Dividend investing is a blast. Every share of a dividend stock you buy adds to your passive income. It's like paving a road to financial freedom brick by brick, your destination being the point where your dividends can pay all your living expenses.
The brick-by-brick point is important, though. Dividend investing doesn't need a huge lump of cash from Day 1. It can easily be accomplished with consistent, small investments made over time.
If you have $400 available that isn't needed for monthly bills or to pay down short-term debt, there are numerous high-quality dividend stocks you can buy and hold today. Here are three favorites that should work for all investing styles.
1. Nike: Growth stocks can pay dividends too
Don't assume a stock paying a dividend can't deliver monstrous total returns. Sneaker and sports apparel company Nike (NKE 0.19%) has paid and raised its dividend for 22 consecutive years. Over the past 22 years, the stock has returned nearly 1,800%, outperforming the S&P 500 roughly 3-to-1. It turns out that companies that make enough money to share their earnings with investors and still grow their businesses are nifty stocks to buy and hold.
Nike's business isn't very complicated. It makes shoes and sports apparel, which anyone can do. However, you can't replicate Nike's brand appeal; the Swoosh is legendary in global sports culture. Nike has built a competitive advantage by tying itself to global icons, from NBA legends like Michael Jordan and LeBron James to soccer star Cristiano Ronaldo. Consumers want Nike's products because of that association.
It's been a winning formula for decades, and that's poised to continue. Nike has evolved with the retail landscape, shifting toward e-commerce by building a direct-to-consumer business that moves nearly as much product as it does wholesale. Analysts predict Nike will grow earnings by almost 15% annually over the long term, which means investors can expect more dividend increases and price appreciation over the coming years. The one potential downside to all the stock price appreciation Nike has seen is that the current dividend is somewhat low at 1.4%. Expect that number to improve as time goes by.
2. Johnson & Johnson: Striking a balance between growth and income
Healthcare has been and always will be a core pillar of society, so it's hard to go wrong buying Johnson & Johnson (JNJ -0.46%). The company is a two-headed healthcare giant consisting of a pharmaceutical arm and a diverse portfolio of medical products, ranging from spine robotics to contact lenses. The stock yields over 3% today, and comes with a growth streak of 62 years and counting. The dividend increases have averaged 7% over the past five years. That combination of growth and yield adds up over the years.
Johnson & Johnson is also one of the few stocks you can buy and truly sleep well at night holding. The company's corporate credit rating is AAA, higher than that of the U.S. government, and it's one of only two corporations to carry it. The company's product diversity and strong financials are the secret behind its legendary dependability.
The company's growth won't knock your socks off, but it's a slow and steady grinder that will deliver over the long term. Analysts believe Johnson & Johnson's earnings will grow by an average of 5% to 6% annually, so consider making the stock one you buy, hold, and add to regularly. Its reliability makes it an outstanding foundation for any portfolio.
3. Philip Morris International: Want massive dividend income? Check this out
Who doesn't love getting huge dividend checks? You can't trust every high-yield stock you see, but you can confidently buy Philip Morris International (PM -1.11%). The company has traditionally sold Marlboro cigarettes outside of the United States, but it has also become a leader in next-generation, smokeless nicotine products. It sells its heat-not-burn IQOS device and nicotine pouch brand Zyn.
The dividend yields 5.8% today. It's not good that the company is spending all its cash flow on the dividend, but I don't think investors should panic. Higher investments to grow IQOS and Zyn production capacity and interest expenses in recent quarters have sapped the company's profits. Additionally, Philip Morris has a lucrative growth opportunity in the United States via Zyn and (soon) IQOS.
Management is working to get its debt down to 2 times its EBITDA by the end of 2026. The company may struggle to achieve meaningful dividend growth for a few years, but the future looks bright if Philip Morris can establish itself in the United States. Until then, investors can enjoy an outsized dividend that management is firmly committed to upholding.
