If you're shopping for dividend stocks to generate dependable income, there are probably a few things high on your priority list: a secure payout you can depend on, a relatively high yield, and solid prospects to grow the payout. In recent years, it's gotten harder to find all of these things.
But that doesn't mean there aren't any stocks that meet these qualities. On the contrary, three Motley Fool contributors have identified several with yields above 4%, quite strong competitive moats and solid balance sheets that should keep the payouts secure, and solid long-term prospects to raise the payout in the years to come to help offset the impact of looming inflation taking a bite out of your disposable income.
The three stocks they found are top-notch Latin American airline Copa Holdings (CPA 1.43%), global auto giant General Motors (GM 0.30%), and international infrastructure stalwart Brookfield Infrastructure Partners L.P. (BIP 0.38%). Keep reading below to learn why these three companies could be perfect stocks to help you keep getting paid for years to come.
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Fly these friendly, dividend-rich skies
Rich Smith (Copa Holdings): Are you thinking about retiring -- and perhaps wondering if you should retire abroad? And maybe you're also wondering how you will pay for your retirement as well?
Panama might "hold" the solution to both these problems at once.
According to travel and retirement writer Kathleen Peddicord, author of How to Retire Overseas, the country of Panama is fast becoming a top destination for American retirees seeking a new home base with dependable, affordable healthcare, great tax benefits for expats, and easy access to the States for return visits. The country's capital, Panama City, is home to airline Copa Air, which flies multiple routes to the U.S. And Copa's parent company, Copa Holdings, may be a great stock pick for folks seeking dividend stocks for income.
Copa Holdings pays its shareholders a generous 4.4% dividend yield, which is more than twice the average payout on the S&P 500. It's also easily affordable for Copa, which can cover its dividend obligations with just 27% of net profits.
Copa stock has other attractions as well, including a low P/E ratio of just 8.7% (cheap for the stock's 9% projected growth rate) and high-quality earnings, as confirmed by its free cash flow of $363 million -- backing up 98% of reported earnings with cold, hard cash profit. Unusual for an airline, it has low net debt of only $84 million. I think it's a fine stock pick for folks thinking about retiring -- and thinking ahead about how to pay for it.
Keep on trucking
Jeremy Bowman (General Motors): Finding a good dividend stock in today's market isn't easy as valuations are stretched more than they've been in the last decade.
However, one reliable income stock has been General Motors, the undervalued automaker that currently pays a yield of 4.2% and is trading at a 52-year-low.
Investors have soured on automakers like GM and rival Ford as the car-buying cycle has peaked, fears of autonomous driving loom, and disrupters like Tesla and Uber have instead sucked up the investors' attention and funding in the sector.
The stock has slid over the last three months as GM cut guidance in its July earnings report due to rising steel costs and currency woes in Brazil and Argentina. However, GM's fundamentals remain sound.
The North American business is on track to generate around $10 billion in operating income this year, and it reported record profits and sales in China, the world's largest auto market, in its most recent quarter.
Meanwhile, the company is at the forefront of the autonomous vehicle revolution, with plans to launch a self-driving ridesharing service in New York as soon as next year. In May, its AV division, Cruise, attracted a $2.25 billion investment from Softbank's Vision Fund, which invests in an array of disruptive start-ups -- the segment is valued at $11.5 billion.
As a dividend payer, GM hasn't raised its payout since 2016, and may not hike it again until profits grow significantly. However, the company maintains a low payout ratio, at 25% based on this year's expected earnings, meaning shareholders can rest assured that the dividend is safe.
With the stock trading at a discount and the underlying business looking strong, now looks like a great time to grab this high-yielding dividend stock.
Ultra-reliable payout with strong growth prospects
Jason Hall (Brookfield Infrastructure Partners): For income investors, it's imperative that you invest in companies you know can maintain the dividend across every economic environment. Even better is the rare investment that offers both a solid payout today and very good prospects for years of dividend growth. Brookfield Infrastructure Partners offers that combination.
The master limited partnership has a long record of distribution growth. Since its 2009 IPO, the payout has more than doubled.
BIP Dividend Per Share (TTM) data by YCharts.
This has been possible under its excellent management, which has done incredibly well at identifying undervalued infrastructure assets to acquire and improve to drive higher cash flows. The partnership focuses on energy, utilities, transportation, water, and communications, all of which have seen extraordinary growth over the past decade. Brookfield Infrastructure has grown from 1,000 employees in four countries at IPO to 26,000 employees in 15 countries through last year.
Here's the best part for income investors: Its prospects continue to look incredible. Global middle class and urban populations are on the rise, driving a big need to expand and modernize these key infrastructure assets around the world in the coming decade. With a current yield of 4.9% and a long-term management target of 5%-9% payout growth, Brookfield Infrastructure Partners belongs in every income investor's portfolio.
