Apple is a great investment to buy and hold for years. But if you want to maximize your dividend income, you'll probably want to look elsewhere: Its 0.7% yield is not even close to the S&P 500 average of 1.4%.
Three stocks that can generate much more recurring income are Patterson Companies (PDCO), Citigroup (C 0.26%), and BCE (BCE -0.09%). They all pay more than 2%, and it wouldn't be surprising if their payouts were to rise over the years.
Image source: Getty Images.
1. Patterson Companies
Patterson sells and distributes dental and animal health products. The company reported its year-end results on June 23, and annual sales of $5.9 billion for the period ending April 24 grew 8% from the previous year. Its net income of $156 million was also an improvement from the prior fiscal year, when goodwill impairment charges of $675 million sent its bottom line into the red. For the new fiscal year (2022), the company projects that it will remain profitable, forecasting a per-share profit between $1.61 and $1.76 (this past year it was $1.61).
Even if it comes in on the low end of its guidance, that would still be enough to support its quarterly dividend of $0.26 and would put its payout ratio at just 65%. Although the company hasn't increased its payouts since 2017, with a potentially strong year and a low payout ratio, the situation could be ripe for a bump up to the dividend. However, even if that doesn't happen, you can still earn a great yield at 3.3%.
If you were to invest $25,000 into the stock, you could expect to earn $825 each year in dividends (nearly five times the $175 that Apple would pay you). Patterson is expecting a great year, so buying the stock today could be prove to be a smart move.
2. Citigroup
The big banks are on track for record-level earnings this year, according to the chief executive of the Institute of International Finance, Tim Adams. A strong economy is always good news for banks, as it means businesses are taking out loans and there are more transactions to charge fees on.
Even though Citigroup's sales fell 7% to $19.3 billion for the period ending March 31, the company still posted a strong profit of $7.9 billion -- more than triple the prior-year period's (mainly due to a lower cost of credit and not having to build up reserves, as the outlook for the economy has significantly improved since then). A key segment that underperformed -- consumer banking -- could be much stronger in 2021, and that positions the bank for some even better numbers ahead.
If the company can just maintain this level of earnings, that would put its payout ratio at a ridiculously low 14%, leaving plenty of room for future rate hikes. The bank last raised its payments in 2019 when it boosted them from $0.45 to $0.51. Understandably, it didn't do so amid the pandemic, but now that the economy is in better shape, it wouldn't be surprising to see another generous increase in the near future. A $25,000 investment here would earn you approximately $725 in annual dividend income from its 2.9% yield.
Buying a top bank stock like Citigroup is never a bad idea if you're looking for some stability or just lots of recurring cash flow.
3. BCE
Telecom stock BCE is a favorite of mine, because a) it's boring (in the best way) and b) it pays a high yield. The company is a top telecom provider in Canada and generates solid profits on a consistent basis. You won't see much volatility with this stock, and that's because its revenue doesn't fluctuate all that often.
In 2020, operating revenue totaled 22.8 billion Canadian dollars and was down from CA$23.8 billion in the previous year. People were traveling less, so roaming was down, and there was a decline in ad spending. However, the company is projecting revenues to climb between 2% and 5% this year, while its adjusted earnings per share could rise by as much as 6%.
With quarterly payments of CA$0.875, the company is currently paying out more than 100% of its earnings. However, telecom businesses are usually loaded with non-cash expenses such as amortization that can drag down earnings.
When looking at cash flow, the situation is much safer: BCE's free cash of CA$3.8 billion over the past 12 months has been sufficient to cover the CA$3.1 billion it has paid out in dividends during that time.
The company raised its payouts this year by more than 5%, and since 2016, they have grown by 28%. BCE's current dividend yield of 5.8% is the highest on this list, and a $25,000 investment here could generate about $1,450 in recurring income for your portfolio every year. With a stable business and strong profits, BCE is a high-yielding stock worth hanging on to for the long run.
