If you're a dividend investor, by definition, you're looking to earn an income from your stocks today. But equally important, if not more so, is ensuring that the companies you buy will be strong performers tomorrow, too. The goal should be to get paid day in, day out, for the life of your portfolio.
So, we asked three top Motley Fool contributors to highlight dividend stocks they believe are not only great investments now thanks to their payouts, but will give income-seeking investors great returns for years to come. Read on to find out why they think Verizon (VZ 1.12%), Sempra Energy (SRE -1.57%), and Whirlpool (WHR -3.19%) fit the bill.
Riding the boom of connected devices
Travis Hoium (Verizon): A great dividend stock has consistent cash flow from operations and a business with a strong competitive advantage. As a wireless leader in the U.S., Verizon is in a great position on both fronts.
The chart below shows Verizon's net income and cash flow from operations over the last five years, and while there's been a decline recently as promotional activity picked up, the company is a cash flow machine.
Verizon's advantage has always been its network, which has long been superior to those of competitors like Sprint, T-Mobile, and even AT&T in most of the country. What makes its business great is its continuing investment in new network technology. The next step is the build-out of its 5G network, which it plans to launch on a trial basis this summer. That will make wireless connections available for billions of new connected devices, from cars to wearables. And each one will pay to use the network.
Verizon's cash flow and the potential for 5G networks in the future make this a great dividend stock for tomorrow. And with a 5% dividend yield today, it's an stock every investor can get behind.
Tomorrow's dividend stock pays handsomely today
Tyler Crowe (Sempra Energy): The more quarters that go by, the more I think I was initially wrong about Sempra Energy. The electric-and-gas company is looking to become more than just a run of the mill regulated utility that keeps its head down. Instead, it is making massive investments in utilities outside the U.S., as well as branching out into other energy-related businesses such as LNG exports.
I had my doubts that the company could pull off the multibillion-dollar expansion it planned without either getting into debt troubles or needing to do some accounting wizardry. Over the past few quarters, though, it has become clear that management timed the execution of these projects well enough that earnings and cash flow growth are keeping pace with their ambitious spending plan. With $900 million in natural gas pipelines coming on line in the second quarter, Sempra will free up lots of cash to plow into its next big venture: The Cameron LNG export terminal. According to management, this project -- along with several other regulated utility upgrades, and a large investment portfolio to expand Mexico's energy infrastructure -- should boost earnings per share by 10% to 11% annually until 2021. Based on that, investors have been told to expect annual dividend raises in the 8% to 9% range over the same time frame.
Over the past 10 years, Sempra Energy has more than doubled its dividend -- it yields roughly 3% at the current stock price -- and it looks like there is plenty of growth in the works to keep up that pace for quite some time. I may have been wrong about Sempra in the past, but I'm warming to the idea that this is a utility stock you'll want to own in the future.
Cleaning up on the future
Rich Duprey (Whirlpool): Appliance makers like Whirlpool aren't typically thought of as "technology companies," but as the Internet of Things continues to expand into all facets of our life, even the most mundane of manufacturers will eventually need to embrace the digital age. This maker of ovens, refrigerators, and washing machines is grabbing the future with both hands.
Whirlpool is the world's biggest major appliance manufacturer, with approximately $21 billion in annual sales and some of the most recognized brands in the industry, including KitchenAid, Maytag, Amana, Jenn-Air, and, of course, its own name products.
In recent periods, it has put an increased emphasis on the connected kitchen and developing the smart appliances of the future that will help ease the tasks of cooks everywhere. Emblematic of that commitment is its recent purchase of personalized digital recipe platform Yummly.
While that acquisition isn't material to its business, one thing Whirlpool can get out of the purchase (beyond its 20 million registered users) is an extension of its appliances' usefulness. Those machines are already connecting with Amazon.com's voice-activated virtual assistant Alexa and its Dash automatic replenishment service; offering scan-to-cook technology that automatically downloads correct cooking instructions to your stove, oven, or microwave when the user scans in a product's UPC code; and giving you the ability to control appliances from anywhere in the house.
Whirlpool's stock trades at just 10 times next year's earnings estimate, which analysts' average forecast places at around $17.38 per share, a 15% rise year over year. Its dividend of $4.40 annually currently yields 2.4%. Based on its present strength and its embrace of the future, the appliance maker could be one of the best dividend stocks for tomorrow.