7 Rock-Solid
Dividend Stocks
to Buy Now

Jim Pearce

Hi, my name is Jim Pearce and welcome to “7 Rock-Solid Dividend Stocks to Buy Now”.

You’re about to discover our secret of how to avoid getting stuck in the usual choice between safety and high income.

We’ve created this free report, which includes 7 of the top dividend stocks we believe you should buy right now, to address these important questions and challenges every income investor faces:

How can you generate total returns 5 to 10 times higher than the market’s interest rates?
Where do you go to find the juiciest dividends, while keeping a high level of safety?
How can you generate income at a steady pace with much less volatility in your portfolio?
Where do you look to find cash-generating “machines” that will mail you ever-growing checks for the rest of your life?
What’s the best group of “Steady Eddie” dividend stocks that will give me peace of mind?

Enjoy!

Jim Pearce
Senior Analyst
Investing Daily

Dividend Stock #1 — Merck

Though Merck (NYSE: MRK) has a diversified drug portfolio, a big part of its future growth story right now is tied to just one drug, Keytruda.

The blockbuster lung cancer treatment brought in $3.8 billion of revenue last year, accounting for 9.5% of total sales. By 2022, analysts expect sales of Keytruda to grow to more than $11 billion, or nearly a quarter of the firm’s total revenue.

Merck has focused intently on preserving Keytruda’s lead in the immuno-oncology arena. More than 700 clinical studies of Keytruda are underway.

And two of the pharmaceutical giant’s most recent acquisitions—the pending $374 million deal to acquire the Australian firm Viralytics and the $137 million transaction last fall for the German company Rigontec—were both meant to complement and extend Keytruda’s franchise.

With so much riding on Keytruda, Merck seems to rise and fall on trial data results. Last fall, shares fell when the firm delayed marketing Keytruda in Europe until it gets results from a larger drug trial that’s expected to conclude in 2019. That decision risks sacrificing Merck’s lead.

Since then, however, Merck has seen two encouraging results from various drug trials for Keytruda.

In mid-January, the company announced that a combination of Keytruda and another older chemotherapy significantly improved overall survival when used as a first-line treatment for lung cancer. Since both drugs are already on the market in the U.S., that means doctors could begin prescribing the combo soon thereafter.

In early April, Keytruda scored another win, with a Phase 3 trial of the drug showing it significantly improved overall survival for lung cancer when used on its own as a first-line treatment.

Overall survival is considered the gold standard in cancer therapy. Keytruda’s potential market could expand to about 70% of lung cancer patients, from around 25% previously.

Buy Merck.

Dividend Stock #2 – AbbVie

As with Merck, a big part of AbbVie’s (NYSE: ABBV) growth story is tied to one drug, in ABBV’s case the rheumatoid arthritis treatment Humira. However, the stakes here are much higher: Humira accounts for 65% of AbbVie’s sales. AbbVie has shrewdly protected Humira from competition with a thicket of patents that have entangled many of the firm’s rivals in endless litigation.

The drug giant continues to reach new settlements with competitors that will ensure Humira keeps the U.S. market all to itself until 2023. Even when generics finally hit the market, AbbVie will still get a taste of those sales courtesy of royalty agreements.

Nevertheless, AbbVie is under pressure to ramp up drug development to offset the eventual decline of Humira. Last month, the stock suffered a punishing selloff after announcing disappointing results for the experimental drug Rova-T.

The company had touted the drug as a potential blockbuster, but now it looks as if it could end up being a bust. Consequently, AbbVie is, once again, the cheapest stock among its peers on a forward price-to-earnings basis.

But AbbVie has other promising drug candidates. In early April, the drugmaker reported that Phase 2 data from a potential successor to Humira achieved its primary and secondary endpoints, even outperforming Humira in some areas.

Buy Abbvie.

Dividend Stock #3 – Digital Realty Trust

The Big Data mega-trend isn’t just for aggressive growth investors. It’s also providing opportunities for income investors. Until recently, many real estate investment trusts (REITs) that specialize in data-storage facilities had been trading at lofty valuations. But rising interest rates have been weighing on REITs, and now some names are trading at more reasonable prices.

Digital Realty Trust (NYSE: DLR) is the second-largest REIT in the data-storage space but offers a more enticing yield than industry leader Equinix (NSDQ: EQIX).

Unlike other REIT subsectors, which are currently working through excess supply, demand for data storage continues to outpace supply, particularly as tech continues to push into new data-intensive areas such as artificial intelligence and virtual reality.

To this end, Digital Realty recently acquired DuPont Fabros Technology for $7.6 billion, a deal that significantly increased its presence in key markets, including Silicon Valley, Chicago, and Northern Virginia.

In addition to giving Digital Realty broader scale, the merger should generate sufficient cash flows to bring down the REIT’s elevated leverage this year.

The combined company is expected to grow funds from operations (FFO) per share by 7% annually over the next three years, driving further distribution growth at the same pace.

Such growth is noteworthy given that many REITs in other subsectors are expected to grind out FFO gains in the low-single digits during this period, due to high real estate prices in some areas and oversupply in others.

Buy Digital Realty Trust.

Dividend Stock #4 – American Electric Power

We love rising utility giant American Electric Power (NYSE: AEP).

AEP serves 5.4 million customers across 11 states, primarily in the Midwest and Southwest. While AEP has more than 26,000 megawatts of generating capacity, its most attractive asset is its 40,000-mile transmission network, the largest in the U.S.

