No matter what your investment goals, owning dividend stocks can be a great way to invest in the market and create a stream of cash flows from owning stocks for the long term. And if you own the right dividend stocks, the stream of cash can increase year after year with you doing absolutely nothing at all.
We asked five of our contributors for their top dividend stocks to buy right now, and they highlighted NextEra Energy Partners (NYSE:NEP), Ryder System (NYSE:R), PepsiCo (NYSE:PEP), Ford (NYSE:F), and Iron Mountain (NYSE:IRM). Here's a look at why they think you should buy these dividend stocks today.
The top yieldco of 2017
Travis Hoium (NextEra Energy Partners): The yieldco market has been in rough shape in 2017, but NextEra Energy Partners has been the exception. Management has convinced investors it'll be able to grow its dividend 15% annually in the long term. This confidence and the company's premium valuation allows it to issue shares at a lower dividend yield than the yield of the projects it will get. Yieldcos are essentially a game of building market confidence, and NextEra Energy Partners is a big winner with a 4.2% yield, one of the best (read: lowest) in the industry.
The low dividend yield gives NextEra Energy Partners flexibility in buying renewable energy projects on the open market. It can opportunistically buy projects that have rates of return of 8% or higher, paying for them with the 4.2% dividend yield and debt that's low-cost right now as well. At the end of the day, it can grow to add to the dividend.
With more renewable energy projects coming and some competing yieldcos struggling, I think there will be opportunities for NextEra to buy large portfolios of distressed yieldco assets. This could lock up dividend growth for many years to come, making this a great dividend to buy this month.
A leader in logistics services
Chuck Saletta (Ryder System): Truck-based transportation companies generally operate in a low-margin, cyclical industry. That's hardly the environment in which you'd expect to find a company that pays a dividend that has been growing for several years and that looks capable of continuing to increase in the future. Yet Ryder System isn't your typical truck-based transportation company.
While it's true that Ryder does move freight around in trucks, Ryder's optimization, warehousing and distribution management, fleet maintenance, and other services set it apart from ordinary truckers. Those service offerings help protect Ryder from the razor-thin margins and many of the most brutal aspects of the cyclicality of ordinary trucking.
Ryder currently sports a respectable dividend yield of around 2.3%, and its $0.44-per-share dividend per quarter is up around 7% from the same time last year. Despite that, Ryder's dividend only consumes around 35% of its earnings. That gives it both the flexibility to handle swings in the economy and the room to continue potentially increasing its dividend over time as its earnings grow.
Ryder's operations that extend beyond the standard act of hauling stuff from point A to point B provide investors reason to believe in the stock from a dividend perspective. What makes it worth considering buying in April is its valuation. Ryder's shares can be purchased for around 13 times their expected forward earnings, despite expectations of 15% annualized earnings growth over the next five or so years. That's a reasonable level in a market many consider to be generally overvalued.
Drink up with this dividend giant
Dan Caplinger (PepsiCo): Snacks and soft drinks never go out of style, and PepsiCo has done a good job of navigating changing trends in the food and beverage industry to stay ahead of issues that have gotten some of its competitors in trouble. CEO Indra Nooyi was quick to jump on the bandwagon of healthy snack and drink options, and that helped it avoid the full brunt of criticism of sugary carbonated beverages. The company still faces some headwinds as regulators look at taxes and other measures against some of its namesake products, but PepsiCo is also benefiting greatly in other product categories from the healthy-eating movement.
PepsiCo sports a solid dividend of 2.7%, and it has a 45-year history of giving investors annual dividend increases. Last year, PepsiCo rewarded its shareholders with a 7% boost to its quarterly payout, and earlier this year, the company matched that increase with another 7% hike. Beginning in June, PepsiCo shareholders will receive $0.8050 per share quarterly in dividend payments. Yet even after the rise, PepsiCo will still pay only about 75% of its earnings to shareholders in the form of dividends, giving the company flexibility to reinvest in its business or make other strategic moves. Given the stability of the beverage and snack giant's business, dividend investors can expect PepsiCo to keep delivering solid growth prospects well into the future.
A high-tech transformation -- and a 5.4% dividend yield
John Rosevear (Ford Motor Company): It might seem crazy to recommend an automaker right now, with the new-car market likely past its peak and new high-tech entrants gearing up for disruption. But I think Ford is worth a look for a few reasons, including its very rich dividend.
It's a safe bet that not all of the big automakers will successfully make the transition to an electrified, self-driving future. But Ford is ahead of most, and that's what makes it interesting. CEO Mark Fields has a good plan to make Ford a leading "mobility" provider even while it builds on its traditional car and truck business.
That plan includes big spending on electrified vehicles and self-driving technology, of course. But it also includes some new ventures (city bike-sharing, a crowdsourced shuttle service) that could be parts of an upcoming seamless Ford mobility offering -- bikes, buses, ride-hailing, car-sharing, car ownership -- all accessible by a smartphone app. It's an intriguing vision, and Ford is well along on making it happen.
Meanwhile, even while it works to build the future, Ford is selling plenty of high-profit trucks and SUVs in the present, all over the world. That's generating very strong profits ($10.4 billion before taxes in 2016, its second-best result ever) that give Ford plenty of cash to fund those future-tech investments.
They also give Ford the cash to fund a strong dividend. Ford's dividend is actually pretty conservative, in that CFO Bob Shanks is confident that the company will be able to sustain payments through the next economic downturn (unless things get dire, of course). But with investors overlooking the traditional automakers and Ford trading at just 6.5 times its 2016 earnings (minus one-time items), that "pretty conservative" dividend ($0.15 per quarter) is yielding a whopping 5.4%.
You may have to wait a few years before Ford's new mobility businesses start to make big contributions to the company's bottom line. But you could do a lot worse than to reinvest that dividend while you wait.
A boring but essential business
Brian Feroldi (Iron Mountain): Documentation management and storage is about as boring as it gets. However, boring businesses that crank out predictable profits can often turn into great long-term investments, which is why I think that Iron Mountain is a solid dividend stock to consider buying today.
Iron Mountain is a real estate investment trust, or REIT, that specializes in information storage and management. The company owns more than 1,400 facilities spread across the world that house documents from more than 220,000 customers. Those customers pay Iron Mountain a tidy fee to rent out space in their facility, and in many cases are even willing to sign multiyear contracts. That's a big perk that keeps the company's customer retention rate quite high. In fact, the average box in an Iron Mountain facility has been there for 15 years.
Looking ahead, Iron Mountain has a number of seeds in place that should allow its financial statements to flourish. For one, it plans to use its financial might to continue to consolidate the industry, particularly in emerging markets. The company is also entering new business segments such as art storage and data center management. With these two initiatives, it should post slow and steady gains in revenue and profits. In turn, management should be able to execute on its long-term promises to raise the dividend and pay down debt.
In total, Iron Mountain looks like a stable business that should be able to thrive in good times and in bad. Add in a dividend yield that tops 6% and perhaps you'll understand why I think this is a solid business to consider buying now.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Tesla. Chuck Saletta owns shares of Ryder System. Dan Caplinger owns shares of Whole Foods Market. John Rosevear owns shares of General Motors. Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla and Whole Foods Market. The Motley Fool has a disclosure policy.