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Got $10,000? These 3 Dividend Stocks Are on Sale

By David Jagielski – Oct 15, 2021 at 7:15AM

Key Points

  • Shares of each company are down by more than 3% since the start of September.
  • These stocks all provide investors with above-average dividend yields.
  • They have also been boosting their annual payouts for several years, and future hikes look probable.

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Make the most of your money with these income-producing investments.

Do you have $10,000 that you can afford to invest in the stock market? If you are able to and can leave the money invested for years, it could lead to some significant cash flow. With a yield of 4%, for example, you could earn $400 in dividend income annually.

Three stocks that can help you maximize your recurring income streams are Cardinal Health (CAH -0.28%)Target (TGT 2.13%), and Western Union (WU 2.72%). And even better, they're all on sale right now.

A couple counting money.

Image source: Getty Images.

1. Cardinal Health

Pharmaceutical and medical products distributor Cardinal Health has more than 50,000 employees around the globe and a presence in 46 countries. Although its operating margins of a single percentage point doesn't seem incredibly strong, the company has posted operating profits in each of the past five years. And 1% on $162 billion in annual revenue is still a fair amount of money.

The consistency of its business model has allowed Cardinal Health to become a Dividend Aristocrat. Even though its annual dividend increases aren't always terribly large (the most recent one was just 1%), investors are still growing their incomes steadily just by holding on to its shares. Plus, at current share prices, the stock already features a fairly high yield of 4%, which is well above the S&P 500's recent average yield of 1.3%.

There's also still room for management to increase those payouts. Over the last 12 months, Cardinal Health has reported free cash flow of more than $2 billion -- more than enough to cover its dividend payments of $573 million over the same period. Shares of this healthcare stock are down 7% since September (the S&P 500 is off by just 2%), so investors have an opportunity to buy it on the dip.

2. Target

Target belongs in an even more exclusive club than Cardinal Health. The retail giant announced a 32% dividend hike in June. While the size of that increase was impressive, what income investors will also love is that 2021 was the 50th consecutive year that Target has raised its payout, earning it the status of Dividend King. Management says that after investing in its business, its next-highest priority is supporting its dividend. 

The business has been flourishing since the pandemic began, as shoppers have made greater-than-usual use of its stores as convenient places to load up on all their day-to-day needs. But even though those pandemic-fueled shopping trends are easing, Target is still doing well. In its second quarter, which ended July 31, comparable sales grew by 8.9%, a gain that the company attributes entirely to the growth of in-store traffic. That gain came against a prior-year period when the chain achieved record sales growth of 24.3%.

However, investors should temper their dividend hike expectations from here. It's likely that Target will eventually go back to delivering more modest boosts. In 2020, it increased its payouts by 3%. So, if you're looking for a place to park your money for several years (or even decades), it would be hard to go wrong with this stalwart, which at current share prices yields 1.6%. With a proven track record and consistent profits, Target is an income investment you can buy and forget about. Also, its shares are down 6.8% since last month, giving you an even better opportunity to add it to your portfolio today.

3. Western Union

Western Union shares are down 5% since the start of last month, but this is another investment that can be ideal for long-term investors. Moving money around the world is an increasingly important business, and with a network that involves 150 million customers in over 200 countries, Western Union plays a crucial role in helping to facilitate that. What's great about the business is its relatively low overhead, which has allowed the financial services company to achieve a profit margin of 16% over the past 12 months.

The only negative for income investors here is that Western Union doesn't have a long track record of increasing its dividend -- it has only done so consistently since 2015. Yet the business is doing well and there should be little doubt that more payout hikes are coming. For 2021, Western Union projects its earnings per share will be within a range of $1.82 to $1.92, which is much higher than the $0.94 per share it is paying annually in dividends. The company is coming off a strong second quarter during which sales grew by 16% year over year to $1.3 billion, and its revenue from digital money transfers hit a quarterly record of $265 million.

Western Union's business looks stronger than ever. And with its stock yielding 4.5% at current share prices, it offers the highest payout on this list. 

David Jagielski 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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