Investors traditionally want to make as much money as possible, but this year is different. As the new year begins, some look back and find lessons in past successes that can help them invest more wisely for future gains — especially with dividend stocks.
History has shown that industries and companies with successful streaks often reward investors in the long run. It is a great opportunity to invest your money for a potentially high return. So, please take advantage of the dips in dividend stocks as and when they occur.
Dividend investing is an excellent way to diversify your portfolio without putting all of your money into one investment. It helps investors get a return while also providing additional income over time, which can be especially important during tough economic times when stocks may not perform as well.
It’s also important not to treat dividend stocks as overtly defensive plays. Setting aside a significant chunk of earnings to distribute among stockholders only happens when you stitch together several years of excellent performance. If the underlying business is not doing well, the company can hardly afford to part ways with profits.
Below we highlight seven high-quality dividend stocks that are great additions to any income investor’s portfolio:
- Automatic Data Processing (NASDAQ:ADP)
- Intel (NASDAQ:INTC)
- Coca-Cola (NYSE:KO)
- Chevron (NYSE:CVX)
- IBM (NYSE:IBM)
- Verizon Communications (NYSE:VZ)
- McDonald’s (NYSE:MCD)
Dividend Stocks: Automatic Data Processing (ADP)
Automatic Data Processing provides accounting and human resource services to small businesses. A company specializing in data processing, Automatic has been around since 1949. They offer payroll administration and other HR functions like benefits management or even productivity tracking if your business needs it.
ADP is a company that does more than most other businesses. They have over 860 thousand customers across 140 countries and fulfill common functions for all organizations- making them the leader in their field. Despite the ever-evolving nature of work and finance, ADP still holds a significant competitive advantage over others due to its strong brand and high switching costs. Do not expect Tesla-like growth anytime soon. But the company’s operating metrics are rock solid.
The 45 consecutive years of dividend growth ADP stock has achieved are a true testament to their commitment and dedication. It is an excellent opportunity to get consistent income in your retirement years without taking too much risk.
ADP’s payout ratio of 65.82% might look pretty high, especially since this is a mature, stable enterprise. However, it produced $2.6 billion in free cash flow over the last year. So, the company’s status as a Dividend Aristocrat is very secure.
It has been a long time since we’ve seen such an underdog story like this one. A decade ago, Intel was king of the chip hill, with AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) playing minor roles. But now things have changed: The two younger companies seem ready to take over for their aging leader. Nvidia, in particular, has leapfrogged ahead.
With a whopping 83% of the market share, Nvidia reigns supreme in PC gaming. However, they have serious competition from AMD, which currently holds only 17%. Intel is nowhere to be seen in this race. When it comes to semiconductor chips, it is once again losing steam to its peers.
Intel’s lack of innovation has finally caught up with the company. In recent years, Intel could not keep pace with mobile computing and production capabilities for faster/smaller chipsets as its rivals’ innovations wrested away market share. However, on the bright side, Intel’s latest processor line, the Alder Lake 12th-generation core chips, has started to eat away from AMD high-end processors. With new releases expected in the next two years, including what Intel says is their fastest mobile chip ever made, there is hope that “Big Blue” might regain lost ground.
INTC stock holders were paid 30% of its profits in dividends over the past year. This healthy payout ratio ensures investors are getting their money back. But it also has room to grow even more as time goes on. The company raised its dividends for 10 consecutive years before freezing them in 2014. Since then, Intel has hiked its distribution for seven consecutive years.
Dividend Stocks: Coca-Cola (KO)
Recently, Coca-Cola has not been able to compete with the low-carb lifestyle becoming more popular. The company lost market share, and consumers are now opting for healthier drinks like Soylent or sparkling waters instead of their traditional sugary counterparts. However, the beverage giant understands the need to change and keep up with the times.
Coca-Cola has been making some innovative changes to its product lineup to cater to consumers who want healthier options. It introduced sparkling water, teas, and milk. In addition, they have launched new zero sugar versions of popular soda brands such as Sprite, which are growing 25% faster than the regular non-zero sugars version during the last quarter.
KO’s new products are geared towards those who want to get in shape and maintain their figure. In a move that will significantly impact the sporting goods industry, Coca-Cola purchased sports beverage group BodyArmor for $5.6 billion; this instantly gives them excellent exposure within this niche market, and we should take notice. For years, Coca-Cola’s Powerade has been a distant competitor to PepsiCo’s (NASDAQ:PEP) market-leading Gatorade. Even when combined with the Body Armor product line, it accounts for 23% of all sports drinks sold.
If you’re looking for a company that has been around the block, then look no further. KO stock’s dividend is easily among some of the longest-tenured Dividend Aristocrats with 59 consecutive years under its belt.
