There are a lot of reasons to own dividend stocks. Dividend stocks are typically those of more stable companies, the dividend itself helps offset stock price declines or boosts gains, and historically dividend stocks outperform non-dividend stocks over the long-haul.
As we head into the season of giving, here's why Stanley Black & Decker (SWK 0.99%), United Parcel Service, Inc. (UPS 0.14%), and Ford Motor Company (F -1.92%) could be top dividend stocks in 2024.
Tooling your portfolio
Stanley Black & Decker has had a pretty brutal couple of years, but that happens to companies operating in a cyclical space. Between inflation, supply chain speed bumps, and a dreary summer season after acquiring an outdoor products company, Stanley Black & Decker was hit hard on the bottom line.
As well-run companies often do, Stanley Black & Decker management has responded by selling non-core assets to pay down debt, smoothly integrating acquisitions, consolidating its product offerings to reduce some overlapping products, and reducing inventories that built up during the pandemic. In fact, it's trimming the number of products by roughly 70,000, which will go hand in hand with its cost cutting plan, which aims to reduce costs by $2 billion by 2025.
Essentially, the iconic power tools company is trying to restructure to do more with less to help beef up its struggling bottom-line results. That's showing up in the company's adjusted gross margin, which reached 28% during the third quarter, far better than bottoming out around 20% in the fourth quarter of 2022.
Lastly, despite a rough couple of years Stanley Black & Decker still delivered on its dividend. It's recorded annual dividend payments for 147 consecutive years, and increased its dividend in each of the past 56 years. That's an impressive dividend record, and if the company's turnaround efforts gain more traction in 2024, this could be an excellent opportunity for investors to buy in to the company's 3.56% yield.
Special delivery
Similar to Stanley Black & Decker, UPS also operates in a cyclical package delivery industry, and was honest about challenges heading into 2023 after business-to-consumer deliveries softened following a COVID-19 pandemic surge.
Despite being on the wrong side of the cycle, savvy investors would be wise to keep in mind UPS' focus on small to medium-sized businesses and healthcare, which should power the company's growth again.
One example is the company's digital access program (DAP), which is designed for small to medium-sized businesses. Its DAP revenue is expected to jump to $3 billion for 2023, which is a fantastic surge from its 2021 $1.3 billion mark. Better yet, UPS expects to generate over $10 billion in healthcare revenue this year, compared to $8 billion in 2021.
Beyond UPS' growth in small to medium-sized businesses and healthcare, investors should be thrilled that the company used surging revenue and profits during COVID-19 to pay down debt. Its better balance sheet can now more easily support its healthy dividend, which sits at a robust 4.27% yield.
Down but not out
Ford hasn't had an easy year and is plagued by heavy losses in its electric vehicle business, as well as a Union Auto Workers (UAW) strike that cost the company $1.7 billion, according to management. Further, the added labor costs from the new union contract caused the folks at the Blue Oval to trim the company's earnings before interest and taxes (EBIT) down to $10 billion to $10.5 billion for 2023, down from prior guidance of $11 billion to $12 billion as recently as July.
Because of those factors, Ford stock trades at a paltry price to earnings ratio of 6.8. The sheer cheapness of Ford stock might be attractive to bargain hunters already, but consider that Ford's dividend yield sits at a tantalizing 5.85% and it becomes more compelling for income investors.
While Ford's had a bumpy 2023, the company's balance sheet remains strong with over $29 billion in cash and $51 billion in liquidity as of the third quarter. Furthermore, through the first nine months of 2023 Ford's cash flow from operations checked in at $12.4 billion, well above the prior year's $4.8 billion. Ford also posted sales gains across its gas, hybrid, and electric vehicle lineups, which pushed revenue up 11% during the third quarter.
A big obstacle to Ford's bottom line will be turning its cash-burning EV business into a profitable one. That is a task that Ford hopes to achieve by the end of 2026, and would be huge for the stock price as management expects to lose $4.5 billion on EVs this year alone.
Why these are top dividend stocks
These stocks all hit the sweet spot between value, dividend yield, and potential growth. All three stocks are dealing with the downsides of operating in cyclical industries, but will naturally rebound in time with changing economic tailwinds.
If you can get in while the stock prices are cheap, the dividend yields are high, and the turnarounds are in the works, Stanley Black & Decker, UPS, and Ford could be three top dividend stocks as we head into 2024.
