The new year has picked up right where 2019 left off with the major indexes trading near record highs. Two trade deals, and a positive start to the current earnings season has helped maintain bullish sentiment in the market and should help drive stocks higher as we head deeper into the year.
While the current situation remains bullish, there are reasons for investors to be concerned. The impeachment trial and rising tensions in the Middle East are reasons for concern. While trade negotiations between the U.S. and China appear to be moving in the right direction there is always the chance that negotiations will start to fall apart and one or both sides will walk away from the table.
Low interest rates have helped to boost the stock market and keep the economy moving in the right direction. Should the Federal Reserve decide to slowly being lifting rates later in 2020 there is the possibility that money could start to transfer out of the market and back into traditional fixed income assets.
With stocks near record levels, valuations are a bit high and there is a risk that investors will start to cash in and lower their exposure. Should this occur, dividend-paying stocks will offer some protection. Dividend stocks, in particular those with a history of dividend increases, will offer the best protection against a possible selloff in 2020.
Here are my top dividend stocks for 2020.
Apple (AAPL)
Since resuming its dividend program in 2012, tech titan Apple (AAPL) has boosted its dividend each of the last 7 years, and the stock is currently yielding 1.0%. AAPL stock has been a top performer in the market, with shares up 60% in the last six months alone, and the stock is currently trading just pennies below its all-time high. Apple has come under pressure in recent years due to a saturated smartphone market and slowing iPhone sales, but the company's ability to post strong growth in its services segment and fueled growth and kept Wall Street bullish on the stock. The company continues to grow at a brisk pace with profits up 8.4% annually in the last five years and analysts forecast earnings growth of 10.5% per annum in the next five years. While AAPL stock is trading at its record high, shares remain reasonably priced at 21 times future earnings and analysts have an average price target of $301.81 on the stock.
Discover Financial (DFS)
Strong economic conditions, in particular, a robust job market, has boosted consumer confidence and led to strong consumer spending. Credit Card company Discover Financial (DFS) has shown impressive earnings growth of 13.7% over the last five years, and looking ahead analysts forecast profits of 10.1% over the next five years. Analysts expect earnings to rise 16.1% during the current year, and the stock currently trades at a low 9.5 times earnings. Discover has a dividend yield of 2.1% and the company has a 9-year streak of dividend increases. Analysts have an average price target of $93.38 on the stock.
McDonald's (MCD)
Fast-food chain McDonald's (MCD) hit an all-time high last summer, and the stock is currently trending higher and is just 4.9% below its record high. McDonald's has done a good job combating a shift in customer appetite away from fatty fast food with a revamped menu and a limited all-day breakfast menu. Earnings have risen 13.3% annually in the last five years and looking ahead analysts expect the company to grow profits at an annual rate of 6% over the next five years. MCD trades in the upper end of its 52-week range and has a P/E of 27. Given the strong future expected growth the valuation is reasonable and MCD stock should build on its recent gains as long as the company is able to keep pace with future estimates. The stock has a 2.4% dividend yield, and the company has boosted its dividend for 43 straight years. Analysts have an average price target of $210.93 on the stock.
