Many investors are starting to think that the explosive run in the tech sector has run its course and that industry trades are getting overcrowded. This has led to new investing opportunities in other sectors, where high-quality stocks are trading at attractive levels. In this article, we’ll look into high-quality dividend stocks showing the potential for a breakout, focusing on those trading within the 40-60 RSI levels.
What Is RSI?
RSI, or the Relative Strength Index (RSI), is a technical momentum oscillator used to measure the intensity of price movements. RSI ranges from 0 to 100, wherein 70-100 is overbought, and 0-30 is oversold territory. Similarly, a break above 50 signals a potential change into a bullish trend, and a break below signals a possible shift into a bearish trend. Now, let’s look at some dividend stocks poised to turn bullish.
Pepsi, Inc. (PEP)
PepsiCo, Inc. (PEP) is a multinational food, snack, and beverage company founded in the United States in 1898. The company is associated with over 500+ brands and operates in more than 200 countries and territories. It is headquartered in Harrison, New York, and has over 315,000 active employees all over the globe.
PEP ended the 2nd quarter with positive results. The company's revenue grew by 10.37% YoY at $22.32 billion. Now only that, Pepsi also reported $2.09 EPS and grew by 12.37% YoY, beating analyst estimates by 7.18%. The company also pays a dividend yield of 3.03% and has historically increased its dividend payments for 52 years, making it one of the prestigious Dividend Kings (50+ years of consistent dividend increases).
What does the chart say?
PEP is currently trading in a rising channel (upward-sloping parallel lines). It made an “inside bar pattern,” wherein a long red candle’s next candlestick is a green candle inside its entire price range. The “inside bar” is a commonly known reversal pattern marking a good chance that prices may reverse from their current direction. The 14-day RSI is also moving within a support area and trying to move back up to the bullish area of the RSI and support the potential reversal move.
Chevron (CVX)
Chevron Corporation is a multinational energy company based in the United States. The company was founded in 1879. Its headquarters are in San Ramon, California, U.S. CVX’s operations focus on eight segments:
- The Exploration and Production Segment
- The Refining Segment
- The Transportation Segment
- The Supply and Trading Segment
- The Products and Services Segment
- The Lubricant Segment
CVX reported slow sales growth in Q2 but managed to beat earnings expectations. Sales were down by -3.73% QoQ at $48.90 billion. Earnings were also down but exceeded analyst expectations by 4.41%. The lower earnings and revenue were due to lower realized crude, natural gas prices, NGL, and refined product sales margin. CVX also offers a dividend yield of 3.79% and has consistently increased its dividends for 37 years, making it a part of the Dividend Aristocrats(25+ years of consistent dividend increase).
Will the 2nd time be the charm?
CVX is currently retesting its short-term resistance after its failed breakout. 14-day RSI also moves in an upward-sloping channel and trades around the bullish zone. Investors may want to keep tabs and wait for the confirmation of the breakout before buying in.
Coca-Cola Company (KO)
The Coca-cola Company is a multinational beverage conglomerate that produces, markets and sells alcoholic and nonalcoholic drinks. It has over 200 brands available throughout the world. Additionally, the company offers its products in more than 200 countries. The Coca-cola company is best known for its nonalcoholic sugary drink, Coca-cola, which was invented by John Stith Pemberton in 1886, and Asa Griggs Candler was the company's founder. Its headquarters is located in Atlanta, Georgia, U.S.
KO reported a profitable 2nd quarter with its revenue of $11.97 billion, growing by 5.88% YoY. EPS grew at 11.43% YoY at $0.78 and beat expectations by 8.33%. The company has been steadily increasing its dividends for 62 years and is beloved even by prominent investors like Warren Buffet, which makes it one of the most attractive long-term stocks to buy.
Are we off to the next resistance?
KO is currently trading on its short-term support after it broke out from its oversold/divergence. It's currently experiencing a short correction and shows signs of a reversal after printing an inside bar candle similar to PEP. Investors who want to buy into the company may wait for confirmation should they intend to trade this retest.
Final thoughts
RSI offers investors ways to take advantage of opportunities in any market. Whether you choose reversal strategies, momentum investing, or giving context to a price movement and RSI dynamics, it's important to prioritize risk management. This minimizes the impact on your portfolio should market movement proves your buying system wrong.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
