Here are my top 5 dividend stocks to buy in August

After a spectacular performance in 2023 and a great start to 2024, the capital markets have started to cool down of late.

Of course, the recent selling activity can be attributed to a variety of factors, including mixed jobs data, the Federal Reserve’s monetary policy outlook and, of course, the upcoming presidential election. In times like these, investors may choose to exit more growth-oriented opportunities and seek safer, more stable positions.

Let’s explore five dividend stocks that I think look like screaming buys right now. Investors interested in reliable passive income don’t want to miss these stocks.

1. The capital of Hercules

The capital of Hercules (HTGC -0.06%) is a business development company (BDC) that specializes in high-yield loans for venture-backed companies. BDCs are required to pay out at least 90% of their taxable income each year in the form of dividends, so they can be lucrative sources of passive income.

Generally, a bank can avoid giving a loan to a young company. And if it does, there probably won’t be enough material to provide a proper track.

Hercules differentiates itself from banks because of the way it structures transactions. For example, while a bank may have a dollar threshold, Hercules generally offers larger loans but at a higher interest rate. Moreover, Hercules generally attaches warrants to its deals, which act as a sweetener if a portfolio company ends up being acquired or goes public.

A good measure of a BDC’s health is to look at its non-accumulating investments. Essentially, these are investments that the company considers highly unlikely to repay the principal and interest.

For the quarter ended June 30, just 2.5 percent of Hercules’ $3.6 billion portfolio was classified as non-accrual status.

Right now, Hercules is trading at a price-to-book (P/B) ratio of 1.6, which is near a 10-year high. Its total return over the last decade is 229%, easily surpassing it S&P 500his total return of 184%. So while Hercules stock isn’t exactly cheap, I think the premium is well deserved.

HTGC price to book value data by YCharts

With the stock trading at a 10.4% dividend yield, I think now is as good a time as ever to load up on Hercules and prepare to hold for the long haul.

2. Ares capital

Another BDC on my list is The capital city of Ares (ARCC -0.19%). Ares is quite different from Hercules, however, as the company has a broader industry reach and offers more sophisticated financial products.

Additionally, with 50% of the total portfolio allocated to prime secured loans, investors can rest assured that Ares is well positioned even in downside scenarios.

ARES Total Return Level data by YCharts

According to the chart above, investors can see that Ares has easily outperformed the S&P 500 as well as BDC-focused exchange-traded funds (ETFs) over the past two years. Considering how strong the S&P 500 has been since its massive sell-off in 2022, it’s impressive how much Ares has outperformed its peers and the market overall.

While it may not be as attractive as a high-growth AI stock, Ares has quietly been a multibagger opportunity for its shareholders. Investors may want to consider increasing their earnings with this passive income player, as shares are yielding around 9.3% right now.

3. AT&T

I admit from the beginning that the telecommunications business is not very interesting and AT&T (T -0.15%) is not an exception. The telecommunications industry is quite commoditized, which forces the big players to compete on price.

T Revenue data (quarterly) by YCharts

When you’re in the business of providing the lowest cost solution, it can be difficult to scale. As the chart above illustrates, AT&T’s revenue has declined considerably over the past decade. Again, an overcrowded market coupled with the ongoing dynamics affecting the communications sector is not exactly a recipe for hypergrowth.

However, AT&T has demonstrated a disciplined approach to costs during this period of declining sales. Because of this, the company has been able to actually grow its free cash flow despite some dramatic ebbs and flows in the top line.

It’s important to note that some of this cash flow was boosted by AT&T cutting its dividend by nearly half in 2022. While that’s not too encouraging, I’ll give AT&T management some credit.

At the end of the second quarter, AT&T’s net debt was $127 billion. That was about a $5 billion improvement over the second quarter of 2023. If AT&T remains focused on strengthening its balance sheet, I see no reason for the company to cut its dividend again.

So while AT&T won’t supercharge your portfolio in any way, I think the stock offers a compelling upside opportunity. Moreover, AT&T’s current price-to-earnings (P/E) ratio of 11.1 is near historical lows. While some may have soured on AT&T forever, I think now is a good opportunity to get the stock at obnoxious levels and take advantage of the 5.7% yield.

Image source: Getty Images.

4. Verizon

Next on my list is one of AT&T’s biggest competitors, Verizon Communications (See -0.44%). Most of my thesis for investing in Verizon is illustrated in the chart below.

Image source: Verizon Investor Relations.

Last September marked 17 consecutive years of dividend increases for Verizon. Moreover, when talking about a commitment to further dividend increases, Verizon CEO Hans Vestberg said he wants to “continue to put the Board in a position to do that” during the company’s second-quarter earnings call .

To me, Verizon isn’t just a reliable dividend opportunity; I think a raise could be on the horizon next month. Such a move could inspire a little buzz in the stock, so I’d be a buyer right now. Verizon’s P/E of just 15.2 pales in comparison to the S&P 500’s P/E of 27.5. With shares yielding around 6.5%, now looks like a great opportunity to invest at a deep discount to the broader market.

5. Altria

In my opinion, I saved the best for last. Altria (MO 0.04%) is the tobacco company behind notable cigarette brands such as Marlboro and Black & Mild, and is also a dividend king. The tobacco industry is undoubtedly facing an existential crisis. A larger cohort of consumers are becoming more health and wellness conscious, making tobacco products a tough sell.

But like all large companies, Altria has found ways to meet this challenge. Management said Altria’s next phase depends on “moving beyond smoking.”

Namely, the company is paying more attention to vapor products as well as oral nicotine pouches as opposed to traditional smoking products. Although this transition is in its early stages, there are strong indications that this pivot is working.

Last June, Altria acquired vaping company NJOY. At the time, NJOY products could be found in approximately 35,000 stores nationwide. According to Altria’s second quarter earnings presentation, NJOY’s footprint nearly tripled to 100,000 stores.

While aggressive expansion efforts might suggest NJOY is in high demand, the brand currently only holds about 5% of US retail share. To me, this bodes well for NJOY’s long-term momentum and validates Altria’s investment and focus on smokeless tobacco.

Another reason I love Altria stock is that the company has been actively buying shares for quite some time. In the first six months of 2024, Altria repurchased $2.4 billion of shares at an average price of $44.50.

Companies may choose to buy back shares when management believes the stock is undervalued. Considering that Altria is currently trading at around $51 per share, the company’s buyback program seems pretty smart right now.

Given its consistent history of dividend increases, along with an exciting new chapter that presents the next frontier of the tobacco industry, I see Altria as a tremendous opportunity for investors looking for a combination of reliable earnings and passive income.