{"id":41160,"date":"2023-07-27T10:50:08","date_gmt":"2023-07-27T14:50:08","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/this-safe-5-dividend-stock-has-more-upside-than-nvidia\/"},"modified":"2023-07-27T10:50:10","modified_gmt":"2023-07-27T14:50:10","slug":"this-safe-5-dividend-stock-has-more-upside-than-nvidia","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=41160","title":{"rendered":"This Safe 5% Dividend Stock Has More Upside Than NVIDIA"},"content":{"rendered":"<div>\n<p>I\u2019m sure you probably know this\u2014but it is usually a <em>really bad<\/em> idea to pay 43-times <em>sales<\/em> for a stock.<\/p>\n<p>Note that I did not say <em>earnings<\/em>. I said <em>sales<\/em>. Revenues. The ol\u2019 <em>top line<\/em>. Before <em>everything.<\/em><\/p>\n<p>Scott McNealy, the co-founder of Sun Microsystems, famously told investors it was insane to pay 10-times sales for Sun\u2019s stock. Ten!<\/p>\n<p><em>\u201cAt 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends.<\/em><\/p>\n<p><em> That assumes I can get that by my shareholders. That assumes I have zero cost of goods\u2026 that assumes I have zero expenses\u2026 that assumes I pay no taxes\u2026 assumes zero R&amp;D.\u201d<\/em><\/p>\n<p>An amazing explanation by Scott. <em>Don\u2019t ask me why my stock is down\u2026 ask yourselves why it was so high in the first place<\/em>!<\/p>\n<p>Scott made his now-famous comments two years after Sun\u2019s top. I wonder if we\u2019ll be reading a rhyming phrase from Jensen Huang, CEO of <strong>NVIDIA<br \/>\n  <fbs-ticker data-name=\"NVDA\" data-href=\"https:\/\/www.forbes.com\/companies\/nvidia\" data-type=\"stock\"><br \/>\n   NVDA<br \/>\n  <\/fbs-ticker><br \/>\n  <fbs-ticker data-name=\"DIA\" data-href=\"https:\/\/www.forbes.com\/investment-funds\/dia\/\" data-type=\"etf\"><br \/>\n   DIA<br \/>\n  <\/fbs-ticker> Corp (NVDA)<\/strong>, two years from now.<\/p>\n<p><fbs-ad position=\"inread\" progressive=\"\" ad-id=\"article-0-inread\" aria-hidden=\"true\" role=\"presentation\"><\/fbs-ad><\/p>\n<p>If Sun\u2019s valuation was on the moon, then NVIDIA\u2019s price is way out there in the Kuiper Belt. NVDA trades for forty three times revenues\u201443!\u2014which means:<\/p>\n<ul>\n<li>To give investors a 43-year payback (which is roughly a measly 2% per year), Jensen must pay 100% of revenues as dividends for 43 years.<\/li>\n<li>This assumes he can get it by his shareholders.<\/li>\n<li>It assumes zero costs, expenses and future R&amp;D. And <em>no taxes. Ha!<\/em><\/li>\n<\/ul>\n<p>And <em>oh by the way<\/em>, NVDA pays $0.04 per share per quarter today\u2014so we\u2019re <em>only<\/em> asking for a $2.50 dividend increase. A cool sixtyfold hike.<\/p>\n<p>Obviously not going to happen.<\/p>\n<p>It\u2019s ironic that the hottest stock in the solar system doesn\u2019t have a plausible path to this 2% annual return. Now <em>could<\/em> someone buy it sky high today and sell it even higher next month? Possibly. But buy and hope isn\u2019t our game.<\/p>\n<p>We income investors demand a surer path. And oh, do we ever have one in the utility sector today!<\/p>\n<p>Stop me if you\u2019ve heard this before, but the Federal Reserve is hiking rates until we see a recession. It\u2019s the only way they can get inflation down below their stated 2% target.<\/p>\n<p>The recent \u201cdovish\u201d inflation readings have been partially Fool\u2019s gold, thanks to favorable year-over-year comparisons. Remember, oil prices spiked in spring 2022 and then faded. In the months ahead, we\u2019ll be comparing prices with post-drop numbers from this same time last year.<\/p>\n<p>The recession will <em>eventually<\/em> arrive. When it becomes obvious, we\u2019ll hear about \u201cflight to safety\u201d days in which investors ditch their tech and AI darlings and buy safe stocks.<\/p>\n<p>Like utilities that pay dividends.<\/p>\n<p>Yes, our grandparents\u2019 playbook will be dusted off once again when the recession arrives. Which is why we\u2019re looking <em>ahead<\/em> so that we can cherry pick the best utility dividends <em>now<\/em>.<\/p>\n<p>A popular, but lazy, \u201cgo to\u201d like <strong>Utilities Select Sector SPDR ETF (XLU<br \/>\n  <fbs-ticker data-name=\"XLU\" data-href=\"https:\/\/www.forbes.com\/investment-funds\/xlu\/\" data-type=\"etf\"><br \/>\n   XLU<br \/>\n  <\/fbs-ticker>) <\/strong>won\u2019t do. At least for us.