Given the state of the economy at the moment, it is understandable that dividend stocks would be among the most popular investments around. You don't give up the chance for long-term capital appreciation by owning them, but you also get immediate passive income from their steady quarterly payouts. Dividend stocks tend to be financially stronger, too, because their management teams have an extra incentive to maintain positive -- and growing -- earnings each year. These characteristics can be quite appealing in times of economic uncertainty.
Not all dividend stocks are worth having in your income portfolio, though. There's a mix of winners and losers in this investment niche that's similar to what you might find in any other area of the market. With that in mind, let's look at three standout options that are attractively priced today.
NYSE: GRMN
Key Data Points
1. Garmin
Garmin (GRMN +0.14%) is a tech company focused on sales growth, but it still pays a solid dividend that currently yields over 2%. The GPS device specialist is putting up excellent operating results as well. Revenue in the third quarter was up a healthy 12% year over year as four of its five major segments set sales records. This performance showed off the power of Garmin's diverse revenue streams, too, as gains in areas like fitness trackers and smartwatches offset weaker growth in the marine and aviation divisions.
Garmin generates ample cash flow that management directs mostly toward generating more growth through areas like research and development. That's because a steady stream of product launches is necessary to lay the groundwork for rising revenue. Yet its high profit margin (above 21% of sales last quarter) also leaves room for a generous dividend payment to bolster shareholder returns over time.
NYSE: MCD
Key Data Points
2. McDonald's
McDonald's (MCD 1.25%) isn't just one of the most profitable businesses in the fast-food industry; it is also among the most profitable companies in the stock market. The restaurant owner's operating profit margin recently crossed 45% of sales thanks to a combination of strong demand, rising prices, and a steady stream of franchise, royalty, and rent fees from its partners.
There are some challenges facing this business, to be sure. McDonald's reported a modest drop in customer traffic in the core U.S. market last quarter that investors are hoping was just a temporary blip in its wider positive growth story. Rivals like Chipotle Mexican Grill are increasingly targeting the drive-thru channel and aiming to take share from the industry leader as well.
Yet McDonald's has handled many such trials in its history, as evidenced by its track record of 47 years of consecutive annual dividend increases. The 2024 payout will be 10% higher than last year's, which shareholders should find especially tasty for their overall returns.
NASDAQ: COST
Key Data Points
3. Costco Wholesale
Costco Wholesale (COST 3.17%) isn't your traditional retailer business because most of its earnings come from membership fees rather than product markups. The wholesale club earns essentially nothing from its massive sales base of merchandise. Yet Costco is still a cash-rich business, as you can see from management's recent decision to send a special dividend payment valued at $7 billion to distribute among its shareholders. Cash balances should still be well above $10 billion following that payout.
You might prefer a more steadily rising dividend payment over these sporadic one-time checks. But Costco investors can cut the company slack in this area given the chain's stellar track record of market share growth in the highly competitive retail industry. That's why looking back in a few years, there's a good chance you'll love having had this dividend payer in your portfolio.
