Since investing is a forward-looking endeavor, it is important to pick businesses that provide goods or services that have a good chance of being in demand for decades. That's because such companies typically benefit from steadily growing profits, which often leads to dividend growth as well.
Here are three quality dividend payers that also appear to be quite cheap for investors to contemplate for their portfolios.
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1. Enterprise Products Partners: Yet another distribution hike for unitholders
Earlier this month, Enterprise Products Partners (EPD +0.69%) increased its quarterly distribution per unit by 2% to $0.50 -- which also represents an increase of 5.3% over the year-ago period distribution. This was the 25th consecutive year that the master limited partnership (MLP) has delivered distribution growth, which has included multiple recessions and a global pandemic.
NYSE: EPD
Key Data Points
The company's ability to so greatly reward unitholders hinges on two factors. For one, Enterprise's 50,000-plus miles of crude oil, natural gas, petrochemicals, and refined products pipelines are of the utmost importance to the global economy. Just about all the products we consume in our everyday lives are linked to these carbon-based products in at least some way. And as more individuals around the globe ascend to the middle class, it's difficult to imagine that demand for the products that Enterprise transports and stores will decline anytime soon.
Second, the company's distribution was covered nearly twice over (1.9x) in the first quarter of 2023. This should give Enterprise the flexibility to keep growing its distribution, which is especially appealing considering its units yield 7.6%, significantly more than the 1.5% yield of the S&P 500 index. Income investors who don't mind the K-1 tax filing form that comes with investing in Enterprise can scoop up units of the stock at a price-to-book (P/B) ratio of 2.2. For context, that's less than the 10-year median P/B ratio of 2.6.
2. Albemarle: The biggest lithium producer
Like Enterprise, lithium giant Albemarle (ALB 2.84%) is essential to the modern economy. This is because lithium is a critical input in the production process of electric vehicles and consumer electronics. Of the $7.3 billion in net sales that Albemarle generated in 2022, over two-thirds (68%) was derived from its lithium segment, with the remainder from its bromine and catalysts segments.
NYSE: ALB
Key Data Points
Global economic development is likely to push lithium consumption much higher in the years ahead, which should support future earnings growth for Albemarle. The company's 0.7% dividend yield doesn't look particularly impressive to an income investor. But with the dividend payout ratio poised to clock in around 7% in 2023, the business should extend its 29-year dividend growth streak in the years to come.
Investors can pick up shares of Albemarle at a price to tangible book value (P/TBV) ratio of 3.9, which is its lowest valuation in over a decade. As demand for lithium soars moving forward and prices stabilize, there's good reason to believe that the stock could have big upside in the future from such a low starting valuation.
3. British American Tobacco: Impressive combustible and noncombustible brands
British American Tobacco (BTI +0.74%) is among the most dominant tobacco companies in the world. Well-known cigarette brands like Newport and Camel, and leading noncombustible brands such as Velo nicotine pouches, Vuse vapor, and Glo heated tobacco, support its $74 billion market capitalization.
NYSE: BTI
Key Data Points
Since launching its portfolio of noncombustible brands beginning in 2013, British American Tobacco has grown to a user base topping 23 million as of March 31. Given the company's ambition to reach 50 million noncombustible users by 2030, analysts' forecasts of double-digit annual earnings growth for the medium term don't seem to be unreasonable.
Coupled with the lowest payout ratio in its industry, British American Tobacco's 8.2% dividend yield looks to be on firm ground. Yield-focused investors can buy shares of the stock at a forward P/E ratio of 7.1, which is considerably under the tobacco industry average forward P/E ratio of 12.1.
