Long-term investors know two important things: Dividends are excellent and good companies are built to last. In a rapidly changing marketplace, those two factors can be difficult to find in the same company. Some high-yielding dividends are high simply because the companies are slowly sinking. On the other hand, some good, rock-steady brands pay horrible dividends. But that doesn't mean that you can't find a diamond in the rough every now and then. Here are three companies with solid dividends that aren't going anywhere.
You already know them by name
If you're really looking at dividend investing, then you might end up with shares in companies with names like East-West Fire and Power, LLC, PM, DPRK, based in Fireville, N.D. That's not a bad thing, but there's something to be said for investing in what you really know. I know retail, so when I'm looking for dividends I start with the companies that I understand.
Looking through who's paying out, I'm struck by Target (TGT 0.87%), Nordstrom (JWN +0.00%), and Hasbro (HAS 0.82%). Now that's not to say that they've got the highest yields in the market, but they have a decent yield, and I trust that in 15 or 50 years, they'll all be around to keep the cash coming in.
Important points to watch
Having a nice little dividend isn't enough. We want to make sure that these companies are growing and that they're generating the kind of cash that they need to fuel those dividends. Let's start with the payout. Over the last five years, Target has paid an average of 2%, Nordstrom has hit 2.5%, and Hasbro kicked out 3%.
That high dividend from Hasbro comes at a cost, and the company's payout ratio is by far the highest. Over the last few years, it's climbed to 68%, which is well above both the 29% at Target and the 30% Nordstrom pays out. That means that Hasbro has less money it can spend on its business, and it may have to cut back on its dividend if it needs extra cash in the future.
As you can see in the chart below, Hasbro is in the middle of the pack for total return over five years, but it's also the company with the biggest swings in total return. Another big fall like it saw in 2011 could be bad news for dividend investors.
Source: JWN Total Return Price data by YCharts.
The bottom line
Even with those variations, I still like Hasbro's future chances. The company is widening its operating margin and making a strong push into international markets. I think the sheer volume of classic brands in its portfolio is more than enough to keep it safe in years to come. Having said that, my favorite of the three is definitely Nordstrom. The business is moving into omnichannel sales with a clear vision, and it's earning the respect of customers and peers as it does so.
The world of dividend investing is huge and very detail-oriented. The reason I like sticking with brands I know is that I believe I understand the business well enough to project some growth for them. If that growth continues, then the dividend should keep growing. On top of that growth, the stock value increases and I win two ways. Target, Nordstrom, and Hasbro are all excellent places to start looking at dividends, but it's just the beginning of the dividend rabbit hole.
