Thanksgiving -- the American holiday celebrating a bountiful harvest -- is later this week. In honor of that tradition, three Motley Fool contributors uncovered stocks that themselves have bountiful harvests in the form of profits and that share some of that bounty with their investors in the form of dividends.
Just as a well-managed farm can continue to provide bountiful harvests for many years, a well-managed business can provide its shareholders regular dividends over time from its operations. With that framework in mind, it's no wonder that the businesses highlighted below are Microsoft (MSFT +0.66%), McDonald's (MCD 0.51%), and Genuine Parts (GPC +1.15%). Read on to find out what makes these businesses so special and decide for yourself if you'd like to share in the financial bounty they offer their investors as dividend stocks.
Image source: Getty Images.
A hardcore software stock
Eric Volkman (Microsoft): Wait a minute, what's a company like Microsoft doing on this holiday dividend wish list? It almost never gets picked as a top dividend stock, mainly because its 1.1% yield is under the current average (1.7%) of dividend-paying stocks on the S&P 500 index.
NASDAQ: MSFT
Key Data Points
Yield isn't everything, though, and Microsoft is actually an excellent stock to own if you want a constant, long-term flow of passive income.
You see, the company is an absolute cash-generating monster. Its revenue is sky-high relative to its costs, even when factoring in the massive amounts of capital it expends.
Consistently and highly profitable businesses like Microsoft generate immense piles of cash, and for many years now the tech giant has devoted plenty to keeping its shareholders sweet with a steadily rising dividend. Since the payout was initiated in 2004, it has ballooned from a quarterly disbursement of $0.08 per year to the current $0.68.
In a world getting ever more dependent on technology and the software that powers it, Microsoft is sure to keep roaring down the growth path. On average, analysts are anticipating 17% growth in per-share earnings next fiscal year over this one, on the back of a 13% rise in revenue to more than $240 billion.
There are concerns about Microsoft that have leeched its share price lately. Although recent indicators tracking inflation are encouraging, it's still a worry for a business so heavily exposed to both individual and enterprise consumers. The company is also encountering regulatory resistance in its pursuit of video game company Activision Blizzard.
I don't see either factor being a long-term drag on the stock. Even if the global economy weakens, it'll get back on its feet as it always does. As for Activision, this isn't the first time Microsoft's been at the Regulator Rodeo; it knows how to offer concessions to help it nab a bigger prize.
All in all, then, Microsoft is a rock-solid business with a dependable, rising dividend that should continue lining investor pockets for years. This stock is a great holiday buy, especially now.
There's plenty to go around for McDonald's investors
Parkev Tatevosian (McDonald's): One stock investors can be thankful for this holiday season is McDonald's. The international restaurant business has rewarded long-term investors with steady dividend growth. Indeed, between 2012 and 2021, McDonald's increased its dividend per share from $2.87 to $5.25. Moreover, investors can reasonably expect the dividend growth to continue partly because of its prudent investments in its digital channels.
NYSE: MCD
Key Data Points
You see, the best way for a business to support dividend growth is through growth in earnings per share. It's like household spending. If you spend more money than you earn, you will eventually run out of savings and exhaust your borrowing capacity. The same is true for businesses. To support dividend growth, a company must grow earnings. Thankfully, McDonald's has done that reasonably well. Between 2012 and 2021, McDonald's increased its earnings per share from $5.36 to $10.04.
MCD Payout Ratio data by YCharts
Interestingly, despite years of dividend growth, McDonald's has plenty of room to expand. Its dividend payout ratio, which measures the percentage of earnings it paid out as dividends, was 69% most recently. That means McDonald's could experience a moderate temporary decrease in earnings and still maintain a dividend payment that does not exceed its earnings.
This holiday season, investors can be grateful for stocks like McDonald's that share the bounty.
A straightforward business that continues to do well even in this economy
Chuck Saletta (Genuine Parts): Genuine Parts, the business behind auto-parts retailer NAPA, sits in rarefied company. It has increased its dividend for 66 consecutive years, and 2022 was no exception. Perhaps buoyed by the supply chain challenges that made new and used cars very expensive until fairly late in 2022, Genuine Parts was able to boost its dividend by a whopping 10% earlier this year.
NYSE: GPC
Key Data Points
And even better for shareholders, the company's dividend payout only consumes around 42% of its trailing earnings. That provides great reason to believe that it can extend its trend to 67 years in 2023. To bolster that, even if used car prices are dropping, a key reason they're dropping is because higher interest rates are making it tougher for people to afford the payments on a vehicle. That boosts the likelihood that people will keep (and repair) their older cars, providing more revenue to Genuine Parts.
As if that history of dividend growth and decent prospects for continued growth weren't enough, Genuine Parts has a debt-to-equity ratio around 1.1 and a current ratio above 1.1 as well. Those decently healthy balance sheet metrics give good reason to believe that the company can make it through a modest and temporary economic downturn and still maintain its dividend. When added to all that, the company's 2% yield provides shareholders a decent bounty for their invested capital.
It is very rare to find a company with that combination of decent yield, consistent ability to boost its dividend over time, and a fairly hefty recent boost to that payment. Yet with Genuine Parts, you get all that and a decent possibility of even more to come. It truly is a stock sharing its bounty to be thankful for this season.
A great way to share the blessings of a bountiful harvest
Microsoft, McDonald's, and Genuine Parts all operate in vastly different business lines, but they each share a decently long-term history of rewarding their shareholders with dividends. Those payments are a great way for companies to reward their owners for the financial risks they're taking by investing in those shares. Best of all, those dividends are available to anybody who is willing and able to invest in those companies' stocks.
If you'd like to share in the bounty they or others like them are offering, today is a great day to put your plans in place to do so. After all, you need to be invested in a company before its ex-dividend date and hold on to those shares at least until that ex-dividend date to receive its payment. Miss that window, and you miss that dividend.
