If you're a new investor, high-quality dividend stocks can be an excellent place to start. Not only are these generally best-of-breed companies, but there's a lot of evidence that companies with a track record of paying -- and growing -- a dividend, are more likely to work out as great long-term investments. However, it's important that you pick the right dividend stocks. After all, just because a company pays a dividend is no guarantee the dividend is sustainable.
With that in mind, we asked three of our contributors to write about a dividend stock they think is ideal for investing beginners, and they named tech giant Cisco Systems, Inc. (CSCO 0.56%), consumer goods stalwart Tupperware Brands Corporation (TUP -4.05%), and electronic payments giant Mastercard Inc (MA 1.18%).
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Keep reading to learn why we think these three dividend stocks are excellent investments, especially for stock-buying beginners.
A company at the core of our digital existence
Chuck Saletta (Cisco Systems): As the largest networking company around, chances are strong that something you do online today will rely on Cisco equipment in one way, shape, or form. That size gives Cisco the financial strength to both pay a dividend and continue to invest in growing its business for the hopes of even bigger dividends in the future.
Cisco recently increased its dividend by 11.5%, from $0.26 to $0.29 per share per quarter. Even with that increase, it only pays out about 54% of its earnings in the form of dividends, giving it plenty of room to continue to invest in designing and building the next generation of networking services. Also supporting that financial strength and dividend is a balance sheet with more cash than debt on it, along with expected earnings growth of around 10% annualized over the next five years.
In addition, with its shares trading at less than 14 times its expected forward-looking earnings, Cisco looks reasonably priced in a market that many believe is trading at stretched valuations overall. It's not all that often that financially strong companies with such decent growth prospects can be found trading at reasonable prices. With Cisco Systems, you get all of that -- and a growing dividend, too. That combination is what makes it a great potential dividend investment for beginning investors.
It's not just food storage
Seth McNew (Tupperware Brands): Though it's famous for the plastic food storage containers sold at parties in people's' living rooms, Tupperware Brands is actually a conglomerate that also owns other kinds of consumer goods beyond its namesake products. Even more interesting is that the U.S. makes up less than a tenth of its total sales, and instead, regions like China and other emerging markets are helping the company to grow sales.
For full-year 2016, Tupperware Brands reported sales down 3% year over year, but the depressed number was entirely due to its overseas growth. Adjusted for currency fluctuations, sales were up 2%, and earnings per share rose 20% over 2015. To continue growing sales, the company is working on new products and said that it has 100 new concepts in its product-development pipeline.
Tupperware could be a great dividend stock for beginning investors because not only does it offer an easy-to-understand business with a proven record of strong earnings growth, it also pays out an attractive dividend of nearly 4.5%, a yield that has steadily grown in recent years. Tupperware Brands' dividend payout ratio is just 68%, meaning only about two-thirds of earnings are paid out to shareholders in dividends, a good sign that the dividend is safe and likely to continue growing as earnings continue rising.
A company set to "charge" ahead for years to come
Jason Hall (Mastercard): While its dividend yield is less than 1%, it would be a mistake to overlook Mastercard, particularly for new investors. To start, it's one of the most dominant electronic payments companies in the world, commanding, with competitor Visa, a significant amount of global market share.
Furthermore, the growth opportunity for this world-class, cash-cow business is much stronger than you may think. While credit and debit transactions are commonplace in developed economies, cash is still king around the world, making up the vast majority of global transactions. But a burgeoning global middle class, and the advent of mobile computing, are coming together quickly to change this. With its deep relationship with tens of thousands of financial services companies, and hundreds of thousands of merchants, Mastercard is perfectly positioned to grow for many years to come.
For a new investor, this makes Mastercard one of the best dividend growth stocks to own. Since first paying a dividend in 2006, Mastercard has increased it over 2,300%, and management intends to continue growing payouts with earnings for years to come. At the same time, the company continues buying back shares, further increasing per-share value for shareholders.
Bottom line: Don't let the current low yield cause you to skip Mastercard as a great dividend stock -- especially if your investing timeline is measured in decades. Earnings and dividend growth could turn a small investment today into a big source of income down the road.
