Whether you have $400 to invest or $400,000, you'd be smart to consider plunking those dollars in some healthy and growing dividend-paying stocks. Why dividend payers? Well, they can appreciate in value just like other good stocks, but while doing so, they'll kick out cash to you regularly -- cash that can be used to support you in retirement or to buy additional shares of stock. And on top of that, healthy and growing dividend payers typically increase their payouts over time, too.
Here's the kicker: Dividend payers tend to perform better than non-payers, too! Check out the table below, adapted from a Hartford Funds report:
Dividend-Paying Status
Average Annual Total Return, 1973-2022
Dividend growers and initiators
10.24%
Dividend payers
9.18%
No change in dividend policy
6.60%
Dividend non-payers
(0.60%)
Dividend shrinkers and eliminators
3.95%
Data source: Ned Davis Research and Hartford Funds.
Here, then, are three dividend-paying stocks to consider for your portfolio. All three have recently sporting attractive valuations as well as attractive dividends.
1. Medtronic
Medtronic(NYSE: MDT) is a healthcare giant with a recent market value of $111 billion. It offers medical devices such as implantable pacemakers, aortic valves, mesh implants, stapling devices, and technology used in robot-assisted surgeries -- among many other things. The company employs close to 100,000 people in 150 countries, and its offerings treat more than 70 health conditions, such as diabetes.
Medtronic's dividend recently sported a dividend yield of 3.3%, and that payout has increased at an average annual rate of 7% over the past five years (and it has upped its payout for 46 consecutive years now). Its business is growing, too, with third-quarter revenue increasing by 4.7% year over year and earnings per share (EPS) advancing by 8%. Medtronic is likely to keep growing, because it invests heavily in developing new treatments and products. It spent $2.7 billion on research and development in its fiscal year 2023, and recently had more than 200 active clinical trials in progress.
Meanwhile, the company is shedding less-profitable operations, such as its line of ventilators. Its stock looks attractively priced at recent levels, with a recent forward-looking price-to-earnings (P/E) ratio of 15.6, well below its five-year average of 18.1.
2. Starbucks
Starbucks(NASDAQ: SBUX) needs little introduction, as it boasts more than 38,000 locations in more than 80 markets around the globe -- and it also has products on the shelves of many retailers, too. Starbucks' dividend recently yielded 2.5%. That payout has grown by an average annual rate of 10% over the past five years -- and it's likely that another increase will be announced this fall.
A solid and growing dividend is great, but you also should want the underlying company to be growing at a decent clip. In its first quarter, Starbucks' net revenue rose 8% to a record $9.4 billion, with sales at stores open more than a year increasing by 5% globally. Earnings per share surged 22%. One particularly successful Starbucks initiative has been its rewards program, with membership growing 13% year over year in the first quarter, to 34.3 million.
Everything isn't 100% rosy at the company -- overall inflation has many consumers cutting back on their spending, and Starbucks' growth rate is slower than in years past, in part because of competition. But it has still boosted its operating margin and has multiple irons in the growth fire -- such as offering delivery and drive-thru services. There's a lot to like about Starbucks' prospects -- and its stock seems undervalued, too, with its recent forward P/E of 22.3 well below the five-year average of 28.4.
3. PepsiCo
PepsiCo(NASDAQ: PEP) is another familiar name, a $237-billion titan in both the soft-drink and salty-snack realms, with brands such as Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream. PepsiCo's dividend recently yielded 2.9%, and it has been upped by an annual average of 6% over the past five years. It, too, has a long dividend history, with its last increase of 7% being its 52nd consecutive annual increase.
PepsiCo's net revenue in its fourth quarter was down less than 1% year over year, but its full-year revenue for 2023 was up 5.9%, with full-year EPS rising 2%. Pepsico's stock valuation looks appealing, too, with its forward P/E of 20.0 well below the five-year average of 23.5.
These are just three of many attractive dividend payers out there. Remember, too, that if you aren't comfortable picking stocks on your own, you can always opt for one or more dividend-focused exchange-traded funds (ETFs) -- and you can do so with just $400 or with much more.
Should you invest $1,000 in Medtronic right now?
Before you buy stock in Medtronic, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Medtronic wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
Selena Maranjian has positions in Medtronic and Starbucks. The Motley Fool has positions in and recommends Starbucks. The Motley Fool recommends Medtronic. The Motley Fool has a disclosure policy.
