It's been proven time and time again that dividend-paying stocks outperform their non-dividend-paying peers. On top of that, the cash they pay out to shareholders can be pocketed or reinvested in more shares. To help investors decide which dividend-paying companies might be worth putting in their portfolios, we asked three Motley Fool experts what they think is the single best stock for dividend investors. Here's what they had to say.
If I could choose just one of the dividend stocks in my portfolio to hang on to for the long term, it would have to be Realty Income (NYSE:O). The dividend, which yields 4.7% and is paid monthly, is definitely nice. However, my reasons for loving this stock go way beyond that. Basically, Realty Income produces both income and growth, and it does so in a safe and predictable way.
Realty Income's business model is simple. The company buys commercial properties and then rents them to high-quality tenants. And in order to produce growth, the company often borrows money to acquire new properties. So why invest in commercial real estate instead of, say, residential properties?
Simply put, commercial real estate is a much more stable investment for a few reasons. First, lease terms are longer -- 15 years or more -- and rent increases are usually built in. This keeps turnover low and creates a predictable, growing income stream. In fact, more than 98% of the company's properties are occupied as of this writing. Additionally, commercial tenants pay a lot of the variable costs, such as taxes, insurance, and maintenance, which would all be the responsibility of the landlord in a residential situation.
The stock's performance speaks for itself. Over its 20-year history as a publicly traded REIT, Realty Income has produced average total returns of more than 17% per year and has increased its dividend 79 times.
Historically, Altria Group (NYSE:MO) has been just about the strongest dividend stock of the past half-century. Going back to 1970, Altria has produced average annual returns of more than 20%, turning a single dollar into $5,000 based on today's value. On top of the dividends it has paid, Altria has also spun off several successful companies, including both Kraft Foods and the international tobacco giant Philip Morris International (NYSE:PM), which Fool contributor Dan Dzombak discusses below. When you consider the growth that those companies have enjoyed, it only adds to the returns for those who chose to hang on to their spun-off shares.
Altria shows just how resilient great businesses can be. Having survived decades of litigation, Altria has gone on to face the challenges of greater regulatory scrutiny, higher taxation, and a host of assaults on its packaging and promotional activity. Through it all, Altria has not only managed to survive but also continued to find ways to boost profits, and its history of regular dividend growth puts it among the stock market's elite. Even now, many believe the tobacco giant is an endangered business, but the odds are good that Altria will once again prove naysayers wrong and find new ways to keep bringing in more profit in the long run.
The single best stock for dividend investors is Philip Morris International.
Philip Morris International has six of the 15 most popular cigarette brands worldwide, including No. 1 Marlboro, which has held the No. 1 spot since 1972, and No. 3 L&M. This "mind share" translates to real market share: The company claims 37.4% of its top 30 markets worldwide. This gives Philip Morris an unbeatable competitive moat.
While Altria has the rights to Marlboro in the U.S., the company has spent years fighting litigation in the U.S. and is facing a declining market. Philip Morris' international diversification around the world -- it has operations in every country except the U.S. and China -- means litigation in one country has little effect on its overall business. Further, cigarette consumption is growing around the world.
Given that Philip Morris' management team comes from dividend powerhouse Altria, as Dan Caplinger explained above, dividends are in Philip Morris' roots. Philip Morris now has a forward yield of 4.8%. Since its spinoff in 2008, the company has grown its dividend every year for cumulative growth of 118%, over the same time frame that is higher than nearly every other major dividend payer, beaten only by McDonald's with 126.7% cumulative dividend growth.
With an unbeatable and growing business diversified around the world, Philip Morris International is easily the single best stock for dividend investors.
Dan Caplinger has no position in any stocks mentioned. Dan Dzombak owns shares of Altria Group, and Philip Morris International. Matthew Frankel owns shares of Realty Income.. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.