Dividend stocks have fallen out of favor in today's growth-oriented market. However, this could be a costly mistake by stock investors. According to historical data, dividends have accounted for about 75% of the total returns of U.S. stocks over the last 123 years.
Not every dividend stock is a good investment, though. The best dividend stocks are backed by companies with a durable competitive advantage, robust free cash flow, and a global presence. Here are two ultra-high-quality dividend stocks you can buy and hold forever.
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A highly dependable dividend grower
American Express (AXP -0.62%), or Amex for short, is a global leader in credit card and payment services, offering a range of products and solutions for consumers and businesses. Its dividend yield of 1.14% may seem low, compared to its peers in the financial services industry, but the company compensates with a high dividend growth rate.
In the last five years, the credit card and payment services giant has increased its quarterly cash distribution by 8.9% per year, on average. Moreover, Amex's dividend is well supported by earnings, as shown by its exceptionally low payout ratio of 21.4%.
Amex also rewards shareholders through regular share buybacks. In fact, the company has reduced its outstanding share count by a healthy 13.7% in the past five years. Regular share buybacks help to boost earnings and signal to investors that management is optimistic about the company's near-term prospects.
Finally, Amex is not just a solid dividend stock; it's also a fast-growing company with a strong competitive advantage. Analysts expect the company's revenue to grow by 9.2% in 2024 and 8.4% in 2025. Few credit card companies can match Amex's growth potential, especially with its focus on premium and ultra-premium cards -- i.e., lower-risk customers.
Apart from its strong fundamentals and stellar near-term outlook, Amex stock is also a top holding of Warren Buffett's conglomerate Berkshire Hathaway, which has been a loyal shareholder since the 1990s. Buffett has often used Amex stock in his public commentary as a real-world example of the power of compounding returns.
All in all, Amex offers a dependable quarterly payout, a remarkable dividend growth rate, and an incredible level of revenue growth for a major credit card company. It's also a top Warren Buffett stock, which speaks to the high-quality nature of its business and wide competitive moat.
This dividend grower won't disappoint
Starbucks (SBUX 0.47%) is a dividend-growth stock that offers a reliable income stream to investors. The company operates a global network of specialty coffee shops and has increased its dividend by an annualized rate of 9.62% over the last five years. It currently yields 2.43%, which is higher than the average of its large-cap peers.
Besides paying dividends, Starbucks also rewards shareholders by buying back its shares. The company has reduced its share count by 8.8% in the past five years, which has helped to boost its earnings and valuation. Its payout ratio of 57.5% is about average for a large-cap dividend payer, indicating that it should to be able to sustain its aggressive dividend-growth policy in the future.
Starbucks is also growing its revenue at a robust pace, thanks to its global expansion strategy and loyal customer base. Analysts expect the company to deliver an 18.6% increase in sales for fiscal 2024 and 2025, which is extremely impressive for a mature business.
Moreover, Starbucks is a favorite among institutional investors because they tend to have a long-term horizon and a deep understanding of a company's value proposition. Some of the largest and most reputable fund managers, such as Vanguard and Blackrock, own significant stakes in Starbucks. In fact, both companies have both been aggressively buying the stock in recent quarters.
All told, Starbucks is a high-quality growth stock that pays an attractive dividend to shareholders. It has a strong track record of dividend growth, is generating stellar levels of revenue growth, and is backed by some of the best institutional investors in the world.
