When it comes to dividend stocks, there's nothing more important than reliability. Retirees and other investors rely on dividend stocks to pay them consistently, so if you're an income investor, you want to make sure you choose stocks that can pay you in good times and bad.
A great place to find these stocks is the list of Dividend Kings, S&P 500 members that have raised their dividend payouts every year for at least 50 years. That's a period of time that includes the coronavirus pandemic, the financial crisis, the dot-com crash, double-digit inflation in the early 80s, and the energy crisis of the 1970s.
Only 42 stocks get to claim this title. It's a group that covers several industries, though the majority of the companies are either in consumer goods or industrials. If you're looking for dividend stocks you can count on to keep printing money, two great choices today are Target (TGT -0.36%) and Altria (MO 0.70%).
1. Target: An underappreciated growth story
In the retail industry, most investors seem to think that Amazon is destroying everything in its path. While the e-commerce giant has turned the industry upside down, some brick-and-mortar retailers are still thriving. Target is one of them. In fact, Target stock has even outperformed Amazon over the last five years as the chart below shows, though both have fallen in the recent market sell-off.
Target has delivered strong growth thanks to a unique, multi-pronged strategy. First, the company has invested in store-based fulfillment. Unlike Amazon or Walmart, Target aims to use its stores to fulfill nearly all of its digital orders, and it's prioritized same-day fulfillment options like curbside pick up and delivery through Shipt, the Instacart competitor it acquired in 2017.
The retailer has also invested in its private-label owned brands, which generate higher margins than name brands, and reinforce customer loyalty as customers can only get those products from Target. The retailer now owns at least 10 billion-dollar brands, and it continues to launch new ones.
Target is also aggressively opening small-format stores in underserved neighborhoods in cities and college towns across the country, a high return-on-investment strategy that pairs well with its focus on same-day fulfillment. The small-format stores are also something that rivals like Amazon, Walmart, and Costco can't match, therefore giving Target a competitive advantage.
Target has struggled this year -- it's been hit by excess inventory like many of its peers and faces difficult comparisons with its performance a year ago as consumer spending shifts back to services. But the company still seems poised for reliable long-term growth. Over the long term, the company is aiming for high-single-digit earnings-per-share growth, which combined with a modest valuation and a dividend yield of 2.6%, sets the company up well to deliver double-digit annual returns.
Target's track record of 51 years of dividend hikes should also give investors confidence that it will continue to raise its quarterly payout.
2. Altria: An unbeatable dividend powerhouse
If you like dividends, it's hard to find a better stock than Altria (MO 0.70%), the domestic parent of Marlboro. The tobacco company currently offers a dividend yield of 9%, better than any other Dividend King, and has a track record of 53 straight years of increases, dating back to before its 2008 spinoff of Philip Morris.
Dividends are the principal reason investors hold Altria stock, and the management team knows that. Altria just raised its quarterly dividend by 4.4% to $0.94, marking its 57th increase in 53 years. The company has a dividend payout ratio target of 80%, meaning it aims to pay out 80% of profits as dividends.
Though cigarette sales have been declining in the U.S. for decades, Altria has managed to continue growing earnings per share thanks largely to price increases and share repurchases -- even if operating profits are flat. Despite cigarette volumes falling 11% in the most recent quarter, revenue after excise taxes was down just 0.7% because of price increases.
What's also noteworthy about Altria's growing dividend and earnings per share is that they've come in spite of disastrous investments in JUUL and Cronos Group, which have led to billions of dollars in write-downs.
Altria will eventually have to transition away from smokeable products, and its partnership to sell Philip Morris' IQOS product seems like the most promising next-gen opportunity right now. Bt management has demonstrated its ability to grow earnings per share in a declining industry for a long time.
Investors should feel confident in Altria's dividend payout, and its 9% yield makes it an attractive way to ride out the bear market.
