2023 has been outstanding for high-growth stocks that drove the Nasdaq Composite index 33% higher over the past year. Despite the recent performance of growth stocks, investors seeking big gains want to turn their heads toward dividend-paying stocks.
Whether you're interested in your portfolio's overall performance or the passive income it produces, dividend stocks should be on your shopping list. Shares of non-dividend-paying businesses in the benchmark S&P 500 index returned 3.95% per year, on average, between 1973 and 2022. Over the same time frame, the average dividend-paying stock in the same index returned 9.18% per year.
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If the average dividend-paying stock in a broad index can be expected to return more than 9% annually, everyday investors who pick the best stocks stand to do much better. Right now, these two stand out because they offer high yields, and there's a strong chance they'll be able to steadily raise their payouts in the years ahead.
Altria Group
Shares of Altria Group, (MO +1.95%) the company that markets the leading Marlboro brand in the U.S., have been under pressure for a fairly straightforward reason. Tough competition from disposable vaporizers that government regulators have not authorized is dragging down sales of both traditional tobacco products and the pod-based, e-vapor product it sells.
NYSE: MO
Key Data Points
Altria Group has raised its dividend payout 58 times over the past 54 years, but the stock market is behaving as if a steep reduction is around the corner. The depressed stock offers an eye-popping 9.8% dividend yield at recent prices.
Altria doesn't report fourth-quarter results until Thursday, Feb. 1, but the first nine months of 2023 were not very encouraging. Shipment volume of smokable products declined by 10.5% year over year.
Despite fewer cigarette smokers, raising prices on the powerful Marlboro brand plus increasing sales of non-smokable products kept revenue from falling off a cliff. Total revenue net of excise taxes fell just 0.8% year over year during the first 9 months of 2023. On the bottom line, the adjusted earnings rose 3.3% year over year.
Altria's dividend probably won't be the fastest riser in your portfolio, but steady movement in the right direction for at least another decade seems likely. Altria's new e-vapor business, called NJOY, markets the only pod-based e-cigarette with marketing authorization from the Food and Drug Administration (FDA).
The FDA has been slow to enforce bans on unauthorized vaporizers, but they could become harder to find in 2024. In collaboration with Customs and Border Protection, the agency seized 41 shipments of illegal e-cigarettes last December.
Realty Income
As one of the world's largest net-lease real estate investment trusts (REITs), Realty Income is an income-seeking investor's dream come true. It makes dividend payments every month, and it has raised its payout every quarter since becoming a publicly traded company in 1994.
NYSE: O
Key Data Points
At recent prices, Realty Income shares offer a 5.6% dividend yield. That's a lot higher than usual for this stock. Its price is under pressure because investors are nervous about the recent $9.3 billion acquisition of Spirit Realty.
The all-stock acquisition of Spirit that was completed in December will raise Realty Income's monthly-dividend commitment in 2024. Meeting its dividend commitment and raising the payout further shouldn't be an issue though.
Realty Income expects normalized funds from operations (FFO), a proxy for earnings used to evaluate REITs, to land in a range between $3.96 and $4.01 per share in 2023. That's more than enough to cover a dividend currently set at $3.084 annually per share.
In 2024, the Spirit transaction is expected to boost FFO by about 2.5%, and a larger portfolio could improve the company's advantageous credit rating even further. The Spirit acquisition might dampen Realty Income's pace of dividend raises for a year or two. With an above-average yield and a very strong chance it will continue raising its payout for at least another decade, this stock is a screaming buy right now.
