5 dividend stocks to buy for a Biden bull market

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In less than seven weeks, Donald Trump’s presidency will end and President-elect Joe Biden will be sworn in as the 46th President of the United States. Wall Street isn’t usually a big fan of change, but it’s a rare case where the stars seem to have aligned for the stock market.

A Biden presidency is likely to result in additional fiscal stimulus to tackle the 2019 coronavirus disease (COVID-19). When paired with the Federal Reserve’s pledge to keep interest rates near historic lows until at least 2023, the table is set for stocks to thrive.

In addition, Wall Street expects a divided Congress. If a Republican candidate wins just one of the two remaining Senate seats in the second round of elections in Georgia in the first week of January, the GOP will have a majority in the Senate. This means that Biden’s overall tax increases likely wouldn’t become law. The status quo is good for American businesses.

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What kind of stocks should you buy to profit from a bullish Biden market? If you’ve been thinking about dividend-paying stocks, you’re probably on a winning path.

Historically, dividend-paying stocks have revolved around stocks that don’t pay dividends. In 2013, JP Morgan Asset Management published a report comparing the performance of companies that initiate and increase a dividend between 1972 and 2012 to those of their non-dividend counterparts. Dividend-paying stocks generated an annualized return of 9.5% over that four-decade period, nearly five times better than the annualized gain of 1.6% for non-dividend stocks.

It probably goes without saying, but companies that pay a regular dividend are also generally profitable and have relatively transparent long-term growth prospects.

If you’re looking to endow your portfolio with serious income, I suggest buying the following five dividend-paying stocks for a Biden bull market.

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AT&T

Its peak of growth may be long gone, but that’s no reason for income seekers to turn down an opportunity to buy into the telecom giant. AT&T (NYSE: T) for 9 times Wall Street’s forecast earnings forecasts.

While I’m pretty sure AT&T can’t wait for consumer spending to pick up, the biggest catalyst for a Biden presidency will be the ongoing rollout of 5G networks. It’s been ten years since wireless carriers upgraded their infrastructure, suggesting consumers and businesses alike will be eager to enjoy faster download speeds. We should see a multi-year technology upgrade cycle that helps support the higher-margin, data-driven wireless segment of AT&T.

Low corporate tax rates will also help AT&T continue to reduce its debt burden while focusing on higher growth initiatives, such as streaming. AT&T launched HBO Max in late May and has 8.6 million customers activating their subscriptions by mid-October.

The 7.2% return offered by AT&T seems exceptionally safe, and it could double your initial investment in a decade with one reinvestment.

A small pyramid of tobacco cigarettes atop a thin bed of cured tobacco.

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Altria Group

With the rise of ESG investing, tobacco stocks are not for everyone. If owning vice stocks is not a problem, then Altria Group (NYSE: MO) is a super high yield dividend stock to buy for a Biden bull market.

Although smoking rates among U.S. adults hit an all-time low of 14% in 2019, Altria’s top and bottom results continue to advance, albeit modestly. The addictive nature of nicotine keeps users hooked. This allows Altria to pass on substantial price increases to offset any volume-based weakness. Since the majority of the company’s sales come from its premium Marlboro brand, Altria doesn’t have to worry about smoker’s pricing of its products.

Altria is also exploring alternatives to tobacco to boost sales. It introduces the IQOS heated tobacco system in a handful of new markets in the United States and has a 45% stake in Canadian pot stock Cronos Group. Expect Altria to help Cronos with the development, commercialization, and possibly even distribution of cannabis vaping products.

Altria’s 8.6% return is hard to beat, especially when most bank CDs give a return well below 1%.

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Annaly Capital Management

The stars are also starting to align themselves with mortgage real estate investment trusts (REITs) like Annaly Capital Management (NYSE: NLY).

Annaly makes money by borrowing capital at short-term rates and acquiring longer-term assets with a higher yield, such as mortgage-backed securities (MBS). The difference between this long-term yield and this short-term borrowing rate is the net interest margin (NIT). The higher the NIT, the more money Annaly makes. The yield curve typically steepens considerably during young bull markets, implying that Annaly’s NIT is expected to widen significantly in the coming years.

Annaly also focuses primarily on agency-only MBS. That is, it buys assets backed by the federal government in the event of default. Yields on agency assets are lower than on non-agency assets, but the added security is what allows Annaly to use leverage to her advantage when purchasing MBS.

Currently valued at 93% of book value and showing a delightful 10.8% return, Annaly has the tools to deliver income to investors during a Biden bull market.

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Innovative industrial properties

Another way to generate serious green with dividend-paying stocks is to buy Innovative industrial properties (NYSE: IIPR). Although it is a REIT, it is the only pure-play marijuana stock that pays a dividend.

The business model of the company is quite simple. It acquires medical marijuana cultivation and processing sites and leases these assets for long periods (10 to 20 years). Innovative industrial properties are reaping the rewards of highly predictable rental income, while passing on rent increases each year to stay ahead of the inflationary curve. As of mid-November, the company had 64 properties in 16 states, with a weighted average lease term of 16.3 years.

Another key growth driver is Innovative Industrial’s focus on sale and leaseback agreements. Since cannabis is a federally illicit substance, U.S. marijuana companies sometimes have difficulty accessing loans and lines of credit. Innovative Industrial solves this problem by acquiring assets for cash and immediately leasing them to the seller. It’s a win-win for all parties.

Having increased its quarterly payout by 680% over the past three years, this company and its 3.1% return have all the tools to lead shareholders to greener pastures.

An IT specialist checks the wires plugged into a data center server tower.

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Broadcom

Tech stocks aren’t known to deliver heavy dividends, but the semiconductor giant Broadcom (NASDAQ: AVGO) obviously not received this memo.

Broadcom, like AT&T, is expected to benefit from the rollout of 5G. Much of the company’s business is related to the development of wireless chips and other accessories found in smartphones. With a multi-year technology upgrade cycle ahead for consumers and businesses, demand for Broadcom’s connectivity solutions is expected to remain strong.

However, it’s not just smartphone upgrades that can increase Broadcom’s valuation. The COVID-19 pandemic has shown businesses how important it is to have an online and cloud presence. A bull market in Biden will likely lead to a substantial increase in cloud usage, which in turn is a boon for corporate and third-party data centers. As a provider of connectivity and access chips for data centers, Broadcom is at the heart of the data revolution.

Not to be outdone by innovative industrial properties, Broadcom has increased its quarterly payout by over 4,500% over the past decade and is currently generating a healthy return of 3.3%.

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