The Nasdaq stock exchange isn't known for dividend stocks. It's more associated with tech stocks, which don't generally pay dividends until they've reached maturity, and even then, they tend to be small.
However, there are still some Nasdaq stocks to offer strong dividends. Using the Nasdaq-100 index of the 100 largest Nasdaq stocks to simplify things, here are the top three dividend payers in the index.
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1. Kraft Heinz (dividend yield: 6.5%)
Packaged food companies are known as strong dividend payers, and that's certainly true of Kraft Heinz (KHC 3.50%), which tops the Nasdaq-100 list of dividend stocks with a yield of 6.5%.
However, Kraft Heinz, which was formed by a merger of the two food giants over a decade ago, bears a closer resemblance to a yield trap than an attractive dividend stock. Even Warren Buffett, who helped engineer the merger, acknowledged that he overpaid for the deal, and since then, the company has taken more than $15 billion in writedowns, reflecting the challenges that processed foods have faced in the grocery aisles.
NASDAQ: KHC
Key Data Points
Kraft Heinz's latest idea is to split into two companies in the second half of next year. One will be "North American Grocery Co," which includes brands like Oscar Mayer, Kraft Singles and other grocery staples and the other is "Global Taste Elevation Co.," which includes brands like Heinz, Philadelphia, and Kraft Mac & Cheese.
Buffett also panned this move, saying it doesn't solve the underlying problems with the business. Kraft Heinz has struggled over the last decade, and that seems unlikely to change, even after the company is split into two. This dividend stock is best avoided.
2. Comcast (dividend yield 4.4%)
Comcast (CMCSA 1.37%) is a media conglomerate whose businesses include its namesake cable and broadband service, the NBC network and related cable channels, the Peacock streaming service, and Universal Studios and theme parks.
However, the cable business is declining, and broadband is reaching maturity, meaning the company is struggling to grow. In fact, in the third quarter, revenue fell 2.7% to $31.2 billion, and adjusted earnings per share were flat at $1.12. The company even lost domestic broadband customers in the quarter, and its video business continued to decline. It did add customers for wireless lines, while results in its other business segments, which include content and experiences, media, studios, and theme parks, were mixed.
NASDAQ: CMCSA
Key Data Points
Overall, Comcast seems to face a similar challenge to a lot of dividend stocks. It's a solid business with reliable profits, but without any growth, there's not much upside potential for investors. Comcast put in a bid for Warner Bros. Discovery but lost out to Netflix. A future acquisition could help revive the business, but at this point, a return to growth seems unlikely. Investors are better off passing on this dividend stock.
3. Paychex (dividend yield 3.8%)
Unlike the first two companies on this list, Paychex (PAYX 2.46%) is a tech company, provides cloud-based software that helps businesses manage back-office functions like payroll, HR, benefits, and related needs.
Paychex is also delivering growth, reporting 17% revenue growth in its most recent quarter to $1.54 billion, though most of that increase came from its $4.1 billion acquisition of Paycor earlier this year. The company didn't report organic revenue growth, but it would have been in the low-to-mid-single digits in the quarter.
NASDAQ: PAYX
Key Data Points
Payroll processing and related needs seem to be mostly mature, which could put pressure on Paychex going forward. Still, the company expects adjusted earnings-per-share growth of 9%-11% in the current fiscal year.
Paychex also trades at a reasonable price-to-earnings ratio of 25.6. For investors looking for both tech exposure and dividend yield, Paychex looks like a good choice.
