Dividend stocks can be an important part of a well-diversified portfolio. This is especially true for investors who may be closer to retirement or have a lower tolerance for volatility and risk in the stock market. A steady income stream from dividend stocks could be precisely what some investors are seeking.
That said, choosing dividend stocks can be tricky. Focusing on metrics like dividend yield alone could lead investors down the wrong path. Here are three stocks to buy right now that offer growth as well as a safe and reliable dividend.
Apple
Apple (AAPL 0.64%) has been in the news this week after the company announced its new Apple Vision Pro mixed-reality device at its developers conference. There will likely continue to be a buzz around this long-awaited device as the months pass before it's available to consumers. For investors, the impact may be even further away.
The level to which this device becomes a revenue driver for the company is uncertain. Apple certainly has a track record of successful hardware launches, but there's no guarantee that will continue. Additionally, with a price tag of $3,499, it's likely that initial adoption will be slow.
The important thing to watch for investors is how this device ultimately drives customers deeper into Apple's ecosystem of subscriptions as this is the highest-margin source of revenue for Apple. This segment accounts for 22% of total revenue, which is up from 19% three years ago.
While Apple shareholders wait to see how successful this new product will be, they continue to benefit from the company's shareholder-friendly capital allocation strategy. Over the past 10 years, Apple has raised its dividend by 120% and lowered its shares outstanding by 38%. This makes Apple a compelling investment with or without a new hardware device.
Costco
As the third-largest retailer in the world, Costco Wholesale (COST 1.01%) is familiar to most consumers even if they're not members. It's also been a market-crushing investment over almost any time frame. Over the past 10 years, Costco's total return has been 477%, compared to the S&P 500's 222%. Over that same time frame, Costco has increased its dividend by 229%. In fact, since Costco first initiated its dividend in 2004, it has increased at a compound annual rate of 13%.
There are many reasons for Costco's long-term success, but one unique aspect of its business model is its membership fees. Over the trailing 12 months, Costco has collected $4.4 billion in membership fees. While this accounts for less than 2% of total revenue, it's the catalyst that gets shoppers into the stores. At the end of the most recently reported quarter, the fiscal third quarter of 2023, Costco had 69,100 members and 124,700 cardholders. These metrics each grew by 7% compared to Q3 2022.
Costco has faced some challenges recently but zoom out and the results are impressive. Consider Costco's revenue and net income over the very long term.
COST Revenue (TTM) data by YCharts
An important factor to consider when looking at this chart is that Costco succeeds even through recessions (the gray bars on the chart), showing the power of its value proposition to its members. This is worth considering if there is a recession in the coming months.
Starbucks
Starbucks (SBUX -0.35%) is another company with an impressive track record of market-beating performance and an increasing dividend. Over the past 10 years, it has outpaced the market's performance by nearly 62% and increased its dividend by 404%.
Starbucks is a compelling stock to buy right now because the company is finally seeing a turnaround in its international business, which has struggled since the pandemic lockdowns, especially in China. In the second quarter of 2023, which ended in April, Starbucks' international revenue increased 9% year over year, driven by China's recovery. This is extremely important to Starbucks as China is the company's second-largest market after the U.S.
The challenges Starbucks has faced in China over the last few years have dragged the stock price down. While it has recovered nicely in 2023, the current valuation is still on the inexpensive side relative to the historical average. Starbucks trades for 3.4 times sales, which is below the 10-year average of 4. The same is true for price-to-earnings ratio, which is currently 32, below the average of 68.
There are brighter days ahead for Starbucks internationally, but the current price appears to still be carrying some of the residual effects of the last few years' challenges. This presents an opportunity for investors who are looking for a growth company that also has a growing dividend.
