Dividend-paying stocks are a great way to bolster your portfolio, but not all dividend payers are equal. We asked some of our top contributors covering consumer goods and tech stocks for some insight on strong dividend stocks to buy right now. Read on to find out what they had to say.
Anders Bylund: Income investors love a smooth and steady history of dividend increases. The perfect dividend stock should boost its payouts every year, like luxury-quality Swiss clockwork. Wal-Mart Stores would be a fine example of this.
French telecom operator Orange SA (ORAN 1.41%) isn't anything like a high-end Swiss watch. In fact, its dividend history is enough to give heartburn to many income investors:
ORAN Dividend data by YCharts
Over the last decade, Orange's dividend payments have decreased by 78% in a series of fitful jumps while Wal-Mart played the perfect poster boy for steady increases.
The company has been stuck in turnaround mode for several years and Orange has chosen to spend more money on network improvements and strategic acquisitions, and a bit less on dividend payments. Just two weeks ago, Orange offered to buy Spanish broadband provider Jazztel for $4.4 billion.
So Orange doesn't look likely to switch its cash flows into dividend-boosting moves anytime soon.
But you know what? Despite the unpredictable and generally shrinking dividend payouts, Orange offers a massive 6.6% dividend yield today. Wal-Mart is stuck at just 2.5%.
That's the upside of turnaround stories and falling share prices. Buy Orange today, and you'll lock in the effective yield that's currently on the table (give or take Orange's upcoming payout changes). Moreover, the company seems poised to actually execute on its long-suffering turnaround and start producing positive share price gains as well.
And that's a killer combination.
Andres Cardenal: Colgate-Palmolive (CL 1.07%), generates most of its sales and cash flows from its leadership position in the oral care industry. Management estimates that the company owns a global market share of 44.4% in toothpastes, 33.2% in toothbrushes, and 38.9% in mouthwashes.
Colgate-Palmolive has done a tremendous job at expanding internationally: The company produces more than 80% of sales from global markets, and approximately 50% of revenues come from emerging markets. This has clear advantages for investors in terms of both diversification and potential for growth. Colgate is the most recommended toothpaste by dentists around the world; a big 47% of dental care professionals recommend the brand over competing alternatives. This level of brand differentiation and huge global scale are key sources of competitive strength for Colgate-Palmolive.
Dental care is an attractive product category, where strong pricing and room for innovation allow Colgate-Palmolive to generate healthy growth rates for a company of its size. Organic sales grew 4% in the last quarter, driven by 2.5% volume growth and a 1.5% increase in prices.
Colgate-Palmolive's financial strength is beyond question, and the company has consistently rewarded shareholders with growing dividends over the long term. Colgate-Palmolive has paid uninterrupted dividends since 1895, and it has raised those payments over the last 51 consecutive years. The dividend yield currently is around 2.3%, and the payout ratio is quite safe in the area of 48% of earnings estimates for 2014.
I think Colgate-Palmolive is a strong dividend stock that investors should consider buying.
Tamara Walsh: PepsiCo (PEP 1.08%) offers investors a reliable dividend at a reasonable price today, and with football season now under way it's a great time to own the stock. The soda and snack giant has a long-standing partnership with the NFL that allows it to uniquely promote the Pepsi brand through NFL-related sweepstakes, Super Bowl events and other season-long campaigns.
On top of this, PepsiCo boasts one of the most steadfast dividend programs available today. The company is a Dividend Aristocrat, which means it has continuously increased its dividend payout every year for at least 25 years running. In fact, Pepsi is on track to return $8.7 billion to its shareholders this year through higher cash dividends and share buybacks. That's even more impressive when you consider Pepsi has paid a dividend every year since 1952, and has increased its payout for the past 42 consecutive years.
Together with Pepsi's ability to generate strong cash flow, this tells investors that the king of pop should have no problem continuing to raise its dividend in the quarters ahead. The stock currently pays an annual dividend of $2.62 per share, with a yield of 2.83%. On that score, PepsiCo is a buy today because it promises investors low risk and high dividend growth for many years to come.
Steve Symington: I think dividend-hungry investors should consider Whole Foods Market (WFM). Shares of the top-notch organic grocer have fallen roughly 35% over the past year on the heels of slowing comps and increased competition, but I'm just not convinced the punishment fits the crime.
Despite what its plunging share price seems to indicate, Whole Foods is still a thriving business. Last quarter, for example, it led the grocery industry with sales of over $1,000 per square foot, produced $240 million in cash flow from operations (or nearly $0.66 per share), paid $44 million in quarterly dividends to investors, and achieved solid returns on invested capital of 16.4%. In addition, Whole Foods repurchased $361 million in common stock, and even announced a new authorization allowing it to repurchase an additional $1 billion in shares through Aug. 1, 2016. That shouldn't be a problem given Whole Foods' healthy cash flows, negligible debt, and current $1.1 billion cash hoard.
If that wasn't enough, remember Whole Foods is steadily working toward its long-term goal of more than tripling its store count from 388 locations to 1,200. For perspective on its pace, two months ago Whole Foods management told investors they expect to cross the 500-store mark by 2017.
I'll admit shares don't look terribly cheap at around 24.6 times trailing-12-month earnings. But that's also near the lowest P/E valuation Whole Foods stock has seen over the past five years, and a small price to pay for a high-quality business which offers both a 1.3% dividend yield and mouthwatering potential for long-term growth.
