When it comes to dividend stocks, nothing is more important than reliability. Retirees and other investors rely on dividend stocks for ongoing dividend payments, so if you’re an income investor, you want to make sure you choose stocks that pay you in good times and bad.
A good place to find these stocks is the Dividend Kings List, S&P 500 Members who have raised dividend payments annually for at least 50 years. This period includes the coronavirus pandemic, the financial crisis, the dot-com bust, double-digit inflation in the early 1980s, and the energy crisis of the 1970s.
Only 42 stocks have earned this designation. This is a group that spans multiple industries, although most companies are in the consumer goods or industrial sectors.If you’re looking for dividend stocks that can keep printing money, here are two great picks today Target (TGT -0.56%) and Altria (Mo 0.67%).
1. Goals: An underrated growth story
In retail, most investors seem to think that Amazon destroying everything along the way. While the e-commerce giant has upended the industry, some brick-and-mortar retailers are still thriving. Goal is one of them. In fact, as the chart below shows, Target stock has even outperformed Amazon over the past five years, even though both have fallen in the recent market sell-off.
Target has achieved strong growth thanks to a unique multi-pronged strategy. First, the company has invested in store-based fulfillment.not like Amazon or walmartTarget aims to use its stores to fulfill nearly all digital orders, prioritizing same-day fulfillment options like curbside pickup and delivery through Instacart rival Shipt, which it acquired in 2017.
The retailer has also invested in private labels, which have higher profit margins than well-known brands, and enhance customer loyalty because customers can only get these products from Target. The retailer now has at least $10 billion in brands and continues to launch new brands.
Target is also aggressively opening small stores in underserved communities in cities and college towns across the country, a high-return investment strategy that complements its focus on same-day fulfillment. Smaller stores are also competitors to Amazon, Walmart and others. Costco Unable to match, thus giving Target a competitive advantage.
Target has struggled this year — it, like many of its peers, has been hit by excess inventory and has struggled to compare results from a year ago as consumer spending shifts toward services. But the company still seems poised for solid long-term growth. Over the long term, the company is targeting high-single-digit EPS growth, which, combined with a modest valuation and a 2.6% dividend yield, puts the company well-positioned to deliver double-digit annual returns.
Target’s 51-year track record of dividend growth should also convince investors that it will continue to boost its quarterly payout ratio.
2. Altria: The Unrivaled Dividend Powerhouse
If you love dividends, it’s hard to find a better stock Altria (Mo 0.67%), Marlboro’s domestic parent company.The tobacco company currently offers a 9% dividend yield, better than any other dividend king, and has a 53-year track record of growth dating back to its 2008 spin-off Philip Morris.
Dividends are the main reason investors hold Altria stock, and the management team knows it. Altria just raised its quarterly dividend by 4.4% to $0.94, its 57th increase in 53 years. The company has a dividend payout ratio target of 80%, which means it aims to pay out 80% of its profits as dividends.
Although cigarette sales in the U.S. have been declining for decades, Altria has managed to continue growing earnings per share, largely thanks to higher prices and share buybacks — even as operating profit is flat. Despite an 11% drop in cigarette sales in the most recent quarter, revenue after excise tax fell by just 0.7% due to higher prices.
Altria’s growing dividend and EPS are also worth noting, despite the fact that JUUL and Cronos groupwhich resulted in billions of dollars in writedowns.
Altria will eventually have to transition away from smokable products, and the partnership with the IQOS product that sells Philip Morris appears to be the most promising next-gen opportunity right now. Bt management has long proven its ability to grow EPS in a declining industry.
Investors should have confidence in Altria’s dividend payment, and its 9% yield makes it an attractive way to ride out a bear market.
John Mackey, CEO of Amazon subsidiary Whole Foods Market, sits on The Motley Fool’s board. Jeremy Bowman has positions at Amazon and Target. The Motley Fool has positions and referrals at Amazon, Costco Wholesale, Target, and Walmart Inc. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
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