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Forget Apple: Here Are 3 Better Dividend Stocks

By David Jagielski – Jun 2, 2020 at 11:00AM

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The tech giant pays a decent dividend, but you can earn a better payout with these three stocks.

Apple (AAPL 3.08%) is a great stock to own, but the one area where it may be a bit underwhelming is its dividend. With a yield of just 1%, investors have plenty of other stocks they can choose to invest in that pay much more. Below are three stocks that offer better payouts and that can be solid long-term investments to hold in your portfolio for many years.

1. Pfizer

Pfizer (PFE 0.87%) is a drug manufacturer with sales all over the world. The healthcare stock's been one of the more stable stocks this year. 

The New York-based company may not generate the level of long-term growth that you may expect from a top tech stock like Apple, but it can make for a stable, consistent dividend stock to hold in your portfolio. In each of its last 10 quarterly results, Pfizer's sales have been above $12 billion.

Bills and coins.

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In the company's first-quarter results of 2020, released on April 28, Pfizer's sales were down 8% year over year. The good news for investors is that the company's Biopharma business generated growth of 11%. Sales from Pfizer's Upjohn business, which the company is going to spin off, were down 37%, and it was the main reason for the decline. The company's consumer healthcare segment no longer contributes to the top line as well, as it's now part of a joint venture with GlaxoSmithKline.The new Pfizer company, sans consumer healthcare and Upjohn, will focus on more profitable and innovative drugs and could become a better growth stock in the process.

Pfizer also pays a quarterly dividend of $0.38, which on an annual basis yields around 4% per year. Not only is that far better than Apple's dividend, but it also tops what investors can expect from the typical S&P 500 stock that pays 2% per year. Pfizer's dividend has increased by 36% from the $0.28 that the company was paying investors five years ago.

2. McDonald's

McDonald's (MCD 1.99%) is an even more impressive dividend stock than Pfizer. While its quarterly payments of $1.25 will only produce a more modest yield of 2.67%, what makes the stock an attractive income investment is its streak of dividend increases. Last September, the company raised its payouts for the 43rd year in a row. Since it's a Dividend Aristocrat, McDonald's investors have come to expect regular rate hikes. The latest increase was an 8% bump up, from $1.16 to $1.25.  In five years, its payouts have risen by 47%. 

The challenge for the company today is the COVID-19 pandemic that has affected the company's sales. It presents a unique challenge for McDonald's and restaurants all over the world.

In its first-quarter results, which the Chicago-based company released on April 30, global comparable sales were down 3.4% year over year. But with three-quarters of the restaurant's locations around the world remaining open in some fashion, typically via drive-thru or delivery, it's in a better position than restaurants that depend on walk-in traffic to their stores. And with cities starting to reopen from lockdowns, there's hope that the worst may be over.

McDonald's is not going to generate the same type of growth investors can expect from Pfizer or Apple. The fast food giant's top line was flat in 2019, which was an improvement from the 8% decline the company saw in 2018. But it's a much better dividend stock to hold. With an excellent reputation for increasing its payouts, it's an investment that investors can just buy and forget about while they watch their dividend payments rise over the years.

Shares of McDonald's are down more than 4% since the start of 2020.

3. American Express

American Express (AXP 3.79%) is another solid dividend stock that investors can put in their portfolios to help diversify their holdings and that can pay better than Apple.

The financial stock released its first-quarter results for the year on April 24. Although revenue was down around 1% from the prior-year period, the company did see its profits fall by 76%, from $1.6 billion to just $367 million. However, the key reason for the bigger loss was an increase in the company's provision for credit losses. A year ago, American Express provisions totaled just $809 million, and in Q1 they were up to $2.6 billion.

The company did a good job of managing its costs, as operating expenses were down 4.7%, and the quarter would have looked a lot stronger if not for the increase in provisions. However, with a lot of uncertainty in the economy due to COVID-19, it's a move that the credit card company and many financial stocks have taken to more accurately reflect their current levels of risk. 

American Express is continuing to look to reduce costs during the pandemic, and despite the headwinds the economy is facing from COVID-19, there's no reason for investors to be concerned about American Express at this point in time. And when things get back to normal, the New York-based company can resume the steady and strong growth it's been able to generate in recent years.

Last year, the company's total revenue net of interest expense rose by 8% and it was up a total of 18% over two years. It's decent growth from the company to go along with a solid dividend as well. Currently, American Express pays its shareholders a quarterly dividend of $0.43 that yields around 1.7% per year. Its dividend payments have grown more than 48% from the $0.29 that the company was paying five years ago.

American Express stock is currently down more than 20% year to date, incurring the largest losses of the three stocks listed here.

Which stock is the best buy today?

All three of the stocks could be great additions to add to your portfolio today. To help gauge which is the best value, we should consider their current price relative to their earnings:

MCD PE Ratio Chart

MCD PE Ratio data by YCharts

Both Pfizer and American Express are the better options in terms of their price-to-earnings ratios at around 14 to 15 times their profits. Pfizer is a slightly better buy, and it's in a more stable industry as well. As a result, the healthcare stock is probably the best option for risk-averse investors today. However, it's hard to go wrong with any of the stocks listed above.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$235.34 (1.99%) $4.60
Pfizer Inc. Stock Quote
Pfizer Inc.
$44.14 (0.87%) $0.38
American Express Company Stock Quote
American Express Company
$140.02 (3.79%) $5.11
Apple Inc. Stock Quote
Apple Inc.
$142.45 (3.08%) $4.25
GSK Stock Quote
$30.25 (2.79%) $0.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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