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3 Cash-Rich Dividend Stocks With Rising Payouts

By Demitri Kalogeropoulos – Updated Jun 16, 2021 at 3:51PM

Key Points

  • Some of the best dividend stocks are hiding in plain sight.
  • PepsiCo, Target, and Procter & Gamble offer attractive balances between growth and income.
  • Recent dividend boosts by all three companies imply continued earnings growth ahead.

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Income investors should add these great businesses to their watch lists -- or their portfolios.

The stock market's rally through the late stages of the pandemic has pushed dividend yields lower and made it harder for income investors to find bargains. But there are still attractive options out there -- if you know where to look.

In particular, Target (TGT -0.02%), PepsiCo (PEP -0.52%), and Procter & Gamble (PG 0.18%) look like good candidates to add to your dividend stock shopping list today.

A young man and woman holding cash.

Image source: Getty Images.

1. Target

Target had almost all the ingredients to make it an ideal stock investment, even before its recent dividend hike announcement. The retailer gained $10 billion of new market share through the pandemic, and its momentum remains strong. For its fiscal first quarter, which ended May 1, its sales rose by 23%. For its fiscal Q1, rival Walmart (WMT 0.43%) notched a more modest 6% sales gain.

Shoppers are loving Target's assortment of home furnishings and its speedy fulfillment options. Demand spikes in those niches helped lift its operating income to nearly 10% of revenue in fiscal Q1 2021, compared to around 6% before the pandemic struck.

TGT Operating Margin (TTM) Chart

TGT Operating Margin (TTM) data by YCharts

Better yet for income investors, Target is on the cusp of qualifying for Dividend King status after having just announced its 50th consecutive annual increase. That payout boost was a big one, too: 32%.

Sure, the stock looks expensive after its rally over the past year. But it continues to earn that premium valuation by giving shareholders a healthy mix of rising dividends and revenue growth.

2. PepsiCo

Investors can overcomplicate the hunt for quality dividend stocks. Sometimes the best answers are in plain sight.

Consumer packaged foods giant PepsiCo maintained its impressive momentum during the pandemic as sales in its snack and prepared meal segments offset slumping demand for on-the-go beverages. Sales in Q1 were up 10% on a two-year basis, management said in April.

Pepsi's relatively weak short-term earnings outlook has convinced Wall Street to leave the stock out of the latest market rally. The good news is that this means you can buy this blue chip at a relative bargain price, and get a dividend that still yields nearly 3% at current share prices.

3. Procter & Gamble

Procter & Gamble has raised its dividend every year since 1956, but the consumer staples powerhouse is still finding ways to impress income investors. In April, P&G announced a 10% hike to its annual payout following strong sales growth at the start of 2021.

P&G is sure to see a growth slowdown over the next few quarters as consumer mobility rises and time spent in the home declines. But that's no reason to avoid this stellar stock. The company dominates in dozens of consumer product niches that sell well in any economic environment, from diapers to paper towels. Its finances are stellar -- for example, cash flow rose in each of the last three fiscal years. And P&G already leads its industry in metrics like profitability, but continues to find room to cut costs.

The sum of those trends should leave income investors happy to own this stock, which today yields over 2% -- beating the 1.4% yield you could get by owning a total market index fund. Purchasing stable dividend stocks like P&G, PepsiCo, and Target will amplify your returns without adding much extra risk to your portfolio.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Target Stock Quote
Target
TGT
$163.38 (-0.02%) $0.03
Walmart Inc. Stock Quote
Walmart Inc.
WMT
$153.07 (0.43%) $0.65
Procter & Gamble Stock Quote
Procter & Gamble
PG
$146.72 (0.18%) $0.27
PepsiCo Inc. Stock Quote
PepsiCo Inc.
PEP
$184.11 (-0.52%) $0.97

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

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