With the rise of renewables, transmission is one of the utility assets that are most likely to survive and thrive during the sector’s technological revolution. Indeed, all those new forms of generation need connections to the grid.

Now that its strategic shift toward fully regulated operations is largely complete, AEP is free to focus on investing and upgrading its regulated assets.

Transmission is a big part of the company’s three-year $17.7 billion spending plan. In fact, the wires—transmission and distribution—account for nearly three-quarters of AEP’s capital budget. That should help drive above-average earnings and dividend growth of 5% to 7% annually.

Meanwhile, AEP has relatively low leverage compared to its peers.

A strong balance sheet gives AEP the scope to make a sizable acquisition without compromising its credit rating.

AEP is one of the only utility giants that has yet to make an acquisition during the sector’s recent deal frenzy.

Acquiring a small, regulated electric or gas utility could help boost AEP’s earnings toward the top of its targeted range. But even without such an acquisition, AEP’s capital plan gives it plenty of earnings power.

Dividend Stock #5 – Verizon Communications

After a disappointing start to 2017, Verizon Communications (NYSE: VZ) spent the rest of the year showing that it’s prepared to defend its status as the country’s top wireless company.

On their face, Verizon’s recent results don’t seem to offer much to get excited about. Yet, they mask the reacceleration in business growth that Verizon produced as the year progressed.

With competitors such as the shrewd T-Mobile (NSDQ: TMUS) and the desperate Sprint(NYSE: S) willing to sacrifice margins for market share, Verizon had to do the same by rolling out its own unlimited data plans early last year.

Consequently, the wireless giant managed to add 1.2 million postpaid customers during the fourth quarter and 2.1 million for the full year. The final quarter gave Verizon its strongest postpaid subscriber growth since 2015.

Meanwhile, tax reform prompted Verizon to reassess its net-deferred tax liabilities, which added a huge $4.10 per share to fourth-quarter GAAP earnings, which came in at $4.56.

Although that’s just a one-time gain, Verizon expects to see further benefits from tax reform. Indeed, management says lower taxes will add $3.5 billion to $4 billion to operating cash flow this year. The company plans to use the extra cash to strengthen its balance sheet.

Buy Verizon.

Dividend Stock #6 – Host Hotels

REIT Host Hotels & Resorts (NYSE: HST) owns a portfolio of 96 hotels in 70 cities around the world, though its U.S. holdings account for about 97% of revenue.

The REIT was originally part of Marriott, and as a result Marriott manages more than 70% of its hotels. In fact, the REIT is one of the largest owners of Marriott and Hyatt (NYSE: H) properties.

Host’s luxury hotels are primarily situated in urban areas, where they serve both leisure and business customers.

The REIT’s U.S. holdings are concentrated in growing markets in the Northeast, Mid-Atlantic, and West. My personal favorite is the revolving lounge atop the Marriott Marquis in Times Square, but I prefer upscale kitsch over luxury.

Host’s executives are disciplined capital allocators who seek to enhance their property portfolio’s returns through redevelopment and timely divestitures.

Given pressures from rising supply, such discipline should help management wring every bit of value out of the portfolio until the hotel space has a more favorable tailwind. Funds from operation (FFO) per unit is forecast to grow just 1% annually over the next two years, then accelerate thereafter.

Although it’s a non-GAAP metric, FFO is the relevant measure of a REIT’s profitability. It accounts for the cash generated by operations before non-cash expenses such as depreciation and amortization.

Host’s debt load is manageable, with a net debt to EBITDA (earnings before interest, taxation, depreciation, and amortization) just north of 2 times, compared to 3.7 times in the hotel REIT space and 6.2 times for the average REIT. Debt to equity also was reasonable at 54.5% versus 92.7% for the average hotel REIT.

Host shares the wealth with unitholders, but it’s attentive to distribution coverage. The trailing-year FFO payout ratio was a very manageable 50.6%.

The REIT has kept a level quarterly payout over the past three years, at $0.20 per unit. But it’s also paid a special cash distribution in three of the past of four years, generally around $0.05 per unit.

Buy Host Hotels & Resorts.

Dividend Stock #7 – AT&T

AT&T (NYSE: T) is operating in a much more competitive environment than the company of yore. But so are all of its peers.

Changing technology has radically altered consumers’ habits. As a result, all three industries are expected to converge, with distributors merging with other distributors (i.e., cable companies and telecoms) and distributors acquiring valuable content (i.e., media companies).

With its takeover of DirecTV for distribution and its pending acquisition of Time Warner (NYSE: TWX) for content, AT&T is one of the consolidators.

Nevertheless, investors are worried that AT&T will be left behind. That’s what precipitated the market’s recent freak-out moments on the stock. But companies can adapt to changing business dynamics.

Indeed, the market seemed to focus on one data point—that AT&T had lost hundreds of thousands cable TV subscribers—to the exclusion of another data point that shows how the company is adjusting to these trends—the addition of subscribers to its DirecTV Now streaming service.

Now, this service doesn’t offer the same margins as traditional cable TV, but its growth shows that AT&T is finding ways to win customers.

There is one growth area that AT&T could exploit, but it’s getting ignored. Almost every industry has ceded the mobile-ad market to Facebook (NSDQ: FB) and Alphabet’s (NSDQ: GOOG) Google. Because of their incredible access to consumer data, the two tech giants have become ad-sales businesses.

AT&T and Verizon (NYSE: VZ) should be able to monetize this data and win market share from the two Internet giants.

Buy AT&T.