In less than seven weeks, Donald Trump’s presidency will end, and President-elect Joe Biden will be sworn in as the 46th President of the United States. Wall Street isn’t usually a fan of change, but this is a rare example when the stars appear to align with the stock market.
The Biden presidency is likely to produce additional fiscal stimulus to combat the 2019 coronavirus disease (COVID-19). When coupled with the Federal Reserve’s pledge to keep interest rates near historic lows until at least 2023, the table is set for equities to expand.
Moving on, Wall Street expects a split Congress. If a Republican candidate wins only one of the two remaining Senate seats in Georgia’s second round election in the first week of January, the GOP will have a Senate majority. That means the big picture Biden tax hike will likely fail to become law. The status quo is a positive thing for corporate America.
What types of stocks should you buy to take advantage of the Biden bull market? If you think about dividend stocks, you are probably on the winning track.
Historically, dividend stocks have revolved around stocks that don’t pay dividends. In 2013, JP Morgan Asset Management published a report comparing the returns of companies that started and grew dividends between 1972 and 2012 with peers without dividends. Dividend-paying stocks yielded an annual return of 9.5% over the span of four decades, which is almost five times better than the 1.6% annual gain for non-dividend stocks.
This may be obvious, but companies that regularly pay dividends are also typically profitable and have a relatively transparent view of long-term growth.
If you’re looking to supplement your portfolio with serious income, I recommend buying the following five dividend stocks for the Biden bull market.
The heyday of its growth may be long gone, but that’s no excuse for income seekers to turn down the buying opportunity to become a telecom giant AT&T (NYSE: T) for 9 times Wall Street earnings forecasts.
While I’m pretty sure AT&T can’t wait for consumer spending to pick up again, the biggest catalyst during the Biden presidency will be the ongoing rollout of 5G networks. It’s been a decade since wireless companies upgraded their infrastructure, indicating that consumers and enterprises will be eager to take advantage of faster download speeds. We should see a multi-year technology upgrade cycle that helps support AT&T’s taller data-driven wireless segment.
The low corporate tax rates will also help AT&T continue to reduce its debt burden while focusing on higher growth initiatives, such as streaming. AT&T launched HBO Max at the end of May and already had 8.6 million subscribers activate their subscriptions in mid-October.
The 7.2% yield offered by AT&T looks very safe, and could double your initial investment in a decade with reinvestment.
With ESG investment booming, tobacco stocks aren’t for everyone. However, having a representative share is not a problem Altria Group (NYSE: MO) is a very high yield dividend stock to buy for the Biden bull market.
Although the US adult smoking rate hit an all-time low of 14% in 2019, Altria’s upper and lower levels are moving forward, albeit modestly. The addictive nature of nicotine makes users addicted. That will allow Altria to continue its substantial price increases to offset volume-based weakness. Since most of the company’s sales come from the premium Marlboro brand, Altria doesn’t have to worry about pricing its products for smokers.
Altria is also exploring smoking alternatives to increase sales. It introduced the IQOS heating tobacco system to several new markets in the US, and held a 45% equity stake in Canadian pot stock Cronos Group. Expect Altria to help Cronos with the development, marketing, and maybe even distribution of a cannabis vape product.
Altria’s 8.6% yield is hard to beat, especially when most CD banks make well below 1%.
Annaly Capital Management
The stars are also starting to align for mortgage real estate investment (REIT) trusts such as Annaly Capital Management (NYSE: NLY).
Annaly makes money by borrowing capital at short-term interest rates and acquiring long-term, higher-yielding assets, such as mortgage-backed securities (MBS). The difference between the long-term yield and the short-term loan interest rate is the net interest margin (NIT). The higher the NIT, the more money Annaly makes. The yield curve typically rises substantially during a young bull market, which implies that NIT Annaly will widen a lot in the coming years.
Annaly also focuses primarily on agency-specific MBS. That means it buys assets backed by the federal government in the event of default. The yield on agency assets is lower than that of non-agency assets, but it is this added security that allows Annaly to use leverage to its advantage when buying MBS.
Currently valued at 93% of the book value and producing an attractive 10.8% yield, Annaly has the tools to provide investors with income during Biden’s bull market.
Innovative Industrial Properties
Another way to make serious green with dividend stocks is to buy Innovative Industrial Properties (NYSE: IIPR). Even though it’s a REIT, it’s the only pure cannabis stock that pays dividends.
The company’s business model is quite simple. The company acquires a place for growing and processing medical marijuana and leases these assets for extended periods of time (10 to 20 years). Innovative Industrial Properties reap the rewards of highly predictable rental income, while also continuing to increase rents each year to stay ahead of the inflation curve. As of mid-November, the company owned 64 properties in 16 states, with a weighted average lease term of 16.3 years.
The Innovative Industry’s focus on sale-leaseback agreements is another key growth driver. Because marijuana is a prohibited substance at the federal level, US cannabis companies sometimes struggle to access loans and lines of credit. Innovative Industries solves this problem by acquiring assets for cash and immediately leasing them back to sellers. This is mutually beneficial for all parties.
After increasing quarterly payouts by 680% over the past three years, this company and its 3.1% yield have all the tools to steer shareholders towards greener pastures.
Tech stocks aren’t known for paying bountiful dividends, but they are semiconductor giants Broadcom (NASDAQ: AVGO) obviously didn’t get the memo.
Broadcom, like AT&T, is benefiting from the 5G rollout. The majority of the company’s business is related to developing wireless chips and other accessories found in smartphones. With multi-year technology upgrade cycles coming for consumers and businesses, the demand for Broadcom connectivity solutions must remain strong.
However, it’s not just smartphone upgrades that could push Broadcom’s rating higher. The COVID-19 pandemic has shown businesses how important it is to have an online and cloud presence. Biden’s bullish market will likely result in a substantial increase in cloud usage, which in turn is a boon for enterprise and third-party data centers. As a provider of connectivity and access chips for data centers, Broadcom is well positioned in the data revolution.
Not to be outdone by Innovative Industrial Property, Broadcom has increased its quarterly payouts by more than 4,500% in the last decade and is currently making a healthy 3.3%.