Early in 2023, many investors were seeking out dividend stocks to buy because of expectations for a flat to falling market. But as the risk-on sentiment returns to market, some investors may be turning towards growth stocks. But that could still work in the favor of owning dividend stocks.
With dividend stocks, a strong total return is the ultimate goal for most investors. This means finding stocks of companies that consistently raise their dividends, but also have a history of rising earnings which is the biggest predictor of future stock price gains.
In fact, investors commonly own dividend stocks not for the income they can get, but because, if they find a dividend stock that’s undervalued, they can double dip with market-beating capital gains to go along with a juicy dividend.
If that sounds like an attractive combination to you, here are three dividend stocks that may present you with a solid buying opportunity in January 2024.
Eli Lilly & Co. (LLY)
Some investors may challenge the inclusion of Eli Lilly & Co. (NYSE:LLY) on a list of dividend stocks to buy. They may point to the LLY stock dividend yield, which is just 0.73% as of January 5, 2024. However, this is a time when there are other factors to consider.
For example, the company has increased its dividend by over 15% in each of the last three years with its most recent increase happening in the last quarter. Also, Lilly pays out an annual per share dividend of $4.52.
But the real upside for Eli Lilly comes from projected earnings. In the next 12 months, the company expects to see earnings grow by 89%. Much of this is due to the success of its GLP-1 weight loss drugs Mounjaro and Zepbound.
These drugs were a big reason for the company’s significant revenue gains in the last two quarters. In that time, LLY stock climbed 36%. This may lead to concerns that the growth in the stock is already priced in.
To support that conclusion, the company’s stock has been finding a firm level of resistance at its current price around $618. However, on December 19, 2023, Morgan Stanley (NYSE:MS) reiterated its Overweight rating on the stock while increasing its price target to $822.
Investors will get updated guidance when Lilly reports earnings on February 6.
United Parcel Service (UPS)
The buying thesis for United Parcel Service (NYSE:UPS) is that stocks that underperform the market one year frequently outperform the market the following year. United Parcel Service was at the tip of the spear as consumers and businesses cut discretionary spending from their budgets. It also lost some business during its labor dispute. Not surprisingly, the company’s revenue and earnings are drifting towards pre-pandemic levels, as is the UPS stock price.
The stock is not likely to get much of a boost from the holiday season, and that could mean the stock may drift lower. However, the wild card for investors to consider is the direction of interest rates. If rates are cut, and particularly if they’re cut sharply, demand is likely to return.
That would raise the company’s earnings outlook, which currently calls for about 6% growth in the next 12 months. And while you wait on that growth, you get an attractive dividend that yields 4.08%, has grown an average of 17% over the last three years, and has increased its dividend for 14 consecutive years.
Kinder Morgan (KMI)
If you feel the first two picks on this list of dividend stocks to buy are not ready for your investment dollars right now, Kinder Morgan (NYSE:KMI) may be more of what you’re looking for. The company is a midstream oil company that operates the largest networks of pipelines and terminals in the United States.
Oil prices have been under pressure on lower demand. And KMI stock is down over 3% in the last 12 months. However, oil prices are trending higher in the first week of 2024. And if the consensus opinion is correct, and the Federal Reserve does lower interest rates, demand for oil will rise, which will be bullish for pipeline companies.
This seems to be supported by institutional investors. I point you to an article written by Josh Enomoto in December. In that article, Enomoto notes that there’s an unusual number of these investors buying far out-the-money (OTM) calls. That would imply these investors see a strong upside for KMI stock.
And while the 2.7% average dividend growth over the last three years isn’t particularly noteworthy, the stock has an impressive dividend yield that is over 6.2% as of January 5, 2024.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
