You put money in. You get some back, typically every quarter.
That's the beauty of investing in dividend stocks. Of course, you'd also be glad if the stock generated nice gains on top of those dividend payments. The combination of steady dividends and a climbing share price produces outstanding total returns over the long run.
If you like dividends (and who wouldn't?), there are three stocks in particular that I bet you'll love: Cisco Systems (CSCO -0.67%), Iron Mountain (IRM -1.34%), and Pfizer (PFE -0.70%). Here's what makes these stocks great dividend picks for long-term investors.
1. Cisco Systems
In many respects, Cisco Systems is a different company than it was during the heady days of the dot-com boom. Sure, Cisco still sells networking routers and switches like it did back then. Now, though, Cisco literally has its head in the clouds. The company is well into its transition to providing cloud-based software and infrastructure-as-a-service (IaaS) applications.
Cisco initiated a quarterly dividend in 2011. Since then, the technology giant has increased its dividend payout by a whopping 450%. The dividend now yields close to 3%. Keeping the dividends flowing shouldn't be a problem at all for Cisco, either: It currently uses only 42% of free cash flow to fund the dividend program.
After beating the S&P 500 last year with a nice 27% gain, Cisco still appears to be a solid buy for investors looking for growth opportunities in addition to dividends. The company still hasn't finished its metamorphosis into a software-and-services (SaaS) business, but the move looks pretty good so far. Cisco expects to return to year-over-year revenue growth. It has also cut back on operating expenses, which should boost the bottom line.
2. Iron Mountain
Iron Mountain's founders chose a good name for the company when it opened for business 67 years ago. Organizations that need to store records and data off-site want assurance that those records and data will be protected and secured. Iron Mountain's name and reputation live up to those expectations. The company now has over 225,000 customers in 53 countries, including 95% of the Fortune 1000.
Although Iron Mountain didn't pay a dividend for much of its history, it started a dividend program in 2010 and has made distributions every quarter since then. In 2014, the company organized as a real estate investment trust (REIT), which means that Iron Mountain must pay out at least 90% of its taxable income as dividends. Its yield now stands above 7%.
In addition to its terrific dividend, Iron Mountain also has several growth opportunities. The company should be able to continue gaining new customers in North America, while adding even more revenue in emerging markets. Iron Mountain also has entered the highly profitable data center business, completing the acquisition of IO Data Centers' U.S. operations in January.
Dividend investors have long loved Pfizer. The company's roots date all the way back to 1849. Today, Pfizer ranks as the largest pharmaceutical company in the world by prescription drug sales, with blockbuster drugs including Lyrica and Ibrance.
Pfizer has paid out a dividend for several decades. The drugmaker claimed a great track record of dividend increases until 2009, when it cut the dividend in connection with a major acquisition. Since then, however, Pfizer has steadily increased its dividend, which currently yields more than 3.8%. Pfizer uses only a little more than half of its free cash flow to pay dividends, so the dividend appears to be quite safe.
Growth has been a challenge for Pfizer in recent years due to the loss of exclusivity for several drugs. However, the future should be brighter for Pfizer. The company expects to win regulatory approval for up to 15 new drugs or new indications for existing drugs over the next five years that have the potential to reach annual sales of $1 billion or more.
What not to like?
Any stock, of course, has some things that investors won't like so much. Cisco, Iron Mountain, and Pfizer are no exceptions.
Cisco's revenue growth probably won't be overly impressive for a while as the company completes its transition to software and services. Iron Mountain took on additional debt and issued more shares, thereby diluting the value of existing shares, in connection with its buyout of IO Data Centers' U.S. operations. Pfizer still faces some headwinds from drugs that have lost patent exclusivity.
Overall, though, I think that all three of these stocks should give investors plenty to love for years to come. Put your money into Cisco, Iron Mountain, and Pfizer, and you're highly likely to keep getting some money back quarter after quarter.