Dividend stocks offer investors a unique opportunity to generate income passively, simply by holding onto shares. This investment strategy provides a valuable cushion, allowing individuals to offset their living expenses without resorting to selling off assets. While some companies offer high dividend yields with limited stock price growth potential, others may have lower yields but promising upside in stock prices.
When considering dividend stocks, investors often face a choice between prioritizing either growth or income. Although ideally, both can be attained, one side usually outweighs the other. Dividend growth stocks typically offer higher total returns, while dividend income stocks provide immediate cash flow.
Forecasting how companies will evolve over several decades can be challenging. However, certain corporations have demonstrated a strong track record of delivering dividends consistently, potentially spanning an investor’s lifetime. Let’s examine a few such stalwarts in the market.
United Parcel Service (UPS)
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The venerable United Parcel Service (NYSE:UPS) boasts a history spanning over 115 years, weathering various economic climates while consistently rewarding shareholders with dividends. Remarkably, the company has been paying dividends since 1999.
Despite encountering recent financial headwinds that led to a 21% drop in its stock price over the past year, UPS now presents a compelling opportunity, with a price-to-earnings (P/E) ratio of 19 and an attractive 4.35% dividend yield. Market analysts are increasingly optimistic, suggesting that UPS stock may have hit its floor.
Currently, UPS enjoys a moderate buy rating from 20 analysts, with an average price target indicating a potential 7% upside. A world without UPS seems unfathomable, given its pivotal role in the supply chain, especially with the e-commerce sector’s continuous expansion. While UPS may not eclipse the stock market in terms of performance anytime soon, it offers solidity through its dividend distribution and greater stability compared to high-growth stocks.
Microsoft (MSFT)
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Microsoft (NASDAQ:MSFT) stands out as a dividend growth stock, dominating various sectors including cloud computing, personal computing, advertising, gaming, and artificial intelligence (AI).
Boasting an impressive 249% increase in its stock value over the past five years, Microsoft has consistently outperformed the broader market. Market analysts are bullish on the stock, rating it as a strong buy with a projected 13% uptick.
While Microsoft may not appeal greatly to dividend income investors due to its low 0.72% yield, it remains a favorite among dividend growth investors. With a 10.86% compound annual growth rate (CAGR) in dividends over the last decade and a modest 25% payout ratio, Microsoft has ample reserves to support future dividend hikes.
Moreover, Microsoft has a solid track record of distributing dividends for 19 consecutive years, coupled with consistent revenue and earnings growth annually. The company’s expanding profit margins signify further growth on the horizon.
Visa (V)
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Visa (NYSE:V) boasts robust profit margins consistently exceeding 50%, driven by increasing usage of credit and debit cards for transactions. This revenue model has propelled Visa’s stock value by 74% in the last five years.
In the first quarter of fiscal 2024, Visa reported a significant 9% year-over-year (YOY) revenue increase, complemented by a 17% YOY rise in GAAP net income. The company allocated $4.4 billion towards stock repurchases and dividend payouts.
Similar to Microsoft, Visa maintains a dividend strategy with a modest 0.76% yield but an impressive 18.08% CAGR over the past decade. With 15 consecutive years of dividend growth and a mere 21.50% payout ratio, Visa continues to bolster its profit margins and expand its business, signaling sustained dividend growth prospects.
With a solid foundation in profit generation and an expanding business reach, Visa appears poised to sustain its dividend growth trajectory for the foreseeable future.
On this date of publication, Marc Guberti held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.