It’s hard to make a decision which dividend stocks to buy when you want both decent returns as well as great dividend yields. This is due to the fact that today too many stocks available on the market are yielding high and yet are pretty cheap. But in order to minimize the risk one has to study the company’s past performance and future prospects thoroughly before investing.
Alliance Resource Partners (NASDAQ:ARLP)
Using coal as a fuel for generating electricity in the US is decreasing by the day. This is because there are other cheaper alternatives such as wind, solar and natural gas which are quite capable of producing quality electricity as well.
Since the costs of producing electricity using alternate resources further declining, coal mine industries will soon have nothing much to do. This doesn’t necessarily mean that these industries are on the verge of extinction, but their demand, sooner or later, is going to be drastically reduced. Industries that are having piles of coal in their store rooms can still make good money as of now.
Alliance is one such coal mining company that doesn’t have loads of debt like others; but in place of those debts it has piles of coal. It is also known for its low cost mining and this is due to its location which is based in Illinois. The low cost mining has helped Alliance to attain a good place in the market, while others are facing bankruptcy issues.
This hints that Alliance has the capacity to generate a lot of cash flow which in turn can help increase its dividend yields further, which are even now paying a healthy 8%. This is not a “buy and hold stock,” but it will be able to generate some decent returns and high yields in years to come.
Valero Energy (NYSE:VLO)
Just like any other segment in the oil and gas sector, oil refiners also have their ups and downs. The important thing to note here is that these industries have nothing to do with the companies that produce them. In fact, they work the other way around. When the oil prices are down, refineries make money and when the prices increase, they tend to struggle.
With recent hike in oil prices many refineries have been hit hard and Valero is no different. It too got hit hard and that is the reason its dividend stocks are currently trading low at a total enterprise value-to-EBITDA ratio of 4:1 times. Its current dividend yield is 4.5%.
However, even in the current conditions Valero is generating heaps of money which it may pay to its shareholders in the form of yields. It has earned in excess of $3.4 billion during the last 12 months and is currently having approximately $5 billion in free cash flow. This kind of cash flow is more than enough for Valero to get past through hurdles, if any.
It should be noted that Valero’s dividend stocks may be experiencing a rough patch for a few more quarters, however, when we look at its current dividend price, it definitely seems to be a great time to buy some of its stocks and make full use of its downturn. If an investor is patient, it is almost certain that he or she will be promptly awarded with a decent pay check soon.
General Motors (NYSE: GM)
Cyclical stocks always look low-priced when they are earning good and are at their peak. The reason being, most investors start selling their shares when they are at their peak assuming that the stock price will soon decline and so will their earnings. This is why currently the dividend stocks of General Motors are available at such a low price.
However, the continued downfall in the price of oil and gas states otherwise. There is going to be a hike in the sales of SUVs and trucks, especially in North America, where GM already has a strong foothold and a good sales record. This is good news, as the profits from selling SUVs and trucks are higher compared to the profits from selling conventional four-wheelers.
All in all, the aforementioned predictions and Wall Street worries may not have any impact on GM for years to come, and this is because even now, the company has a total enterprise value-to-EBITDA ratio of 5:3 times. Its current dividend yield is also looking pretty much healthy at 4.9%.
With such figures, GM’s profits as well as payouts are certain to beat the Wall Street’s expected pricing of its stock within two years. However, with all the above unwarranted negative predictions, the dividend stocks of GM are currently trading low and this could be the best time to own some of them now and make some good money in a year or two.