In a volatile market, worried investors can get some ease of mind when they see a monthly or quarterly payout in the form of a dividend related to the stocks they own. Whether for steady income in retirement or an easy way to dollar-cost average into a company you like, dividends should be a part of any investor's portfolio.
The two stocks we are going to discuss today, Nvidia (NVDA 3.65%) and Starbucks (SBUX -0.35%), offer a great combination of steady returns and price growth potential, which should appeal to many investors. Considering the quality of these businesses and the fact they will pay you to own them, it might be wise to snatch up some shares. Here's why.
1. Nvidia
If you're looking for a dividend play, Nvidia is likely not the first company to spring to mind for many investors. This chipmaker's dividend yield is just 0.1%. However, what this chipmaker lacks in its dividend, it makes up for in cash generation and the opportunity it has ahead.
Nvidia is one of the leading chipmakers in several segments, but it is most known for its gaming graphics processing units (GPUs). In fact, in the discrete GPU space, Nvidia held 83% market share in Q3 2021, according to Jon Peddie Research. However, the company is also dominant in other segments as well. 71% of the top 500 supercomputers use Nvidia's chips, and its omniverse software has attracted the world's largest brands like PepsiCo and Amazon.
As a result of this leadership, Nvidia has become a major player in the chip space. In the company's fiscal 2023 first quarter (ended May 1, 2022), it generated $8.3 billion, which jumped 46% year over year. What's most exciting, however, is that Nvidia generated $9.5 billion in net income and almost $8 billion in free cash flow over the trailing 12 months. This cash will allow it to fund its innovation to remain on top and extend into lucrative industries, and there's even enough left over to pay a small dividend.
The big risk, of course, is that this is a competitive field. Nvidia faces the likes of Advanced Micro Devices and Intel. If the company's innovation falls short, it could lose market share. This hasn't happened yet, and Nvidia has continued to update and create exciting products, but it's something to be aware of.
If Nvidia can remain at the top, it could capitalize on some lucrative industries going forward. It has its foot in the door in plenty of tech segments, and when you combine them, Nvidia sees a $1 trillion opportunity ahead of it.
It makes sense then that Nvidia wants to funnel most of its available cash into funding growth on those fronts. But that won't always be the case and eventually the profits will make their way more directly into shareholders' investment accounts. Till then, Nvidia is willing to pay you to wait patiently for it to gain prevalence in emerging industries, and you might want to take advantage of that.
2. Starbucks
Starbucks might not have a $1 trillion addressable market opportunity ahead of it, but it does have a leading brand reputation in the coffee space, long-term adoption, and a dividend yield of almost 2.5%.
Starbucks was known for being "the third place" consumers go after home and work, but when COVID-19 hit, it shifted gears. It now focuses heavily on its digital app, which has been the right move. In its fiscal 2022 second quarter (ended April 3), the company had 26.7 million active rewards members in the U.S., a 17% year-over-year jump.
While Starbucks might no longer be a hyper-growth company, its still a growing company with steady financial performance. Since the company came public in 1992, it has increased its earnings per share by over 266,000%. Since 2010, it has been paying out a consistent and growing dividend every quarter.
One opportunity that could help Starbucks keep building on its success is China. COVID-19-related lockdowns in China over the past two years have slowed its growth potential in that market, but it's still growing. Just in Q2 the company opened 97 stores there. If COVID-19 restrictions fully ease, Starbucks could see a strong recovery in the region.
Starbucks is one of the strongest brands in the U.S., with more than 15,500 stores. The company has seen steady adoption of its mobile app and continues to gain traction in China, despite the turmoil in the region. While this company might not knock the doors off its top-line expansion over the coming decade, it could continue providing steady returns and potentially beat the market if it can keep chugging along. Additionally, it is paying you to hold it, which looks like a deal too good to walk away from.
