, cash return was addressed with a very significant 120% dividend increase to $1.10/qtr and a $2B SBB addition on the heels of 11/17's $2B move" explained B.Riley FBR's Craig Ellis on March 7. The company now has a goal of returning at least 50 percent of free cash flow over the next five years.

KeyBank analyst Weston Twigg is still bullish on the semiconductor equipment space, and highlights Lam Research as "one of the best ways to invest." He sees prices spiking 27 percent from current levels and raised his price target to $276 from $261 on March 6.

Analysts have recently published 13 consecutive buy ratings on the stock. With a 12-month average analyst price target of $264, these analysts see prices increasing 21 percent in the coming months.