- Disappointing US jobs data last week has dampened expectations of a rate hike.
- Macroeconomic uncertainty is growing despite record-high stock markets.
- As a result, dividend-paying stocks are regaining their appeal.
With expectations for a continuing to fade and macroeconomic uncertainty lingering despite record-high equity markets, dividend stocks are once again drawing attention from investors seeking steadier returns and a measure of downside protection.
Friday’s reinforced that trend. The economy lost 23,000 jobs in July, versus expectations for an increase of 83,000, while downward revisions to the previous two months erased another 103,000 jobs from the payroll count. Although the unemployment rate edged down to 4.1%, the decline was largely driven by a lower labour force participation rate, suggesting the labour market is losing momentum faster than expected.
The weaker employment data has prompted markets to scale back expectations of another Fed rate hike, with policymakers now widely expected to keep the federal funds rate within its current 3.50% to 3.75% range in September. In this environment, dividend-paying stocks become increasingly attractive. They offer a source of recurring income while helping cushion portfolios against market volatility at a time when elevated equity valuations and an uncertain economic outlook call for a more defensive approach.
These dividend-paying stocks combine high yields with solid upside potential
To identify the best current opportunities, we turned to the Investing.com screener, searching for US stocks that meet the following criteria:
- Market capitalization greater than $5 billion
- Upside potential of more than 20% according to InvestingPro Fair Value, which synthesizes several recognized valuation models
- Overall financial health score greater than 2.5
- Dividend yield greater than 4%
- A dividend payment history of more than 10 years
This analysis has allowed us to identify 7 opportunities:
Specifically, these stocks offer dividend yields ranging from 4.1% to 13.1% and are undervalued by 20.1% to 61.5% according to InvestingPro’s Fair Value.
Among these stocks are:
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(PEP) is navigating a transition period that has weighed on investor sentiment, creating an attractive entry point for income-focused investors. The food and beverage giant recently increased its annual dividend for the 54th consecutive year to $5.92 per share, offering a yield of nearly 4.3%. Second-quarter revenue rose 6.4% year over year to $24.18 billion despite continued weakness in North American volumes, highlighting the resilience of its diversified business. According to our Fair Value model, which combines several established valuation approaches, the stock offers about 23% upside from current levels.
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Moelis & Company (MC) offers a different dividend story, with its outlook tied to a recovery in mergers and acquisitions rather than defensive consumer spending. The independent investment bank reported record quarterly results, with EPS of $0.63 and revenue rising 12% year over year to $409.4 million. Its quarterly dividend of $0.65 per share translates into a yield of roughly 4.1%, though investors should keep an eye on its relatively high payout ratio. Our Fair Value estimate points to more than 25% upside, supported by a record deal pipeline heading into the second half of the year.
However, all other stocks on the list offer higher dividend yields.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of any assets and does not constitute an offer, solicitation, recommendation, or advice to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky; therefore, any investment decision and the associated risk are the sole responsibility of the investor. Additionally, we do not provide any investment advisory services.