If you want to predictably generate wealth over the long term, buying and holding high-quality dividend stocks is your best bet. But in today's volatile markets, it's not always easy to find the best dividend stocks our market has to offer.
So we asked three top Motley Fool investors to chime in with their top dividend stock to buy this month. Read on to see why they like NVIDIA (NVDA +4.39%), Sysco Corporation (SYY 0.19%), and Ventas (VTR 0.43%).
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More room to run for this GPU leader
Steve Symington (NVIDIA): With the jaw-dropping gains its stock has delivered for investors over the past few years -- including a nearly 140% pop over the past year as of this writing -- it's easy to forget that NVIDIA also pays a small dividend yielding around 0.24%.
Much of its recent growth has been driven by NVIDIA's core gaming chip segment, where revenue soared 29% last quarter to $1.74 billion, or nearly 60% of total sales, thanks to a strong holiday season, the rise of esports gaming trends, and purchases of its cutting-edge GPUs for cryptocurrency mining.
But we also shouldn't overlook the supplementary potential of NVIDIA's other markets.
When we had the chance to stop by NVIDIA's stunning Endeavor headquarters building earlier this month, for example, two of the company's artificial intelligence and machine-learning experts even they admitted they're consistently "blown away" by the number of novel applications their customers continue to find for their technology.
Take smart cities -- or "AI cities," as NVIDIA calls them, which include everything smart lighting to automatic facial and license plate recognition for law enforcement -- revenue from which skyrocketed from just $10 million in 2016 to an expected $100 million this year. Those sales are included NVIDIA's datacenter segment, where revenue more than doubled year over year last quarter to $606 million.
Or consider the automotive space, where NVIDIA saw revenue climb a much more modest 3% year over year last quarter to $132 million -- albeit driven primarily by its conscious decision to de-emphasize sales into the auto infotainment market. Moving forward, NVIDIA boasts over 320 partners already using its NVIDIA Drive autonomous vehicle platform, ensuring it will play a central role as self-driving cars become more mainstream over the next few years.
These are only two examples or investors willing to bet that tech leaders around the world will continue finding new applications for NVIDIA's powerful GPU technology, I think the stock has plenty of room to run.
Bank on restaurants
Jordan Wathen (Sysco Corporation): This company makes its money distributing virtually everything a restaurant needs to keep its doors open, from foods to napkins and straws. The business enjoys a competitive edge from scale, as it delivers food products and services to over 500,000 locations, and it's roughly twice the size of its nearest competitor.
The distributors are arguably the best part of the food service value chain. Though food service is incredibly competitive, and flavors and styles quickly go in and out of fashion, the distribution business rarely changes. But food costs can fluctuate tremendously from quarter to quarter, and even day to day, which can lead to some volatility in Sysco's margins and earnings over the short-term. Over the long haul, however, I view it as a business that can still grow earnings at a respectable single-digit rate each year, driven by slow sales growth and widening margins.
Dividend investors are likely to be rewarded with larger payouts over time. Sysco takes its spot as a Dividend Aristocrat, one of just a few companies that have increased dividends for 25 consecutive years or more. Shares currently yield about 2.4%, and trade for about 20 times my earnings expectations in 2018, a reasonable valuation for a company of its caliber.
A high yield backed by demographics
Reuben Gregg Brewer (Ventas, Inc.): Healthcare property real estate investment trust (REIT) Ventas currently offers shareholders a yield of 6.3%. That's the highest the yield has been since the deep 2007-to-2009 recession. Ventas has increased the dividend annually for eight consecutive years and is generally considered one of the best run healthcare REITs. The recent downdraft in the REIT sector, which has left Ventas' shares around 30% below the highs they reached in mid-2017, is a good opportunity for long-term investors to jump aboard.
"Long-term" is the operative phrase here. Ventas owns senior housing facilities, medical office and research facilities, and health systems and hospitals, making up around 50%, 25%, and 15% of net income, respectively. The rest of its business is largely made up of loans, acute-care assets, and rehab facilities. These properties generally provide services that the internet can't replace and will be increasingly in demand in the years ahead.
How do I know demand will be increasing? Easy: demographics. The large baby boomer generation is flooding into retirement, with 10,000 members of this group becoming Medicaid eligible every day. Those 65 and older spend five times more on healthcare than younger age groups. Things get even more compelling as you move up the age spectrum, with 40% of those 85 and older needing help with at least three activities of daily living, such as eating, washing, and dressing. This one is worth a deep dive.
Conclusion
There's no way to guarantee that these three stocks will beat the market. But between NVIDIA's enviable growth potential, Sysco's steady industry leadership, or long-term trends that work in Ventas' favor, we like their chances of doing just that. And we think investors would do well to consider opening or adding to a position before the end of this month.
