Some meme stock investors are gambling on shares of Redbox Entertainment (RDBX +0.00%) becoming the next GameStop (GME 0.24%) or AMC Entertainment Holdings (AMC 1.80%). The problem is, the deck is already stacked against them.
Shares of Redbox, which operates kiosks for renting DVDs, are currently trading at over $9, even though the company has agreed to be acquired by Chicken Soup for the Soul Entertainment (CSSE +0.00%) in an all-stock deal that values the shares at about $0.61 at the time of this writing.
Instead of wishing upon a star with Redbox, investors looking to grow their portfolios would be better served by building lasting wealth with dividend stocks, a much sounder bet. Dividend investing has historically been one of the best ways to create long-term wealth. Because returns are generated from both dividend payments and stock price appreciation, dividend investing has beaten the S&P 500 over time. Furthermore, reinvesting these dividends can boost your returns even more.
Here are two rock-solid dividend stocks that are better ways to grow your portfolio than gambling on Redbox.
Image source: Getty Images.
1. Coca-Cola
NYSE: KO
Key Data Points
The economy ebbs and flows, but Coca-Cola (KO +0.46%) keeps selling beverages and keeps raising its dividend. Its dividend is as steady as they come, and the payout has increased consistently over time. In fact, Coca-Cola is a Dividend King, having raised its payout for an incredible 60 years in a row.
The stock currently yields 2.8%, and the only reason that it isn't higher is because shares have gained 3% year to date, at a time when many other stocks have fallen in a challenging market. For comparison, the Dow is down 13% over the same time frame, and the S&P 500 is down nearly 18%. Seeing the yield falling because the stock price is increasing is a good problem to have, as stock price appreciation and dividend income both add to the total return for your portfolio.
As a consumer-staple company selling a product that consumers buy habitually, Coca-Cola is a fairly defensive name to own in times of economic uncertainty, and there is minimal risk of its dividend being affected. Keep in mind that there is more to Coca-Cola than just its flagship product. The company continues to expand into other areas and has been successful in acquiring and growing other brands.
For example, its Topo Chico acquisition has been a major success. Coca-Cola acquired the brand in 2017 and has turned its mineral water from a regional favorite in Texas and the Southwest into a major hit across the United States.
2. Devon Energy
NYSE: DVN
Key Data Points
We go from 2.8%-yielding Coca-Cola to Devon Energy (DVN 0.44%), a 6.6%-yielding energy company with a totally different approach to dividends. With a $50 billion market cap, Devon is one of the United States' leading independent oil and gas exploration companies, with operations in Texas, Oklahoma, North Dakota, and Wyoming.
Devon has taken advantage of elevated oil and natural gas prices to reward shareholders with a bevy of dividends and share repurchases. The best part is that its dividend is not restricted to its set quarterly payout. The company has taken an innovative approach to dividend payouts, and is paying shareholders special variable dividends on a quarterly basis, which will include up to 50% of excess free cash flow.
For the most recent quarter, the company increased its fixed-plus-variable dividend payout to $1.27, representing a 27% increase from its previous payout. Dividend-growth investors will love the fact that Devon has increased its dividend payout by 270% since the first quarter of 2021. The company also increased its share repurchase program to $2 billion from $1.5 billion and has bought back $891 million worth of shares with its current buyback program. Share buybacks are another way of returning capital to shareholders because they reduce the number of shares outstanding, increase earnings per share, and -- in this case -- decrease the number of shares to divide the dividend among.
Speaking about the company's commitment to returning capital to shareholders, CEO Richard Muncrief said, "Our cash-return business model is designed to moderate growth, emphasize capital efficiencies, maximize returns, and prioritize the returns of increasing amounts of cash to shareholders."
Although Devon has not raised its dividend payment for 60 consecutive years, like Coke, it has a long-standing track record itself, with 29 straight years of dividend payments.
Conclusion
Gambling on shares of Redbox is unfortunately not a winning bet for sustainably growing your portfolio. The good news for investors is that there are plenty of options for building wealth through dividend investing, a proven strategy that has grown portfolios and beaten the market over time.
Whether it's a steady, defensive blue chip company with a dividend-growth track record of six decades, like Coca-Cola, or a smart, shareholder-friendly energy company using elevated oil and gas prices to prioritize returns to shareholders, there are plenty of winning strategies for growing your portfolio and increasing your dividend income.
