Investing in dividend stocks is a great way to bolster your portfolio. But finding a large dividend or high yield is only part of the equation. Investors need to find strong companies that will be able to continue paying back their investors. We asked Motley Fool contributors covering technology and consumer goods stocks to weigh in on top dividend stocks to buy for 2015. Read on to find out what they had to say about IBM (NYSE:IBM), PepsiCo (NASDAQ:PEP), Cisco (NASDAQ:CSCO), The Walt Disney Company (NYSE:DIS), Broadcom (UNKNOWN:BRCM.DL), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Procter & Gamble (NYSE:PG), and AT&T (NYSE:T).
Anders Bylund (IBM): I know, I know. "Nobody ever got fired for buying IBM." That powerful marketing message from the 1980s has applied to Big Blue's stock, too. Picking IBM, especially in the category of top dividend stocks, used to be such a no-brainer that nobody wanted to do it anymore. It just wasn't cool or controversial.
Except, IBM is no longer the incredibly safe bet it used to be; you can favor IBM and still call yourself an insightful iconoclast these days. The stock lost 13% of its value in 2014 while the S&P 500 index gained 12%. The new strategy under CEO Ginni Rometty sacrifices big hardware revenues in exchange for stronger margins, scaring many investors stiff in the process.
As we roll over into 2015, IBM shares are on fire sale for just 11 times trailing earnings -- a valuation not seen since 1995, except for during the 2008-2009 market meltdown. And on the flip side of the same price-based coin, IBM's dividend yield shot up to 2.7%. Again, that's the highest yield seen in two decades, bar none.
Rometty's business plan is sound; it's just working out a little bit slower than she or the Wall Street analyst crowd had hoped. So the stock is selling at a fantastically attractive panic-fueled discount, and the effective dividend yield is skyrocketing.
Big Blue has been through two world wars, countless recessions, and all the technological sea changes of the last century. A simple move further into software and services at the start of the cloud computing megatrend won't kill it, either.
So, yeah. Nobody gets fired for buying IBM, especially when locking in fantastic buy-in prices and dividend yields along the way. This would be a good time to do exactly that.
Tim Brugger (Cisco): Coming off a record quarter for revenues, Cisco shareholders in November got the report on the company's best fiscal Q1 in terms of non-GAAP (excluding one-time expenses) operating income and earnings per share. And while some pundits argue the value of stock buybacks, Cisco demonstrated how it's done. During the most recent quarter, Cisco spent about $1 billion buying and subsequently retiring its own stock, at an average price of $24.58 per share, or about 10% less than its current value; all while paying shareholders $973 million in dividends.
Cisco's stock buybacks and dividend payouts had no effect on its healthy balance sheet. In fact, fiscal 2015's Q1 cash and equivalents grew nearly $4 billion compared to the previous year, from $48.2 billion to today's $52.1 billion, according to S&P Capital IQ data. As for future growth, Cisco is quickly becoming a leader in one of the fastest developing areas of the Internet of Things (IoT): so-called smart cities. In just the last two quarters, Cisco has inked deals with the cities of Hamburg, Barcelona, Copenhagen, and Berlin, to name but a few, to provide smart infrastructure solutions.
As for income for shareholders, Cisco's dividend yield of 2.79% is at or near the top of the tech industry. And with the aforementioned rock-solid balance sheet, there's no reason to doubt Cisco will continue to reward its shareholders. Strong income and good value -- Cisco's trading at a mere 12 times future earnings -- should move Cisco near the top of your dividend stocks to buy in 2015.
Tamara Walsh (PepsiCo): Stocks that pay reliable dividends are a smart way to invest for income because you receive regular payments, regardless of volatility in the stock market. PepsiCo is one of the best dividend stocks to own in 2015 because it offers investors both low risk and high dividend growth.
The soda and snack giant has paid consecutive quarterly cash dividends since 1965, and 2014 marks the company's 42nd consecutive annual dividend increase. This proves that the company knows how to put its shareholders first, while also reinvesting in the business.
Pepsi planned to dole out $3.7 billion in dividends and $5 billion in stock buybacks to shareholders in 2014 -- bringing the company's total annual return to $8.7 billion. Additionally, thanks to the strong performance of its snacks business, Pepsi was on pace to generate over $10 billion in cash flow from operations and more than $7 billion in free cash flow in 2014. Pepsi's Frito-Lay division boasts 22 brands that each pull in annual sales north of $1 billion. Pepsi's impressive ability to generate loads of cash means the company should have no problem raising its dividend in the year ahead.
PepsiCo currently pays an annual dividend of $2.62 per share. While modest, the stock's dividend yield of 2.77% is markedly above the S&P 500's yield of 1.89%. Meanwhile, Pepsi's payout ratio of 54% tells investors that the company still has ample cash left over to reinvest in the business even after returning loads of cash to its shareholders. For these reasons, Pepsi is not only a safe dividend stock to own in 2015, but also one that should continue to grow in the coming quarters.
