Building a steady stream of income is one of the best ways to ensure a safe, secure retirement. A portfolio of dividend-paying stocks provides the ballast for a rock-solid future and allows for a small portion of your money to be applied toward growth stocks or even riskier investments.
Some of the best dividend stocks income-seeking investors can find are among those mature businesses that have proven themselves over time and through all kinds of economic situations. Unilever (UL -0.60%), Altria Group (MO 0.40%), and Leggett & Platt (LEG -0.06%) are among the bluest of the blue chips when it comes to sharing the wealth with investors.
Now don't go expecting to get $1,000 a month in dividends from each stock. It would take some serious cash in each company to achieve that. For example, Unilever pays $2.02 per share annually, meaning you would need to buy almost 6,000 shares, which at over $52 a stub would cost you about $310,000 for that one stock.
Hey, if you've got it and have a diversified portfolio, go for it! But for all us other mere mortal investors, these three stocks are a good start toward generating a healthy monthly paycheck.
One large, tasty, global dividend
Eric Volkman (Unilever): Dividends are sweet, but they're even sweeter with big scoops of ice cream washed down by gulps of iced tea. My pick is a company that serves all of the above, thanks to a large and well-diversified portfolio of familiar consumer brands, and throws off piles of cash. Say hello to Unilever.
The sprawling global consumer goods giant has a massive business divided among three categories of top-name products: foods and refreshment, beauty and personal care, and home care. You've likely consumed at least one product in each -- Unilever owns the Ben and Jerry's and Breyers ice cream brands, Lipton iced tea, Dove soap, and Q-tips cotton swabs, to name only a very few.
Unilever is the model of a stable consumer goods company giving its customers what they want and making buckets of money while doing it. The London-based company's annual revenue hovers around the 45 billion British pound ($61 billion) mark, and bottom-line profitability hasn't dipped below 4 billion pounds ($5.4 billion) in years.
Meanwhile, free cash flow has seen a sharp upward rise of late -- thank you, pandemic pantry-stuffing! -- to top over 7 billion pounds ($9.5 billion) in 2020.
I feel that next to U.S. consumer goods titans Procter & Gamble and, a little lower on the chain, Colgate-Palmolive, Unilever is a bit of a sleeper stock. It's a company that seems more intent on defending its overall market position than eking out growth like its American peers, so its top line is fairly static compared to that of Procter & Gamble and Colgate-Palmolive.
But those two U.S. operators don't pay a high-yield dividend like Unilever does. As a more mature but consistently profitable business, their global peer always has plenty of dosh to not only pay a generous dividend, but to raise it frequently.
Although the payout for Unilever's American depositary receipts hops around in U.S. dollar terms because of exchange rates, generally speaking the company's disbursement is on the rise. From just under $0.33 per share at the start of 2016, the quarterly dividend has climbed to almost $0.50 -- a more than 50% improvement in barely over five years.
Better yet, it currently yields 3.8%, well higher than the 2.4% of both Procter & Gamble and Colgate-Palmolive.
Unilever will likely never be a company boasting significant revenue growth. Regardless, the company's consistent and strong profitability is envious, as is its ability to generate high levels of free cash flow. It's one of the more stable high-yield dividend payers out there, and as such more than worthy as an anchor income stock in any portfolio.
Take advantage of big yield and an attractive valuation
Keith Noonan (Altria Group): It's been a disappointing month for Altria shareholders. A ruling from the U.S. International Trade Commission ordered the company to stop the sale of its IQOS smokeless tobacco products in America, and the decision appears to have closed the door on what otherwise looked to be an appealing growth avenue. IQOS heated tobacco products still make up a relatively small portion of Altria's overall revenue, but they had been positioned as a potentially important potential growth driver.
Altria now trades at just 10 times this year's expected earnings, and with an annual dividend of $3.60 per share, the stock sports a forward dividend yield of roughly 7.5%. Recent sell-offs have surely been disappointing for shareholders, but the company has solidified its place among the ranks of Dividend King stocks, delivering annual payout growth for 52 years straight. With its recession-proof business, big yield, and relatively low P/E multiple, shares look attractively valued -- even if it's not hard to see why the market is down on the tobacco giant.
The IQOS e-cigarette products had gotten off to a strong start in the Japanese market, and hopes were high that the line could help Altria post long-term growth in the cigarette alternatives. The ruling from the U.S. International Trade Commission that the IQOS line infringed on patents held by British American Tobacco appears to have dampened the outlook for one of Altria's potential growth drivers. It's still possible that this decision will be reversed, but the development is far from favorable.
With narrowing growth prospects in the smokeless tobacco and e-cigarette categories, it's not surprising that investors are somewhat down on Altria stock. On the other hand, the company's long-term prospects aren't nearly as dire as recent developments might suggest. Brand strength helped the company drive adjusted revenue for its core smokable tobacco products 10% higher year over year last quarter, and Altria's market-leading portfolio of tobacco products is allowing it to post strong cash flow that continues to support its attractive dividend.
While there's admittedly some uncertainty on the horizon, Altria's outlook isn't nearly as troubled as its valuation suggests, and patient investors can look forward to big dividend payments and long-term upside with the stock.
When you're ready for reliability and longevity
Rich Duprey (Leggett & Platt): Leggett & Platt may not be a household name, but its products certainly are.
That's because Leggett & Platt is the leading manufacturer of innerspring coils for mattresses and sofas, and is also a manufacturer of proprietary specialty foam used in the bedding and furniture markets. Its support systems can also be found in the automotive and aerospace industries, furniture manufacturers, and flooring and textile businesses.
Its products are basically everywhere you sit or lay in the home, office, or car.
That's likely because it has been in business since 1889 and more importantly to growing one's dividend income, has made a payout to shareholders every year since 1939. Leggett & Platt has also raised its dividend for 50 consecutive years, most recently beginning in the second quarter of this year when the quarterly payout was increased from $0.40 per share to $0.42 per share.
That means the annual dividend will be some 3.75% higher than last year, which is actually a little below the 4.3% compound annual average increase enjoyed over the last five years and the 6.9% compounded gains over the past 20 years.
That's because Leggett & Platt is prioritizing debt repayment after paying for organic growth and dividends. The pandemic impacted the mattress spring maker just like everyone else, but it has still been able to lower its net debt to trailing-12-months adjusted EBITDA to 2.44.
Yet the dividend still yields 3.7% annually at its current stock price, which is not only better than the 1.3% yield of the S&P 500, but it's one of the highest yields among the 64 companies that comprise the S&P 500 Dividend Aristocrats.
Since it has increased its payout for 50 consecutive years now, it is a member of the even more prestigious Dividend Kings, and it views as essential maintaining its position among these dividend stalwarts.
Leggett & Platt has been prudent about paying out healthy dividends without jeopardizing their sustainability, and investors can count on that trend to continue.