Investing in profitable companies when their stock prices offer high yields can be very rewarding over the long term. If you have a few hundred dollars that you don't need for reducing debt or covering other living expenses, there are solid companies offering tempting dividend yields right now.
Realty Income(NYSE: O), Target(NYSE: TGT), and Philip Morris International(NYSE: PM) have dividend yields that are well above the S&P 500 average of 1.24%. Here's why three fool.com contributors believe they are smart buys for 2025 and beyond.
A forever stock ready for 2025
Jennifer Saibil (Realty Income): Realty Income is one of the best dividend stocks to own at any time, but 2025 could be an important year for the real estate industry in general, and Realty Income's business could be even stronger than usual.
Realty Income is a real estate investment trust (REIT). This is a structure where companies pay out 90% of their earnings as dividends, which is why REITs are great dividend stocks. The typical setup is that they own properties and rent them out, usually to a specific sector. Realty Income is a retail REIT, and it leases properties to retail chains like Walmart and Home Depot.
Since it leases predominantly to high-quality tenants that sell essentials, it has demonstrated resilience throughout the last five years, starting with the pandemic and heading into the recent poor real estate climate. It has an occupancy rate of 98.7%, and it rarely dips below that.
It has become one of the largest REITs in the world with more than 15,000 properties, and it grows through a mix of buying new properties and acquiring smaller REITs. It has a comfortable cash position to keep that up and has identified plenty of new targets to expand and fund its dividned.
There are several reasons why Realty Income is one of the best REITs out there. One is the strength of its business. A great dividend stock starts with a well-established business. Other features to add on top of that are a long track record of increases, reliable payments, and a high yield.
Realty Income has paid a dividend for 654 consecutive months, and it has raised it for 109 consecutive quarters. It is one of the few companies that pay a monthly dividend, an extra feature that makes it even more attractive. The dividend yields 5.9% at the current price, well above the S&P 500 average, and higher than many REITs.
Often, when a REIT's dividend yield gets very high, it's a red flag and implies risk. Realty Income's stock is down on consumer pessimism about the real estate industry, but it's managing effectively through the turbulence. The yield is usually high, but it's higher than average due to short-term concerns. This is more than an opportunity to buy on the dip, which investors shouldn't miss. It's an opportunity to buy an excellent, all-weather stock that pays a high yield rain or shine, and every month to boot.
Target has paid a dividend for over 50 years
John Ballard (Target): Cautious consumer spending has hit many retailers, including Target, over the last year. A cautious shopper and other cost pressures resulting from port strikes have weighed on Target's business and stock performance.
For a long-term investor focusing on dividends, it's a good buying opportunity. Target has paid a dividend since 1967, which speaks volumes about the strength of its retail operation.
The shares currently offer an attractive 3.24% forward dividend yield at a share price of $138, yet the company only pays out 47% of earnings in dividends. This suggests Target can maintain and grow its dividend for years to come.
People will be in a spending mood again. To its benefit, Target is still seeing positive traffic to its stores, but a 2% decline in average ticket prices dragged down its comparable-store sales, which grew only 0.3% year over year last quarter. Management cited weakness in apparel and home categories, but this should set up a growth opportunity when the economy improves.
Over the long term, Target should benefit from its focus on exclusive products through partnerships and growing sales through its Target Circle 360 program, which helped drive nearly 20% growth in same-day delivery last quarter.
Overall, Target's history of paying dividends, growing earnings, and delivering value to shoppers should provide growing passive income to shareholders for many years.
This dividend stock is smoking hot
Jeremy Bowman (Philip Morris): If you've got less than $200 to invest in the stock market, and you're looking for a dividend stock to buy, I can think of few better options than Philip Morris.
The tobacco stock has outperformed top rivals like Altria and British American Tobacco by successfully pivoting to next-generation products like iQOS heat-not-burn tobacco sticks and Zyn nicotine pouches, which it gained in its 2022 acquisition of Swedish Match. In fact, next-gen products now make up nearly 40% of the company's revenue.
Driven by strong growth in those categories and a solid performance in its traditional cigarette business, which supplies brands like Marlboro to international markets, Philip Morris stock jumped 28% in 2024, and it looks primed for more growth in 2025.
The company has just started selling iQOS in the U.S. after acquiring the rights to distribute it from Altria, and it's invested in new manufacturing capacity for Zyn in the U.S., showing its confidence in continued growth from the nicotine pouches. In the third quarter, the company reported 17% organic growth in smoke-free products. Overall revenue was up 11.6% on an organic basis to $9.9 billion, as the company also claimed its highest market share in combustibles since its spin-off from Altria in 2008. Organic operating income rose 14% to $3.7 billion, and it raised its earnings per share guidance for the year.
Like other international stocks, Philip Morris stock fell after the election, as investors fear that a stronger dollar will pressure the company's results. That reaction looks overblown, as Philip Morris has little exposure to tariffs, and it operates in a recession-proof industry.
After that pullback, the stock now offers a dividend yield of 4.5% and trades at a reasonable price-to-earnings ratio of 19. With momentum building in products like iQOS and Zyn, the stock looks like a strong buy for 2025, especially for investors looking for dividend income.
Should you invest $1,000 in Realty Income right now?
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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Target. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, Realty Income, Target, and Walmart. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
