Dividend stocks can be great investments in a volatile market. Cash income can put investors in a position to take advantage of unusually good opportunities in the stock market.
I think shares fall into three categories. There are ones I’m looking to buy at the moment, those I don’t think I’d ever invest in, and some that I’d like to buy… but not right now.
Coca-Cola
I think Coca-Cola (NYSE:KO) is a terrific company and it’s a stock I’d love to own in my portfolio. Right now though, it’s not on my list of shares to buy.
The firm’s position as a drinks company (including categories like coffee, juice, and water) looks incredibly strong. Its size and scale puts it at a huge advantage over the likes of Pepsi.
I also think its growth prospects are better than a lot of investors think. A growing middle class in various emerging markets should present opportunities for increased sales beyond the US.
The company has also been restructuring several of its bottling contracts over the last 10 years. I also expect this to push profits higher in the future.
Right now, though, I think the share price is too high. The stock is up 17% this year while the S&P 500 has faltered, as investors take the view the firm might hold up well in a recession.
I’m less convinced that a 2.8% dividend yield (before withholding taxes) is enough to make this a good long-term investment for me. So while I think my opportunity will come, it isn’t here yet.
Taylor Wimpey
Shares in FTSE 100 housebuilder Taylor Wimpey (LSE:TW) are priced much more attractively. An 8% dividend yield is absolutely enough to catch my interest.
Demand in the housing market can drop when interest rates go up. But a long-term shortage of UK housing means I’m not concerned about this from an investment perspective.
It’s also worth noting Taylor Wimpey actually pays its dividend out of its assets, rather than its cash flows. That means it’s fairly likely to maintain its shareholder returns even in a bad year.
The big reason I’m not buying the stock though, is because it’s under an investigation from the Competition and Markets Authority. This is to do with potential anti-competitive behaviour.
It’s not just Taylor Wimpey – it involves almost all of the major UK builders. But I don’t know what the outcome will be and that makes it impossible for me to invest.
Investing in a company with an unspecified potential future liability is extremely risky. But if and when that clears up, this is certainly a stock I’m willing to take another look at.
Investing discipline
Investing regularly into quality companies can be a good long-term strategy. But ignoring some obvious warning signs looks like a risky strategy to me.
Both Coca-Cola and Taylor Wimpey are stocks I’m looking to buy in the future. Yet for now, it doesn’t look as though the opportunities are there.
Fortunately, there are other stocks that I think are much more attractive at the moment. And I’ll be looking to take advantage this month in my Stocks and Shares ISA.
