Rock-bottom interest rates have left investors hungry for income-producing securities. That has led to a surge in the popularity of dividend stocks. No doubt investors will continue to seek out the best dividend stocks in 2014. Here are three attractive companies each growing their dividends and boasting price-to-earnings ratios near or below that of the overall stock market.
Kraft Foods' (UNKNOWN:KRFT.DL) dividend yield recently hit 4%. The packaged-foods company raised its dividend by 40% last year. Given Kraft's 48% dividend payout ratio, future increases could also be on the horizon. Even though the maker of Oscar Mayer, Cool Whip, and Jell-O may seem like a stodgy, slow-growing company, its stock has returned nearly 27% since its October 2012 split from its parent company, now known as Mondelez International. Since the corporate breakup, Kraft has emerged as a leaner organization and is specifically focused on cost-cutting and profitability. As Kraft's margins grow, it'll give the company more leeway to increase its already-enticing dividend. Watch for Kraft to be among the ranks of the best dividend stocks of 2014.
McDonald's (NYSE:MCD) recently yielded 3.4%, and the company has grown its dividend 10% on average annually during the past five years. In fact, McDonald's has increased its dividend every single year since paying its first one in 1976. Despite its recent same-store sales declines and weak earnings growth in recent quarters, McDonald's is the most frequented business in the U.S. The Golden Arches boasts a track record of reinvention through product innovation. Its renewed emphasis on brand imaging, coupled with a strengthening global economy (70% of company revenue is derived internationally), shows potential. For investors seeking the best dividend stocks of 2014, McDonald's is likely to serve up an order of satisfaction.
Target (NYSE:TGT) has doubled its dividend within the past five years, and it recently yielded 2.7%. With a payout ratio of 40%, the dividend still has a lot of growth potential. Target has successfully differentiated itself from competitors like Wal-Mart through superior merchandising, attractively remodeled stores, edgier advertising, and a trendier, more upscale image. During Black Friday weekend, roughly 12% of all holiday retail shoppers opened their wallets at Target. Further, at a price-to-earnings ratio of less than 17, the stock appears undervalued. For investors interested in the best dividend stocks 2014 has to offer, the coming year looks like a bull's-eye for Target.
Fool contributor Nicole Seghetti owns shares of Wal-Mart Stores, Target, and Mondelez International. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends and owns shares of McDonald's. 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.