One thing that people frequently ask me is “what is the best stock to buy?” My quick response is a solid dividend stock. This is followed by the why? The reason is rather simple, cash is king. My favorite dividend stock in January 2021 is Alliancebernstein Holding LP (NYSE: AB).
To help you understand why I love dividend stocks and specifically AB stock, I need to give you a little history. In 2001, I was a new stockbroker when the tech boom blew up. It was terrible. Being a broker was worse than being a used car salesman. What does a broker do? He makes you broker.
Seriously it was a rough time.
I literally remember a guy chasing me out of his shop when I tried to talk to him about his company’s 401k, screaming my “401K is now 201k!” Another lady I met had taken out a mortgage on her paid-off house to buy a variable annuity that was down 80% with the strong likelihood that it would NEVER come back because the tech stocks inside the subaccounts were destroyed due to the fact that many of the tech companies were out of business.
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As a new broker, I relied on experienced stockbrokers for advice. They told me to tell clients to wait. For some, this paid off, but for others, they were never made whole.
For many, retirement was put on hold. Others had to pull income from their investments, forced to sell at a low point to pay their bills.
During this time I asked myself, isn’t there a better way?
Fast forward a few years and I would go through a similar experience. In 2008-2009, I was managing a sales desk for a broker-dealer where I helped train and support nearly 500 financial advisors.
The drop in the market was just as hard. In my role, I was shielded from direct conversations with clients, but advisors would call me and ask me what their clients could do.
Again we were told to just hang in there until the market returns.
Unfortunately, many of the clients needed money to live on. Bills needed to be paid. Groceries needed to be bought.
My firm managed billions and we made money charging for the service of managing clients’ funds, but the best we could tell people to do is wait for the market to come back?
I started to question my firm and its investment philosophy.
That is when I learned that the COO of my firm was not invested in mutual funds or growth stocks. He had built himself a portfolio of dividend stocks. He was getting paid whether his stocks went up or down.
I left the firm shortly afterward disenfranchised and asking myself why the firm was promoting mutual funds when they should be selling dividend stocks to retirees?
The sad truth is that selling mutual funds was easier and more profitable than selling dividend stocks. A broker-dealer would only make 1% on a dividend stock trade but would make up to 5% on mutual fund trade.
Growth stock and IPOs may sound very exciting, but there are a lot of bad eggs out there and I like to have real income coming in. A good dividend stock will pay you every month or quarter consistently. It may fluctuate in price, but it is always paying a dividend.
Quality dividend stocks “show you the money”!
I am a big believer in Robert Kiyosaki’s (Rich Dad, Poor Dad) basic investment philosophy to turn your money into assets that work for you. A good dividend stock is like a part-time job that pays you whether you are there or not. In addition, a good dividend stock can also increase in value and get you more money in the future.
The cool thing is that today, an average guy can buy dividend stocks and start making his money work for him from day one. All it takes is a little bit of discipline and time.
If you invest just $5 a day, after 5 years you would have $9,000 invested, but it would be worth a lot more. For example, perhaps when you started investing, the stock was $18 and now it is $36!
Even cooler is that you could be getting an additional $1,000 a year for doing absolutely nothing.
Enough said, check out the 5-year chart of Alliancebernstein Holding LP (NYSE: AB) below:
Obviously, I like Alliancebernstein stock because it has a track record of growth. But what really excites me is the 7.62% dividend yield.
It is like you can have your cake and eat it too.
Before I go any further, it is important to remember when investing that past performance is no guarantee of future results. Trust me, never buy a stock or ETF based solely on past performance. It will bite you eventually and it will hurt.
So why is AB stock a good dividend stock? Because I said so. Just kidding, we are not two-year-olds.
I value stocks by looking at the overall picture of the company and the stock separately. Often a company may be a successful business, but the stock fails to perform. This includes the fundamentals of the company and technicals. In a nutshell, these are 5 things I like about AB stock:
- First, AB stock has been recently upgraded from Keefe Bruyette to Outperform and a stock target price of $40.
- Second, it has a profit margin of 90.3% and a payout of 99.2%.
- Third, the PE is 13.30, which is very respectable.
- Forth, Alliancebernstein has a solid business and is in a great growth sector.
- Lastly, the technicals (SMA20, 50, and 200) for AB stock are very BULLISH.
Right now, the stock price is very high, but it is also bullish and likely to climb higher. Here are some key pivot points:
As you can see, AB stock is breaking through Resistance Level 3!
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