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3 Top Dividend Stocks to Buy in December

By James Brumley - Dec 4, 2020 at 7:45AM

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Income investors have several attractive names to choose from right now.

With the end of the coronavirus pandemic potentially in sight and the beginning of a new year right around the corner, now might be a good time for investors to reconfigure their portfolios. Anyone looking to dial back their growth holdings and add more income-producing picks will find that some nice dividend-paying stocks have become bargains over the course of 2020.

To this end, income investors on the hunt for fresh dividend names will want to look at McDonald's ( MCD 0.12% ), Unilever ( UL 0.51% ), and the Southern Company ( SO 1.26% ) sooner rather than later. Here's why.

Stack of post-its lying on a desk, with the word "dividends" written on the top one.

Image source: Getty Images.

1. McDonald's: Investing here actually isn't a bet on fast food

Dividend yield: 2.4%

You may think it's a fast-food chain, but that doesn't quite describe the company's primary business model. It's more accurate to describe McDonald's as a real estate company that happens to lease its property portfolio almost entirely to restaurant franchisees.

Of the more than 39,000 McDonald's restaurants in operation as of the end of last quarter, roughly 2,600 of them are actually owned and operated by the corporation. The rest are run by franchisees who pay franchise fees and royalties to the parent company.

Franchisees have always done the majority of the company's consumer-facing work. Because it's more profitable (as measured by profit margins) to assist restaurateurs who in turn pay for the right to use its name, McDonald's has made a concerted effort to focus even less on ownership and more on franchising. At this time of year in 2014, the company itself owned roughly 6,700 of its restaurants, and franchisees were operating about 29,500. During this time, investors have seen income and margins improve even as sales have dwindled.

Coronavirus-related shutdowns did take a toll, just as they did on most companies. In some ways, though, the company may be better prepared than ever for what's ahead. Same-store revenue in the United States was up 4.6% during the third quarter, and September's sales marked the best single month for the restaurant chain in nearly a decade.

The company's been forced to think creatively about promoting its products, like involving rapper Travis Scott to help sell Quarter Pounders during the big month. And those relearned lessons will still apply into the foreseeable future.

2. Unilever: A diverse set of products helps diversify your portfolio

Dividend yield: 3.2%

You may not be familiar with the Unilever Group, or just Unilever, as it's more colloquially called. But you're probably familiar with its products. This is the company behind consumer goods like Ben & Jerry's ice cream, Dove body wash, Surf laundry detergent, Hellmann's mayonnaise, and more.

Not all of its product lines may ring a bell with you, but they're plenty recognizable overseas, where the UK-based company does most of its business. Nearly half of last year's sales came from emerging markets alone, while less than 14% came from North America.

This geographic spread makes Unilever a nice way to add some diversity to your portfolio with just one stock. The fact that consumers will buy these sorts of goods regardless of the economy adds another element of safety to the mix.

Unlike McDonald's, Unilever isn't a Dividend Aristocrat -- companies that have upped their dividend every year for at least 25 consecutive years. Don't let its lack of a pedigree fool you, though. This consumer staples powerhouse raises its dividend more often than not and is positioning itself to continue doing so by adapting to more modern consumer expectations. Last month it announced a goal of selling $1 billion euros' worth ($1.2 billion) of plant-based vegan meat and dairy products within the next few years and is simultaneously mulling the sale of some of its beauty and personal-care lines that aren't big growth drivers.

3: The Southern Company: Motivated to become royalty

Dividend yield: 4.3%

Lastly, add the Southern Company to your list of dividend stocks to step into in December, if you're in the market for some new income ideas.

It's curious. Usually, the low-risk nature of utility companies means their dividend yields are on the lower end of the market's dividend spectrum. Their prices also ebb and flow in a way that adjusts their yields to better reflect the market's prevailing interest rates at any given time. Given how the Fed Funds Rate has been at rock-bottom lows for the better part of this year, one would expect these relatively safe utility stocks to sport yields that are well below average. That's not the case right now though. Of the three dividend payers here, Southern's yield is the highest at 4.3%.

It's not like Southern Company's a riskier prospect now than it was just a few months ago, either, which could pressure its yield upward. Consumers may skip a trip to the mall or postpone the purchase of a new car. They typically keep the lights on by paying their monthly power bill, though, even when it's not easy. That dynamic's not changes this year.

The Southern Company is also into its 19th consecutive year of increased dividend payouts, en route to becoming a Dividend Aristocrat. Management probably isn't interested in breaking the streak now and starting the process all over again. The dividend's growth hasn't been a mere pittance, either. The quarterly payout of $0.335 per share in 2001 has since improved to $0.64 per share. That's a compound annual growth rate of about 3.5%, outpacing inflation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$250.30 (0.12%) $0.29
Unilever PLC Stock Quote
Unilever PLC
UL
$52.76 (0.51%) $0.27
The Southern Company Stock Quote
The Southern Company
SO
$62.82 (1.26%) $0.78

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

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