3 Best Dividend Stocks to Buy in August

TL;DR

Banks stocks have underperformed due to the impact of stress tests and changing dividend rules, creating a hidden opportunity for investors, as evidenced by a disconnect between bank stocks and the rest of the market.

Transcript

hey bowtie nation joseph hogue here with an update to our 2020 dividend stocks portfolio and three stocks i'm buying in august and nation i'm excited about buying these stocks because they're in part of a market that is possibly the best undiscovered opportunity right now if you've been following those bank stocks the second quarter was not good at... Read More

Key Insights

• 🛀 Bank stocks have experienced a significant decline in earnings but have shown resilience in revenue growth.
• 🌸 Loan loss provisions have impacted earnings but have created a hidden opportunity once reversed.
• 🌸 Banks are well-prepared for loan defaults, with significant cash cushions in their loan loss provision accounts.
• 🙃 The market has priced bank stocks as if the economy will not recover, creating a potential upside surprise if earnings rebound.
• 🖐️ Financial sector stocks offer attractive valuations and dividend yields, making them a value play for investors.
• 🇳🇨 Citizens Financial, New York Community Bank, and Wells Fargo are recommended as investment opportunities in the banking sector.
• 🥺 The economic impact of the COVID-19 pandemic is not expected to lead to a wave of loan defaults due to government and Federal Reserve support.

Questions & Answers

Q: Why have bank stocks underperformed in the second quarter?

Bank stocks have faced challenges due to stress tests by the Federal Reserve and changes in dividend payout rules. These factors have resulted in the allocation of funds to loan loss provisions, impacting earnings.

Q: What is the hidden opportunity in bank stocks?

The revenue growth of financial sector companies, despite the earnings decline, indicates that once loan loss provisions are reversed, bank stocks could experience a surge in earnings and dividends, presenting an opportunity for investors.

Q: Which bank stocks offer good value and dividend yields?

Citizens Financial (CFG), New York Community Bank (NYCB), and Wells Fargo (WFC) are identified as bank stocks with low price-to-book values and attractive dividend yields. These stocks have the potential for significant returns once earnings improve.

Q: What are the targets for stock prices of the recommended bank stocks?

Analysts have a range of price targets for the recommended bank stocks, with estimates ranging from $10.50 to $34 for Citizens Financial, $10 to $14 for New York Community Bank, and $21 to $40 for Wells Fargo.

Summary & Key Takeaways

• The 2020 dividend stocks portfolio has achieved a 5% return, outperforming the S&P 500. Strong performers include Vanguard Real Estate Fund (VNQ) and AIG, while Carnival and other stocks are still recovering from the market sell-off.

• Financial sector stocks reported a significant decline in earnings but showed resilience in revenue growth. The main reason for this decline was the allocation of funds to loan loss provisions, a safety measure taken by banks during times of economic weakness.

• The discrepancy between earnings and revenue in the financial sector suggests an upside surprise in earnings once loan loss provisions are reversed, which could lead to a surge in bank stock prices and dividends.