It's nice to have cash automatically deposited in your investment account every quarter (or month, in some cases). If you pick wisely, the right dividend stocks can pay you passive income for a lifetime.
To help you in your search, Fool.com contributors recently selected three quality dividend stocks to buy right now. Here's why they like Realty Income(NYSE: O), Target(NYSE: TGT), and Philip Morris International(NYSE: PM).
You can count on this monthly dividend
Jennifer Saibil (Realty Income): Realty Income is one of the best real estate investment trusts (REIT) an investor can buy. It has an incredible track record, a high yield, and a solid, reliable business. It also pays a monthly dividend, an extra perk for investors who depend on passive income.
Realty Income is a retail REIT, and although it's expanded into new categories in recent years, retail locations still account for nearly 80% of its portfolio. In the retail category, its top tenants are large brand names like Walmart and Home Depot. In other words, companies you can trust to pay the rent. Convenience stores and grocery stores account for more than 20% of the portfolio, and Realty Income boasts a 98.7% occupancy rate.
The focus on essentials gives it dependability, but branching out into some newer categories gives it diversification. Through acquisitions and new property purchases, Realty Income currently has 15,600 global locations, and in addition to retail, it also has tenants in the gaming and industrial categories. Management has deep sources of capital for new property purchases to keep growing the business and sustaining the dividend.
The company has paid a monthly dividend for more than 54 years, from before it became a public company, and it has raised it for 110 quarters consecutively. Its stock has been pulled down by negative market sentiment about real estate over the past few years, and at the current price, the dividend yields 5.6%, or more than triple the S&P 500(SNPINDEX: ^GSPC) average.
Realty Income reported fourth-quarter results this past week, and despite high interest rates and negativity about real estate trends, adjusted funds from operations increased 4% year over year in the fourth quarter and 4.8% for the full year.It's a stock you can buy today and hold on to forever for reliable passive income.
A bad economy won't stop this Dividend King
John Ballard (Target): Target has struggled over the past few years, which has sent its stock 52% off its previous peak. Its focus on discretionary items like apparel means it's not as resilient as Walmart or Costco Wholesale, but Target also offers a much higher dividend yield, with potential for growth.
Target has paid a dividend every year since 1967, and the strategy that has built that outstanding record is still intact.
While its focus on selling a broad range of merchandise across apparel, home, and beauty products can hurt sales during episodes of weak consumer spending, Target can benefit tremendously from exclusive partnerships with brands when the economy is firing on all cylinders. Over the last 10 years, its return on capital employed has been roughly even or higher than Walmart's. This means Target has been more efficient at generating profits from its stores than its top competitor.
Although Target's comparable sales growth has been lower than Walmart's, stock traffic has been solid. The problem is that customers are not spending as much, which contributed to a lower average ticket in the third quarter. Overall, Target's 0.3% increase in comp sales and a 2.4% increase in traffic last quarter is not bad in the context of a weak retail environment.
Consumer spending will eventually rebound, which is why now is a great time to invest in Target. While investors wait, the stock is paying a quarterly dividend of $1.12 per share, or $4.48 annually. Target typically pays out around half its annual earnings in dividends. The current forward yield is 3.52% based on 2024 earnings estimates.
This tobacco company has reinvented itself
Jeremy Bowman (Philip Morris): Philip Morris might be best known for selling cigarettes, and on one level, that's true. Most of the company's business still comes from selling cigarettes in international markets, including brands like Marlboro.
However, the company has successfully pivoted to next-gen products in recent years like IQOS heat-not-burn sticks, which it launched in-house, and through its acquisition of Swedish Match, which gave it ownership of the popular Zyn oral nicotine pouches.
In its fourth quarter, overall revenue rose 7.3% to $9.7 billion, with adjusted earnings per share up 14% to $1.55, largely due to the success of its next-gen products, which now make up 40% of revenue.
In oral smoke-free products, shipments of cans rose 25% in the quarter, while sales of heated tobacco units, which primarily consists of IQOS, were up 13% in the fourth quarter. Even Philip Morris' cigarette sales are growing, thanks to its exposure to international markets, where there's less pressure on smoking than in the U.S. Cigarette shipments rose 1.1% in the quarter to 152.8 billion.
Philip Morris's next-gen strategy should continue to pay off over the coming quarters as the company acquired the rights to sell IQOS in the U.S., and its newest IQOS device, ILUMA i, is delivering results in Japan, a key market, with a 13% increase in in-market sales.
In addition to emerging as a solid growth stock, Philip Morris has also long been a rewarding dividend payer, doling out most of its profits as dividends, and steadily increasing its dividend over its history. Currently, the company offers a dividend yield of 3.4%, making Philip Morris an excellent bet for investors looking for a combination of growth and income.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $311,551!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,990!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $519,375!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
Jennifer Saibil has positions in Walmart. Jeremy Bowman has positions in Home Depot, Realty Income, and Target. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Home Depot, Realty Income, Target, and Walmart. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
