Many dividend stocks lost their luster over the past two years as rising interest rates boosted the yields for CDs and Treasury bills above 5%. But over the long term, stable dividend stocks usually outperform fixed-income investments as their prices rise and investors use dividend reinvestment plans (DRIPs) to boost their total returns.
Therefore, investors should still keep an eye out for promising dividend stocks that could make them rich. I believe these three stocks fit that description: Opera (OPRA -1.91%), Philip Morris International (PM -1.11%), and IBM (IBM -1.05%).
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1. Opera
Opera is best known for its namesake web browser, which ranks fifth in the market behind Alphabet's Google Chrome, Apple Safari, Microsoft Edge, and Mozilla Firefox. However, Opera also has a mobile gaming browser and a stand-alone news app. It served 311 million monthly active users across all those apps in its latest quarter.
Opera also continues to grow, despite being branded an underdog in the browser market. Analysts expect its revenue and adjusted earnings per share (EPS) to grow 15% and 13%, respectively, next year, as its core advertising business stabilizes in a warmer macro environment. The rollout of new artificial intelligence (AI) services for its browsers could also lock in its users and widen its moat against its larger competitors.
Opera's stock already looks cheap at 12 times forward earnings, but it also caught the attention of income investors over the past year by paying out a special dividend of $0.80 per share in February and initiating a recurring semi-annual dividend of $0.40 per share in June. That new dividend translates to a whopping forward yield of 7.1%.
Opera's fundamentals are attractive, but its stock remains slightly below its IPO price of $12. Therefore, I believe investors who buy this stock while the bulls are looking the other way might net some big gains in the future.
2. Philip Morris International
Philip Morris International, one of the largest cigarette manufacturers in the world, was spun off from Altria in 2008 to handle its former parent's overseas divisions. PMI's stock has generated a total return of nearly 280% since its public debut, even as declining smoking rates gradually reduced its annual shipments of traditional cigarettes.
PMI initially countered that slowdown by raising its prices. But as that strategy ran out of steam, it rolled out its iQOS heated tobacco devices -- which heat up tobacco sticks instead of burning them -- over the past nine years. That gradual growth of its smoke-free products (which accounted for 32% of its revenue last year) offset its declining shipments of cigarettes, and it grew at a more stable rate than Altria -- which repeatedly fumbled its expansion beyond traditional cigarettes.
As a result, analysts still expect PMI's revenue and adjusted EPS to rise 5% and 6%, respectively, in 2024. That stability has enabled PMI to raise its dividend every year since its split with Altria, and it currently pays an attractive forward yield of 5.7%. Its stock trades at just 14 times forward earnings, and it should remain a reliable way to grow your cash.
3. IBM
For many years, IBM was a dismal investment. It was known for its declining revenue, plunging profits, and its inability to keep pace with the seismic shift toward cloud-based services. However, all that changed over the past three years as its cloud chief Arvind Krishna took the helm as Big Blue's new CEO and reset its entire business model.
First, IBM divested its slow-growth managed infrastructure services unit as Kyndryl in late 2021. Second, it drove its open-source software subsidiary Red Hat to launch more hybrid cloud and AI services that could be wedged between private and public cloud platforms. That move enabled it to profit from the growth of the cloud and AI markets without going toe-to-toe against public cloud giants like Amazon and Microsoft.
Those two strategies, along with thousands of layoffs and a commitment to automating away a lot of its own jobs with AI, enabled IBM to grow again. Analysts expect the tech giant's revenue and adjusted EPS to rise 3% and 5%, respectively, in 2024. Its stock still looks like a bargain at 16 times forward earnings, and its hefty forward yield of 4.1% should set a floor under its stock as it continues to expand its hybrid cloud and AI businesses.