<\/p>\n<p>First, XLU yields 3.3%. Pile a million dollars into XLU and we have $33,000 a year. Not enough income.<\/p>\n<p>Second, XLU holds 30 utility stocks. Why take all 30 when we can cherry pick the best?<\/p>\n<p>Yes, XLU is likely to rally in the months ahead. It trades opposite long rates. Look at these two lines below\u2014the 10-year Treasury rate and XLU\u2019s price. They are often allergic to each other! But let me call your attention to the right side of the chart, where the 10-year is topping as XLU is bottoming:<\/p>\n<p>The closer we get to that recession, the more the 10-year rate (orange line) will come down. At the same time, we\u2019ll see utility stocks rise. A flood of vanilla investors will trade in NVDA for <strong>Dominion Energy (D)<\/strong>, the cheapest blue-chip utility on the board today.<\/p>\n<p>Dominion yields 5%. It rarely pays this much!<\/p>\n<p>Why the deal? D\u2019s in the dividend dog house because the company cut its payout in late 2020.<\/p>\n<p>Why the chop? Too much debt, of course. Dominion had embarked on an acquisition binge in the name of growth. Which, ironically, backfired.<\/p>\n<p>The result was a rare payout slash from a utility\u2014an income investors\u2019 <em>worst<\/em> nightmare. First-level investors <em>keep<\/em> Dominion in the doghouse today.<\/p>\n<p>Which intrigues <em>us<\/em> here at Contrarian Outlook. Did we hear <em>doghouse<\/em>? And a dividend cut in the <em>rear-view<\/em> mirror?<\/p>\n<p>You have our full attention, D!<\/p>\n<p>Chief financial officers (CFOs) are like carpenters. It\u2019s best to measure twice and cut only once.<\/p>\n<p>As a result, the safest dividend is often the one that has recently been cut. Unless management is a complete clown show, the last thing they want is to have to cut twice!<\/p>\n<p>Which is why the recent dividend <em>raise<\/em> from Dominion is encouraging. It shows confidence that the current dividend is being paid <em>comfortably<\/em>.<\/p>\n<p>From a \u201cdividend magnet\u201d standpoint, the stock has more upside from here. Over the past 10 years, even net of the cut, Dominion\u2019s dividend is up 19%. Not great, but the stock has been unfairly punished. From a price-only standpoint, the stock trades below where it did a decade ago!<\/p>\n<p>Over the long run, stock prices track their payouts\u2014higher <em>and<\/em> lower. They can overshoot and undershoot for months, sometimes years at a time. Eventually they find their way home.<\/p>\n<p>As we speak today, Dominion\u2019s price is lagging its payout. Which is why we want to lock in its 5% yield here. We\u2019ll enjoy a bit of upside, too, as this stock eventually gets up off the mat.<\/p>\n<p>Five percent plus upside? Scott McNealy would be proud.<\/p>\n<p><em>Brett Owens is chief investment strategist for <\/em><em data-ga-track=\"ExternalLink:https:\/\/contrarianoutlook.com\/free-monthly-dividend-report-offers\/forbessig?source=MNTHLYFSIGCOREG=&amp;utm_source=forbes&amp;utm_medium=cpc&amp;utm_campaign=signature\">Contrarian Outlook<\/em><em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n<p><em>Disclosure: none<\/em><\/p>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.forbes.com\/sites\/brettowens\/2023\/07\/27\/this-safe-5-dividend-stock-has-more-upside-than-nvidia\/\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>I\u2019m sure you probably know this\u2014but it is usually a really bad idea to pay 43-times sales for a stock. Note that I did not say earnings. I said sales. Revenues. The ol\u2019 top line. Before everything. Scott McNealy, the co-founder of Sun Microsystems, famously told investors it was insane to pay 10-times sales for [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":41161,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-41160","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>This Safe 5% Dividend Stock Has More Upside Than NVIDIA | iFintechWorld<\/title>\n<meta name=\"description\" content=\"I\u2019m sure you probably know this\u2014but it is usually a really bad idea to pay 43-times sales for a stock. Note that I did not say earnings. 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