There are several issues on investors' minds in 2022: Inflation has reached the highest level in 40 years and is expected to continue to rise; The Federal Reserve is forecasting as many as seven interest rate hikes this year; Tech stocks have corrected swiftly and decisively, leaving long-term investors to wonder if this is an opportunity or warning sign; And the Russian invasion of Ukraine and subsequent sanctions have added another significant wrinkle to the global economy.
What are we long-term investors to do? One strategy that has been shown to work in good times, as well as tumultuous times, is to direct more of your investment dollars toward high-quality dividend stocks. They can bring consistent income, tend to be far less volatile, and provide a safe haven while you wait for the investment winds to change.
Here are three top dividend stocks to consider for your portfolio right now.
Image source: Getty Images.
1. Apple
It's often been said that there has been no bad time to purchase Apple (AAPL 0.67%) as a long-term shareholder. This has certainly been true over the last decade. Apple is a quintessential buy-and-hold stock.
Apple's fiscal 2021 was terrific, and the first quarter of fiscal 2022 saw a quarterly record high for revenue. Fiscal 2021 sales reached $366 billion, an increase of 33%. But while sales were impressive, Apple's secret sauce is actually in the cash flow.
The company has been able to return bushels of money to shareholders in the form of dividends and stock repurchases. As shown below, Apple's operating margin reached 30% in fiscal 2021, and it exceeded 33% in the first quarter of fiscal 2022. Cash from operations (CFO) blew past $100 billion in fiscal 2021, and if the second quarter of fiscal 2022 is any indication, CFO will increase handily again this fiscal year.
Data source: Apple. Chart by author.
Apple is generally not thought of as a traditional dividend stock; however, when considering the total capital returned to shareholders, perhaps it should be. Its dividend yield is currently just over 0.5%, but the payout has grown for the last nine years and the cash flow trends suggest this will continue. By buying and holding, the investor's effective yield will rise with the dividend.
The biggest return of capital to shareholders is in the form of stock buybacks. These benefit shareholders by reducing the shares outstanding, giving each shareholder a bigger slice of the pie. And, unlike with dividends, the shareholder is not on the hook for taxes at the end of the year. In fiscal 2021 alone, Apple returned over $85 billion, nearly 3% of the current market cap, to shareholders this way; $484.5 billion has been returned through share buybacks since fiscal 2012.
Apple's increased cash flow, growing dividend, and massive share repurchases provide tremendous value to long-term shareholders. Buying and holding Apple is one strategy for which our future selves will likely thank us.
2. Lockheed Martin
Lockheed Martin (LMT -0.49%) has been on many investors' radars since the start of hostilities in Ukraine. The war has galvanized NATO countries and it is likely that increased defense spending is on the table for many. For example, Germany has announced that it will increase defense spending to over 2% of its GDP.
This includes the purchase of 35 F-35 fighter jets made by Lockheed Martin. We can expect that defense spending will be robust across NATO nations for some time as a result of the tragic action in Ukraine. It is the largest defense contractor for the U.S. military and its top customer has deep pockets.
Lockheed Martin was in an enviable position for dividend-growth investors even before recent events. The dividend has been growing for 20 straight years, going from $0.11 per share per quarter in 2002 to $2.80 per share quarterly now (see chart below).
LMT dividend. Data by YCharts.
This chart is a dividend-growth investor's dream. Had investors bought Lockheed Martin stock 10 years ago, when it was trading for $89 per share, they would be enjoying total annual return exceeding 12% -- and growing each year. Not to mention sitting on a pile of capital gains. The current dividend yield isn't too shabby, either, at 2.63%. The macro conditions and the company's growing cash flow from operations indicate that these dividend increases are likely to continue for the foreseeable future.
3. Target
For those who are looking for one of the most consistent dividend performers of all time, Target (TGT -0.35%) might be the answer. Management has increased its annual dividend for 50 consecutive years. The company is currently paying $0.90 per share per quarter for a yield of over 1.5%. Target also repurchases its own stock, including $7.2 billion worth -- nearly 7% of the current market cap -- in 2021.
Target's results have been impressive as well, which suggests that its streak of dividend increases is likely to continue. The company has thrived in the face of e-commerce competition. Comparable-store sales grew by over 12% in 2021. And online sales have grown by $13 billion since 2019 and now account for 19% of all sales.
Target achieves terrific leverage by fulfilling its digital orders through its existing stores. Because of this, its operating margin increased in 2021 (see chart below) even with added costs associated with the tight labor market.
Data Source: Target. Chart by author.
Management has done a fantastic job positioning the company for success, and this should continue to benefit long-term dividend investors.
