Investors searching for quality dividend stocks for next year have come to the right place.
Dividend stocks may be unappealing compared to a red-hot market. But over time, quality dividend stocks rarely lose their luster -- especially when a company has what it takes to grow earnings and the dividend over time. Earnings growth, paired with dividend growth, can boost the investment thesis, which can open the door to capital gains on top of dividend income.
Here's why Whirlpool (WHR -0.39%), Leggett & Platt (LEG 0.17%) and Starbucks (SBUX 0.47%) are three dividend stocks worth buying now.
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Whirlpool's near 6% dividend yield is enticing for investors
Lee Samaha (Whirlpool): The home appliance maker has had a difficult year. Rising interest rates have hit the housing market and consumer spending in general. In addition, ongoing cost pressures have eroded profit margin performance. As such, its earnings per share are set to decline by nearly 20% to $15.71, according to Wall Street estimates.
The bad news is out of the way; it's time to focus on the stock's value proposition. In response to weakening market conditions, management is cutting costs and is on track to deliver $800 million in cost cuts in 2023. Management believes there will be some "carryover" in the cost-cutting into 2024.
In addition, Whirlpool is set to sell its European domestic appliance business next year, removing itself from a market it's struggled in.
While all these operational improvements are taking place, the U.S. housing market looks likely to improve year over year in 2024, not least with the prospect of lower interest rates. Whirlpool's management is targeting $500 million in free cash flow in 2023, and that will easily cover its $385 million dividend payout. Throw in some margin recovery in 2024 due to costs, exiting unfavorable markets, and the possibility of lower raw material costs, and Whirlpool's dividend looks sustainable.
Leggett & Platt is a regal choice for providing passive income in 2024
Scott Levine (Leggett & Platt): It's not often that investors can find companies on firm financial footing that offer ultra-high-yield dividend stocks that are on sale. But that's exactly the opportunity that Leggett & Platt stock, along with its forward yield of 6.8%, offers income investors right now. Those looking to prosper from a passive income powerhouse in 2024 -- and for many years beyond -- would be wise to add Leggett & Platt to their must-buy list.
In addition to its impressive 140-year history, Leggett & Platt, a manufacturer of bedding components and automotive seating, distinguishes itself as a Dividend King, having hiked its dividend for 52 consecutive years. Achieving this rank is no easy feat, and it suggests that the company's dedication to rewarding shareholders is embedded in its ethos -- a valued quality for investors who intend to buy and hold for the long term.
Understandably, circumspect investors may balk at the stock's ultra-high yield, fearing that the payout isn't sustainable. But this concern is quickly allayed when checking in with the company's payout ratio. Over the past 10 years, Leggett & Platt has averaged a conservative 68% payout ratio. Additionally, the company's strong free cash flow often exceeds that which the company returns to shareholders in dividends.
With shares of Leggett & Platt currently valued at 6.1 times operating cash flow, a discount to their five-year average cash flow multiple of 11.3, now seems like a great time for investors to procure some prodigious passive income with Leggett & Platt stock.
Starbucks' decision to invest in its employees is the right move
Daniel Foelber (Starbucks): When considering no-brainer dividend stocks for next year, you want to choose a company that blends a track record of dividend raises, upside potential, value, and growth. It's hard to find all those attributes from a single company -- let alone two or three. But Starbucks has them all.
Over the last month, Starbucks stock is down 7.5% compared to a 5.6% gain in the S&P 500.
At first, Starbucks enjoyed a nice spike from blowout results, including record-high quarterly revenue. However, sentiment shifted, and Starbucks stock began stagnating or going down despite the market's best period of the year.
So why the underperformance? The short-term reason is that Starbucks is facing some internal struggles -- namely, ongoing labor-related differences with its employees. Starbucks released a memo to its partners, customers, and stakeholders on Dec. 11 that expressed some of these concerns. Starbucks is trying to improve its relationship with its employees through opportunities and higher pay. Some may doubt Starbucks' ability to raise wages and sustain its growth without impacting its margins. But Starbucks depends heavily on its workers, and its future depends on the efficiency of its stores.
After all, Starbucks' master plan is to grow its rewards membership, boost mobile ordering, increase ticket volumes, and process more orders -- all of which rely heavily on its employees being able to make more drinks (and process more complicated orders) faster. So, paying its employees more should be the right long-term move.
As for stock's valuation, Starbucks trades at a price-to-earnings ratio of 27.3, which isn't cheap, but it's a reasonable price for a high-quality business like Starbucks -- especially if it sustains its growth in the years to come.
Starbucks is also an underrated dividend stock, having raised its dividend for 13 consecutive years. The raises are sizable, too, and they have helped the company grow into an ultra-reliable dividend stock that currently sports a 2.3% yield.
