If you've got money that you can afford to invest in the stock market for the long term, dividend stocks are a great choice as they generate cash for you on a recurring basis. And while few of them pay out on a monthly basis, you can strategically invest in stocks that distribute quarterly on different schedules so that you're still collecting money every month of the year.
Three quality income investments that could help you achieve that goal are Cardinal Health (CAH 0.16%), Verizon Wireless (VZ -0.53%), and ExxonMobil (XOM 0.02%).
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1. Cardinal Health
Medical product and pharmaceutical distributor Cardinal Health is an excellent income investment. The stock pays a dividend that at current share prices yields around 4.1% (well above the 1.3% that the S&P 500 now yields on average), so if you invested $49,140 into it, you would collect about $500 each quarter. It makes dividend payments every January, April, July, and October. Currently, the company's payout ratio is just over 50%, which suggests both that the dividend is sustainable and that investors can expect further increases in the future. Also supporting that theory is the fact that Cardinal Health is a Dividend Aristocrat that has boosted its payout every year since 1985. Its most recently announced boost of 1% will lift its quarterly payments from $0.4859 per share to $0.4908 per share.
Cardinal Health is coming off a strong fiscal 2022 first quarter, during which its revenue rose 13% year over year to $44 billion. It saw strong growth in its pharmaceutical segment (which, with revenues of $39.8 billion, accounts for the bulk of its top line) as there was a big improvement in demand versus a year ago, when the pandemic negatively impacted sales and the top line grew by just 5%.
This healthcare company has proven to be resilient during these challenging times, and that should give investors the confidence to hang onto the stock for the long haul.
2. Verizon
Another relatively safe choice for investors is telecom giant Verizon. At current share prices, its yield of 5.1% is higher than Cardinal Health's, so you wouldn't need to invest as much to receive the same quarterly payment of $500 or so --- about $39,448. And Verizon distributes its dividends on a different schedule -- in February, May, August, and November. Verizon's payout ratio is 47%, so it too has room for further dividend hikes. Although it isn't a Dividend Aristocrat, it has been increasing its payouts annually since 2007. And in 2021, it raised its quarterly payment by 2%, from $0.6275 per share to $0.64 per share.
When it reported its third-quarter results in October, the company noted "strong demand" in both its consumer and business segments. For 2021, it is now forecasting revenue growth of 4% from its wireless service (its main segment) -- the high end of its previously stated guidance range. In addition, Verizon has slightly increased its expectations for adjusted earnings per share to a range of $5.35 to $5.40 (compared to the previously forecast range of $5.25 to $5.35).
While you likely won't see huge growth from Verizon, its consistency and low payout ratio make it an attractive income investment.
3. ExxonMobil
Oil and natural gas industry giant ExxonMobil sports the largest dividend yield on this list -- 5.7% at current share prices. Thus, an investment of just $34,965 would be enough to generate $500 payments every March, June, September, and December.
ExxonMobil is the only stock on this list with a problematic-looking payout ratio. However, that's largely due to a non-cash impairment charge of $19.3 billion that the company incurred in the fourth quarter of 2020. When looking at its cash flow, the situation looks much better: ExxonMobil has generated free cash of $23.4 billion over the past 12 months. Its dividend payouts during that period were just $14.9 billion -- about 64% of free cash.
The company has increased its dividend payments for 39 years in a row. In October, it kept the streak going by announcing a modest quarterly hike of $0.01 per share, pushing its quarterly payments to $0.88 per share. So in 2021, the annual dividend per share of $3.49 will come in just above the $3.48 that it paid in 2020. But things could get better in the future, especially with crude oil prices now significantly higher than they were in 2020 (when they even went negative for a brief period).
ExxonMobil announced this month that its earnings and cash flow could potentially double from their 2019 levels by 2027. Management hopes to make that happen via a strategy that includes, "aggressive cost reductions and progressing advantaged investments in low-cost-of-supply projects in Guyana, Brazil, and the Permian Basin in the United States."
If it follows through and can meet those targets, that could ensure the dividend increases keep coming and perhaps become even more generous.
