With the start of a new year and a new decade just weeks away, it's a great time to make sure your investment portfolio is in order and positioned to thrive. The last 10 years have been defined by a bull run that was tremendously rewarding for patient investors, and the next 10 years should bring plenty of opportunities as well -- even if there are also reasons to be cautious in the near term.
There's no telling exactly what the future holds, but seeking out high-quality dividend stocks and holding them remains perhaps the single best strategy for weathering potential volatility and recording substantial long-term gains without taking on elevated risk. Read on for profiles of three companies that offer big yields and impressive payout-growth streaks, and whose shares are worth buying this December.
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1. Brookfield Infrastructure Partners
If you're seeking a stock that pays a great dividend and looks well suited to ride out potential economic volatility, Brookfield Infrastructure Partners (BIP 2.82%) deserves a spot on your shortlist. The stock yields roughly 3.9%, and the company has boosted its payout annually for 12 years running. It's also been delivering rapid payout growth, boosting its dividend by 174% over the last decade.
When the company makes its final dividend distribution for the year later this month, the cost of covering its payout will come in at under 26% of its funds from operations over the trailing 12-month period. Its business structure and strong balance sheet suggest it should be able to continue delivering payout growth.
Brookfield Infrastructure owns stakes in utilities, transportation, energy, and data infrastructure businesses across North America, South America, Europe, and Asia, giving it a diversified position across a range of services and geographic markets. It owns toll roads, communications towers, pipelines, and electricity transmission and distribution businesses, among others, and increased demand for these will likely translate to strong returns for shareholders.
As my fellow Motley Fool contributor Matthew DiLallo wrote in describing why Brookfield Infrastructure is a great recession-resistant stock, regulatory frameworks and long-term contracts supply 95% of the company's annual earnings. That suggests the company shouldn't see much cash flow disruption in a recession, and the business looks poised to benefit from economic growth over the long term.
2. AT&T
With declines for television and wireline phone service subscriptions dragging on its business, AT&T (T 1.30%) is a stock that's been hit by unfavorable market trends and has lagged far behind the S&P 500 over the last five years. On the other hand, the company's mobile wireless business still looks very sturdy, and the extent to which AT&T will actually benefit from some big trends on the horizon remains underappreciated.
The rollout of high-performance 5G networks, the Internet of Things, and increasing global demand for entertainment content are trends that bode well for AT&T and should allow it to continue building on its already fantastic returned income. The stock boasts a 5.4% dividend yield, and Ma Bell has a 35-year streak of annual payout growth. With the cost of covering the company's dividend coming in at roughly 52% of trailing free cash flow, the telecom giant is still in a good position to keep raising its payout and cutting its debt load.
AT&T continues to generate tremendous free cash flow, and with the company also selling off some of its regional operations, it's on track to pay off all the debt from its Time Warner acquisition by 2022.
AT&T trades at less than 11 times this year's expected earnings. Looking ahead a bit, the stock trades at roughly eight times management's annual earnings target for 2022. Even if that target proves to be a bit optimistic, investors are getting a great dividend and a vital business at a nonprohibitive valuation.
3. Altria Group
Altria (MO 0.49%) has traded roughly flat over the last five years due to declining cigarette sales and some significant setbacks for diversification initiatives in markets like e-cigarettes and marijuana. But stagnant performance for Altria's share price combined with a 61.5% increase for the stock's payout over the last half-decade have made the dividend even more appealing.
Shares have a dividend yield of roughly 6.7% at current prices, and the company's recession-proof business points to shares offering an attractive income opportunity at current levels. Altria boasts a 50-year streak of annual payout growth, putting it among the ranks of the Dividend Kings, and investors can look forward to continued payout growth.
Covering the current dividend will require roughly 92% of the company's trailing-12-month free cash flow, but that's no reason to fret. High payout ratios are normal for the tobacco industry and tend to be sustainable because capital expenditures are often low, steady, and predictable.
Altria's pricing power in the tobacco market should help it continue to deliver strong cash flow despite cigarette unit volume declines, and shares could deliver impressive returns if the company can also top expectations with some of its growth initiatives. The stock looks cheap trading at roughly 12 times this year's expected earnings.
