Numerous groups of investors place tremendous importance on dividend stocks. Since such stocks pay investors a specific amount, typically every quarter, some investors will buy and hold to receive the cash, even when the stock does not perform well in other respects.
Fortunately, a poor stock performance can allow investors to buy at a lower valuation while simultaneously earning a higher return on the dividend, often one exceeding the S&P 500 average dividend yield of 1.3%.
Additionally, many stocks fit this description, and these three names could present an opportunity to double up on positions, increase cash returns, and possibly benefit from stock price appreciation later.
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1. Realty Income
Realty Income (O -0.36%) is likely familiar to most investors even if they know nothing about this company. It owns more than 15,600 single-tenant commercial properties in the U.S. and eight other countries.
The company has attracted numerous stable businesses to fill its buildings. Walmart, CVS, and AMC Theaters are among the companies that rent property from Realty Income. Also, since these are net lease deals, the client covers maintenance, property tax, and insurance costs, providing Realty Income with stable revenue streams.
Despite continued growth, investors have soured on Realty Income in recent years as higher interest rates weighed on its profitability. Consequently, the stock has not returned to its highs from early 2020.
Still, that pessimism helped raise the dividend. Shareholders receive monthly payouts of $0.269 per share, or nearly $3.23 per share annually. New buyers can earn a dividend yield of over 5.5%. That should increase as the company raised the dividend four times in just the last year and at least once a year since its inception in 1994.
Realty Income stock trades at just 14 times its funds from operations income. That valuation, along with its generous dividend yield, should draw investors back to the stock regardless of what happens with interest rates.
2. Cisco
Cisco Systems (CSCO 0.32%) has consistently stood out in the networking space, offering a range of products that include hardware, software, telecom equipment, cybersecurity platforms, and other tech-related products.
It enjoyed a strong run during the dot-com boom of the late 1990s, so much so that the company briefly held the title of world's largest market cap in 2000. However, the dot-com bust and rising competition took their toll on the company's growth.
With that, Cisco pivoted to dividends in 2011 and has increased the payout once yearly since that time. At an annual payout of $1.64 per share, it delivers a yield of just under 2.5%.
Cisco's stock also seems to have benefited from artificial intelligence (AI). In the third quarter of fiscal 2025 (ended April 26), AI infrastructure orders topped $600 million, beating its forecast one quarter ahead of schedule.
Amid its AI positioning, investors are returning to the stock, and it has risen by more than 40% in the last year. Also, it sells at 27 times earnings, a level near multiyear highs, though that valuation is still below the S&P 500 average of 29.
Cisco is unlikely to regain the title of world's largest market cap. Still, with a rising dividend and a business bolstered by AI, it is well positioned to provide a generous, reliable stream of dividend income.
3. Target
Admittedly, Target (TGT -0.15%) may look like a company to avoid in today's market. It has suffered amid an uncertain economy, inventory challenges, and an ability to upset customers no matter what stance it takes on DEI.
Consequently, people are not spending heavily at Target's nearly 2,000 stores. In the first quarter of fiscal 2025 (ended May 3), net sales fell 2.8% from year-ago levels. Sales only grew 0.1% in fiscal 2024, so its struggles are ongoing. As a result, its stock is down nearly 65% from its high in 2021.
However, Target is a Dividend King with 54 years of consecutive dividend increases. Also, the stock's behavior has had a fortuitous effect on the dividend yield. At an annual payout of $4.56 per share, new shareholders can now earn a cash return of 4.7%.
It is too early to count Target out, and not just because of the dividend. More than 75% of U.S. residents live within 10 miles of a Target, meaning it can leverage omnichannel retailing better than any competitor except for possibly Walmart.
Its 10 P/E ratio likely incorporates the company's struggles into the stock price. Assuming Target leverages its market positioning to draw customers back to its stores, investors who buy now may be glad they took positions at the current valuation and dividend yield.
