2 “Santa Claus” Dividends To Buy Before 2024

Look, we’ve all loved watching our dividend payers rocket to the moon these past few weeks. Best part is, most of the market has been onboard!

Here we can see the jump in the S&P 500 as a whole (in purple) versus its return on an equal-weight basis (in orange). Sure, there’s a bit of a gap, but safe to say this has been an across-the-board surge.

We can (in a backhanded way!) thank Jay Powell—just as he hinted that high Treasury yields were doing the Fed’s work for it, the bond market (figuratively) flipped him off … and Treasury yields plunged from 5% to around 4.6% now.

Here’s my prediction: yields will keep falling—and (some) stocks will keep rising.

Wait until December. The Santa Claus rally will be in effect and the Fed will turn dovish, with the economy tracking toward that soft landing. Inflation will keep fading.

But here’s the twist: we won’t be able to simply buy anything and enjoy the next leg up. There’s still a lot of fear out there. Quality will come first, second and third on most folks’ lists as they finally buy back in.

So now is the time for us to dump weak holdings “on the rip” and shift into the remaining bargain-priced dividend stars out there.

Which brings me to the four tickers below. The first two are flawed dividends that need to be sold yesterday. The next two are bargain buys worthy of shifting your cash into.

“On the Rip” Sell No. 1: Kohl’s (KSS)

If you hold department-store retailer Kohl’s, you have my sympathy. It’s the poster child for cardiac share-price action!

If you’re hoping for yet another rise from the grave, dear reader, do yourself a favor and step out. Because it’s not getting any better from here. Truth is, Kohl’s 8.9% yield is a warning light: Revenue is down, earnings are down and it has a negative payout ratio—so it’s shoveling out a dividend while losing money!

Meantime, Kohl’s is an ecommerce also-ran, a speck in the rear-view of Amazon.com (AMZN) and Walmart

WMT
(WMT). And consumers are cutting back on goods purchases amid high interest rates and recession worries. Just look at shipping company Maersk, which is slashing 10,000 jobs as containers pile up at ports. All of this makes this latest bounce in Kohl’s shares—up double-digits since October 12—a good window to sell.

“On the Rip” Sell No. 2: Macerich

MAC
(MAC)

Pity the mall landlords. They battled through pandemic restrictions and continue to deal with overpowering ecommerce competition. Now inflation, high rates and recession worries are hitting goods sales (see Kohl’s above).

No wonder Macerich, a real estate investment trust (REIT) with 47 million square feet of US retail space, has been on the mat since March 2020!

Along with most retailers, the REIT slashed its dividend in March 2020, from $0.75 quarterly to $0.10. To management’s credit, they’ve since raised it to $0.17. But the road back to pre-pandemic levels remains long.

Meantime, the stock yields 6.8%, but that’s solely because of the slide in the share price. Macerich also has considerable debt maturing in the coming years, to the tune of $1.1 billion in 2024 and ’25, and nearly $1.4 billion in ’26. And it’s shelling out a high 4.88% weighted average interest rate on its borrowings.

Now let’s talk occupancy, the lifeblood of any REIT. Macerich ended the latest quarter 93.4% booked. That’s not bad, but we want sectors closer to 100%—warehouse REIT Prologis

PLD
(PLD), for example (more on it next), ended its latest quarter 97.1% occupied. That’s as close as you can get to full, and the scarcity of industrial space in the US is no secret.

The bottom line? I just don’t see much hope for a mall-REIT bounce-back in the current environment. So if you own this—or any—mall REIT, now is the time to move on.

Bargain Buy #1: Prologis (PLD)

If you’ve been reading my articles for a while, you know I love warehouse REITs—yes, even with high interest rates and a pullback in goods sales.

That’s because we still have a worker shortage, so any recession will likely be shallow. And paychecks are still growing at 5% a year. Even if that rate falls off some, it would still support spending in the long run.

It’s tough to go wrong with the aforementioned Prologis: it’s the biggest industrial REIT, with 1.2 billion square feet of space across the US.

PLD’s yield pales in comparison to those of Kohl’s and Macerich, at 3.3%, but that’s a good thing, as it’s more sustainable. Plus we’re getting breakneck payout growth, which is charging up the share price!

As you can see, the price always runs ahead of the payout, and every time it falls behind is a buying opportunity. We’re in just such a spot now.

Prologis is also seeing operational success beyond its 97% occupancy rate: thanks to sharply higher rates on new and renewing leases, rental revenue soared 54% in its latest quarter. And it’s borrowed cheaply, too, with a weighted average interest rate of just 2.9% on its debt.

The stock plunged in the late-summer swoon, but it’s jumped 6% since October 27, as rates fell. That’s an opportunity to get in—before PLD’s stock reels in its payout.

Bargain Buy #2: Visa

V
(V)

Cash is so 2019. And the (physical) greenback’s demise has been a boon to Visa, a holding of my Hidden Yields dividend-growth advisory. The decline of paper money has sent more transactions flowing down Visa’s payment network. And “Big V,” which processes around 60% of US credit-card transactions, takes a slice of each one.

And man, do those slices add up: Visa piled up $33 billion of revenue in its 2023 fiscal year, up 43% from 2019. And with US consumers still holding their own (and, as we just discussed with Prologis, a worker shortage likely to keep it that way in the long run), we can expect that to continue.

Meantime, Visa and main competitor Mastercard

MA
(MA) aren’t banks—they just process payments. We can thank that particular difference for Visa’s “ironclad” balance sheet, with $20 billion in long-term debt essentially cancelled out by its $20 billion in cash and short-term investments. That’s as spotless as it gets!

No wonder Big V is a cash cow, with free cash flow per share up 235% in a decade.

That’s driven the payout up an amazing 420% (ignore the 0.9% current yield on this stock—dividend growth is where the party’s at). And as with Prologis, Visa’s stock has consistently run ahead of its payout—until now:

To be sure, this one is never “cheap” on a P/E basis, trading at 29-times its last 12 months of earnings. But that, too, is a matter of perspective: as you can see below, V’s valuation is on the lower end of its five-year track:

Opportunities to buy this stock, with this setup, don’t come along often. Let’s buy and ride V into a Santa Claus rally—and beyond.

Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.

Disclosure: none