Chevron is one of the most profitable oil companies in America. In terms of profit margins, it’s not even close between this major corporation and its competitors –Chevron has always been able to generate healthy earnings with little risk by taking advantage of cheaper fuel prices than other energy firms do.
The Covid-19 crash left many energy companies in ruins. Even giants like Chevron suffered major losses, with their share price down due to fears over an economic contraction worldwide. Chevron is one of the few success stories from this period. The company purchased Noble Energy for $100 billion in a blockbuster all-stock acquisition. And despite the pandemic, the company kept paying a solid dividend.
This oil company has been on a streak of surpassing earnings estimates. In the last two quarters, they topped by an average of 22%. It looks like this firm is doing well, and it seems that the future will continue with more growth in store for investors who invest now rather than later. For instance, its third-quarter saw them earn $6 billion versus a loss of $207 million last time around–a sign that things are on the mend.
Chevron has been buying back stock and reducing debt at a healthy rate, surprising analysts. The company is still expected to continue this practice in future quarters though they haven’t announced any plans just yet. Free cash flow was the best it’s ever been for this company at $6.7 billion. Therefore, the dividends are secure on CHV stock.
Dividend Stocks: International Business Machines (IBM)
IBM has been on a downward trajectory for a while. It’s no wonder Wall Street doesn’t seem too excited about this company — their stock prices have been down 14.6% in the last five years.
The company that once reigned supreme in IT services and hardware sales has suffered through many years of decline. With cloud computing taking off, it’s hard for any firm not to get left behind. Still, IBM’s situation is more than just an average struggle as they have struggled with losing market share while their competitors continue to grow stronger each day. The traditional big names like IBM are having trouble keeping up because so much technology has shifted over towards using data instead of storing them locally on servers where you can access anything instantly anywhere, which means the old ways will no longer suffice.
In 2019, IBM purchased Red Hat for $34 billion. And it turned out to be a savvy decision as this purchase boosted the company’s operations, enhancing its future potential for success in open-source software development. At the same time, the company is cutting away at some of its old routines that weren’t worth keeping around any longer, such as spinning off legacy IT infrastructure services company, Kyndryl (NYSE:KD).
Whatever you think about this move by IBM, it’s still substantial enough for them to see themselves better without this considerable chunk of their former clientele, which has $19 billion in revenue as a public company.
Cloud earnings rose 14% year on year in the third quarter. It’ll still be a while before these numbers come out. But analysts generally expect them to start heading in the right direction again once they release some post-separation data. Look for IBM stock to move on that.
Verizon Communications (VZ)
Verizon is looking to take on the communications and media world. They have been making moves in this area for a while now. Still, it looks like they’re finally ready because their wireless service has become pretty much commodity-level as well, with no real difference between carriers or plans anymore. The U.S. and other developed nations around the globe are already saturated.
Verizon has been diversifying its wireless business by acquiring AOL and Yahoo to leverage the growth in the online advertising space, especially video. However, these ventures did not work out. With an eye toward the future and its ever-increasing commitments to other businesses, it sold off its media properties for $5 billion to get rid of these legacy investments that have not paid off as expected monetarily nor strategically over time. The company’s network is one of its most important assets, and VZ has been working overtime to improve it. Now, it is focusing squarely on these investments.
The 5G transformation is an incredible opportunity for Verizon. Not only does it provide the opportunity to upgrade their consumer devices and another smart tech, but they have started transitioning towards enterprise customers with fleet management software which should boost revenue even further. Verizon has deployed 14,000 new 5G Ultra Wideband cell sites in just one year.
The markets are, however, unforgiving. The VZ stock price is down 7.8% in the last year. A juicy dividend yield of 4.7% is not enough to convince investors to give this one a chance. Still, considering this is a 5G play, a forward price-to-earnings ratio of 10.1 looks very enticing.
Dividend Stocks: McDonald’s (MCD)
One of the best dividend growth stocks is McDonald’s. Ray Kroc opened the first restaurant in 1955. It has since grown into an international empire that spans burgers and billions of dollars worth of property and franchises outside the US. McDonald’s may not be a growth company, but it has shown that its ability to withstand economic downturns is impressive. The fast-food giant grew earnings per share during the 2008-2009 Great Recession and continues with annual increases in dividends since 1976.
Its third-quarter earnings were better than expected, with revenue up 14% year over year to $6.2 billion, handily beating analyst expectations. The number of closed McDonald’s restaurants due to Covid-19 restrictions has decreased since the vaccine was introduced, which is good news for customers. This contributed significantly towards their success in international markets, which is a significant chunk of its overall business.
MCD stock has had a history of paying out dividends since its founding, and it is currently one of the most dividend-friendly companies in America. A healthy balance sheet is essential not just for established firms like this iconic fast-food chain with $6.7 billion worth of cash on hand, but also to maintain sustainable payout ratios.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.