The 3 Best Dividend Stocks Right Now
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The word “dividend” has always ignited above-average interest in the majority of investors searching for long-term stocks that pay out a fixed rate of income. This mixture of dividend stocks, most of which are listed on the Dow Jones Industrial Average, are appealing, but how can you tell the best dividend stocks apart from the merely good ones?
Surely, a dividend is always a nice additional incentive on top of the expected growth of the stock, but those two characteristics combined is not a prevalent characteristic. Below, I have listed 3 stocks that not only pay out a quarterly dividend, but also show promising signs of growth in the both, the short and long term.
Phillip Morris International - (NYSE: PM)
Since 2007, tobacco use in the United States has been on a steep decline. Just six years ago, one out of every three people smoked tobacco in some capacity. Today, that number is one out of every five. However, Philip Morris International's business is focused on consumers outside the U.S. where tobacco use remains steady. Even though only 18.9% of U.S. adults are tobacco smokers today, The World Health Organization statistics estimate that number to be as high as 51% in the Western Pacific Region.
The company also just announced that it agreed to acquire the remaining 20% stake in its Mexican tobacco business from billionaire Carlos Slim’s Grupo Carso SAB for about $700 million. The deal, which is expected to be complete by Sept. 30, will add to earnings per share in the fourth quarter. I wouldn’t be surprised if PM decided to increase its quarterly dividend in the near future, which is already at 3.7%
The continued up trend of tobacco use in undeveloped countries only benefits Phillip Morris, and shows no signs of letting up anytime soon. With this focus on regions where tobacco use remains steady and other regions where use is increasing, the company is also in a unique position over other tobacco companies that derive their major revenues from U.S. consumers.
Coca-Cola – (NYSE: KO)
Historically, Coca-Cola as been notorious for its healthy dividend and continued uptrend, but that train hasn’t stopped yet.
With a current dividend yield of 2.75%, Coca-Cola offers an above-average return for shareholders. Warren Buffett, one of the largest shareholders of Coca-Cola, currently owns 400,000,00 shares. With an annualized dividend payout of $2.27 per share, that means Warren Buffett's quarterly dividend payment is over $17 Million per quarter! But the dividend is not the reason Buffett has invested so much capital into this beverage-giant.
Many of us don't realize that 75% of sub-Saharan Africa is without electricity. Coca-Cola is doing its part to improve that statistic by bringing small solar-powered kits to kiosk owners in Kenya. Recently, the soft drink company entered into a partnership with Manchanda’s firm One Degree Solar, where Coca-Cola would market One Degree’s solar power kits to kiosk owners. These kits would give off-grid rural vendors electricity, meaning they could stay open past sunset, increase safety and visibility after dark--and sell more soft drinks in the process.
This growth initiative is something investors should pay attention to, as it has huge potential for Coca-Cola in the future. In the long-term, the management team led by Muhtar Kent is one of the best in the world, and one of the many reasons Warren Buffett believes in it.
3M – (NYSE: MMM)
3M is another dividend noble, and has increased its dividend for an amazing 55 consecutive years. The stock pays a dividend yield of 2.34% and recently grew its dividend by 7%. With over 50,000 products, 3M plays a role in making everything from computers to power cables and even provides health care services.
The opportunity for growth lies heavily in the health care sector, where 3M is improving penetration in the developing world. This includes Asia-Pacific and Latin America, which can add significant growth to sales and profits of 3Mover the coming years. Currently, these fast growing developing regions constitute around 20% of 3M’s consumer and healthcare segment sales, but has potential to reach anywhere from 30-40%.
3M's payout ratio is a very healthy 38%, indicating that the company has plenty of room to increase its dividend in the future. Past performance is no guarantee of future results, but that stellar track record does point to a high chance of shareholder-friendly policies in coming years.
Dividends are an excellent source of ancillary income for any investor, but the dividend alone should never be the primary basis for investing in a particular security. The above-mentioned companies all have excellent growth opportunities in the near future, and are great options for long-term growth as well.
Chris Johnson has no position in any stocks mentioned. The Motley Fool recommends 3M and Coca-Cola. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!