Please ensure Javascript is enabled for purposes of website accessibility

2 Top Dividend Stock Ideas for 2022 and Beyond

By Daniel Sparks – Dec 1, 2021 at 7:37AM

Key Points

  • Kroger stock offers investors a meaningful dividend yield, dividend growth, and a conservative valuation.
  • With its high dividend yield and tenured track record, Texas Instruments may be a must-own for dividend investors.
  • Dividend stocks' steady income streams help offset some of the pain of volatility.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Looking to add some income to your portfolio? Consider these two ideas.

Given all the curveballs that COVID has thrown in 2020 and 2021, many investors may be looking for more stability in their portfolio. One way to get this is to add more dividend-paying stocks to your portfolio. While these cash-paying companies' stocks can fall sharply during a market crash along with the rest of a portfolio, many of them offer one important facet unlikely to take a hit during a market downturn: a steady stream of cash, paid out every quarter.

Here are two dividend stock ideas for investors looking to add more income to their portfolio. These ideas not only have dividends -- but they have dividends that have increased every year for decades. Further, their resilience was magnified in 2020 when these companies continued rewarding shareholders with dividend increases, despite unique challenges presented by COVID 19.

A sign saying dividends, next to a roll of cash.

Image source: Getty Images.

1. Kroger

Grocery store operator Kroger (KR 1.09%), which includes grocery brands King Soopers, Ralphs, FredMeyer, Fry's, City Market, Smith's, and more, is a particularly attractive dividend stock today thanks to its conservative valuation.

Kroger has a price-to-earnings ratio of 28 and offers a dividend yield of about 2%. Putting this valuation into context relative to competition, this compares to Walmart's price-to-earnings ratio of 50 and its dividend yield of 1.5%.

Importantly, Kroger's dividend goes all the way back to 1977. Despite this long history, the company's recent dividend increases have represented strong growth. In fact, Kroger's quarterly dividend payout has almost doubled between 2013 and 2021, increasing from seven and a half cents in 2013 to $0.21 today.  Even in more recent years, Kroger's dividend growth remains strong. This year, Kroger increased its dividend about 17%. This marks an acceleration from approximately a 13% increase last year.

Fortunately, there's plenty of room for more dividend growth from Kroger. Of the company's $1.7 billion in trailing-12-month free cash flow, it only paid out $554 million in dividends. 

2. Texas Instruments

Semiconductor specialist Texas Instruments (TXN -0.43%) offers investors an even better dividend yield of 2.4%. Further, it has also been increasing its dividend rapidly. In fact, the tech company's dividend has more than doubled since 2017 -- just four years ago. 

Texas Instruments has been paying out a higher portion of its free cash flow in dividends than Kroger, but there's still plenty of room left for further dividend increases. Of the company's $7.1 billion in trailing-12-month free cash flow, Texas Instruments paid out $3.8 billion in dividends.

Like Kroger, Texas Instruments has a conservative valuation. If this isn't evident enough by the company's substantial dividend yield, the company also notably trades at just 25 times earnings.

While there are no guarantees in investing, these two companies' long histories of rising dividends, combined with their strong free cash flow, make a great case of these trends continuing in the coming years. Further, their relatively conservative valuations make them good dividend stock ideas today.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Texas Instruments. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.