If you are ready to buy stocks in 2024, history is on your side. Based on data going back to 1957, the S&P 500 has always enjoyed a consecutive positive year after recovering from a bear market, as it did in 2023. And while past performance doesn't necessarily guarantee future results, there are plenty of reasons why this trend could continue, as the Federal Reserve has hinted on cutting rates and ease monetary policy in 2024.
Meanwhile, many dividend stocks are still trading at a sharp discount, making their current yields unusually attractive. Let's explore why shares in two of them, Phillip Morris International (PM +1.40%) and Income Realty (O 0.91%), are good enough to buy and hold forever.
Phillip Morris International
The tobacco industry has long been a favorite of defensive investors because its products tend to stay in demand, no matter what is going on in the wider economy. These companies are also highly profitable and have a culture of returning most of this value to investors in the form of consistently increasing dividend payouts and share buybacks.
NYSE: PM
Key Data Points
Phillip Morris is unique among its peers because of its advanced push into reduced-risk tobacco products like IQOS, a unique product that heats tobacco instead of burning it to release fewer harmful chemicals. Altogether, Phillip Morris's smoke-free products (including vaporizers and oral tobacco) make up 35.4% of net revenue, giving its operations significant diversification away from traditional cigarettes.
Phillip Morris is a mature blue chip company, but near-term growth remains solid. Third-quarter operating income jumped 13.5% year over year to $3.4 billion. And management returns value to shareholders through an impressive dividend with an annual yield of nearly 5.5%.
Phillip Morris has steadily increased its payout for 15 consecutive years, and its push into new reduced-risk tobacco products will help it maintain its stellar track record for years to come.
Realty Income
Known by some as "The Monthly Dividend Company," Realty Income is a real estate investment trust (REIT) -- a type of organization that invests in commercial real estate and gets tax benefits by returning most of its profits to shareholders. The company is unique because of the frequency of its dividend payouts and the quality of its tenants.
Since its founding in 1969, Realty Income has curated a diversified portfolio of commercial real estate tenants under long-term agreements to maximize the reliability of its income streams. While brick-and-mortar businesses have generally come under pressure from e-commerce, Realty Income protects its economic moat by betting on resilient categories like grocery stores, convenience stores, and pharmacies. Recession-proof businesses like Walgreens and Dollar General are its two largest clients.
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Realty Income Shares have fallen by around 8% over the last 12 months because of macroeconomic challenges like high interest rates. High rates can be a problem for REITs because they increase the cost of capital needed to grow their businesses and could cause income-hungry investors to avoid their shares in favor of higher-yielding new bond issuances. With that said, this is a temporary headwind. Most economists expect the Federal Reserve to cut rates three times this year.
NYSE: O
Key Data Points
With an annual dividend yield of 5.2%, it isn't too late to scoop up Realty Income shares while they are still cheap. The company sweetens the deal by conducting its payouts monthly instead of quarterly.
Who should be a dividend investor?
Phillip Morris International and Realty Income are stable, mature companies that probably won't post earth-shattering growth rates any time soon. Instead, they offer investors the prospect of safe, reliable income for years or even decades into the future. Both stocks are ideal for long-term investment strategies such as retirement savings, and they could make excellent purchases in 2024 and beyond.