J. Barham (Procter & Gamble): Foolish investors likely know about Procter & Gamble's Dividend Aristocrat status and reputation for owning 23 brands that each produce over $1 billion annually in sales. Indeed, the company has carved out the robust competitive advantage investors crave, and Motley Fool contributors routinely suggest Procter & Gamble for income investors using sound quantitative analysis. Check out fellow Fool Brian Stoffel's November article on "Why Procter & Gamble Co Is One of the Biggest Warren Buffett Stocks."
Today, let's focus on key qualitative issues that should impress income investors: Procter & Gamble's renewed emphasis on refining senior management and simplifying its business strategy. As Procter & Gamble suffered sluggish sales and struggled to reach pre-recession profit levels, the company in 2013 brought successful former CEO A.G. Lafley back from retirement to refocus on senior leadership and structural changes. Under his helm, the company announced its intent to shed up to 100 unprofitable brands and has shaken up its senior management ranks several times to ensure the "right leadership structure [is] in place for the new P&G," according to an October 2014 Lafley memo to the company.
Of course, it's natural for a struggling company to revive its senior management team, and it's likely that P&G will endure expensive, one-time losses with upcoming divestitures, but patient income investors know that refocusing on P&G's core business areas, selling costly brands, and probable share buybacks will offset these short-term losses and likely drive EPS and shareholder values to higher levels.
And although the market's already responding to these changes (P&G's share price has risen 12.5% since August 2014 and is now trading near its 52-week high), investors haven't missed out on a unique growth opportunity. With a 58-year history of consecutive dividend increases, and a plan for streamlining its business, P&G shareholders can count on promising value for years to come.
Steve Symington (Disney): Even with shares trading near all-time highs, I think now is a great time to buy The Walt Disney Company. The entertainment conglomerate just wrapped up its fourth consecutive banner year, with fiscal 2014 revenue up 8% to $48.8 billion, and earnings per share up 26% to $4.26 -- both company records. Keeping in mind Disney aims to use repurchases and dividends to return at least 20% of the cash it generates to shareholders, that performance shows no signs of letting up.
In 2015, Disney's Studio Entertainment segment most notably looks forward to the releases of two Marvel titles in Avengers: Age of Ultron and Ant Man, two Pixar films with Inside Out and The Good Dinosaur, and -- perhaps most exciting -- the first big screen fruits of its 2012 acquisition of LucasFilm with Star Wars: Episode VII-The Force Awakens.
And because it's in the unique position of being able to leverage its theatrical success across the company, you can be sure there will be complementary offerings from other segments including its popular Consumer Products, packed-to-capacity Parks and Resorts, presence on the small screen with Media Networks, and a game-centric Disney Infinity toy line within Interactive. Given this multi-pronged approach at effectively mopping up consumers' entertainment budgets, Disney stock should have nowhere to go but up for patient, long-term shareholders.
Andrés Cardenal (Apple): Apple does not offer a particularly high dividend yield, but the company has what it takes to deliver spectacular dividend growth in the years ahead. Considering Apple's enormous cash flows and rock-solid competitive strengths, chances are the company is on track to becoming one of the most recognized dividend growth stocks in the market.
Apple produced more than $50 billion in free cash flows during the fiscal year ended in September. In addition, it owns nearly $120 billion in cash and liquid assets net of debt on its balance sheet. When it comes to financial soundness and cash available to pay dividends, Apple is unquestioningly healthy.
Dividends accounted for approximately $11 billion during the last fiscal year, or only 22% of free cash flows, so the company has a lot of room to continue raising payments in the future. Apple also allocated a massive $45 billion to stock buybacks during the period. A reduced share count increases cash flows per share, so the company's ability to continue raising dividends is enhanced.
Apple operates in a competitive and dynamic environment, and that's always a source of potential risk to watch. However, considering Apple's brand power, sticky ecosystem, and loyal customer base, competitive strengths are remarkably solid.
Apple reinstated its dividends in 2012, and it has increased payments from $0.38 to $0.47 per quarter since then. This equates to a dividend yield of 1.8% at current prices. Now could be a great time to get in on the stock and its dividend.
Keith Noonan (Microsoft): At roughly $46 a share, Microsoft is trading in its highest price range since 2000. Even though the stock has climbed roughly 26% over the past year and pushed its dividend yield down to approximately 2.5%, there's still a strong case to be made for Microsoft as a dividend play. The stock's yield may be lower than other leading tech companies that pay a dividend, but it's still significantly higher than the S&P 500 average and the U.S. 10-year bond yield, and Microsoft has room to continue growing its payout.
The software giant is sitting on a mountain of resources, listing roughly $89.2 billion in cash and short-term investments as of Sept. 30, 2014, and its dividend payouts over the past 12 months amounted to just 35% of free cash flow. Taking a longer historical view, Microsoft's dividend payout has increased roughly 14.5% annually for the last decade and nearly 19% annually over the last five years, so there is sufficient precedent to justify expectations of continued double-digit annual growth.
As solid as Microsoft's assets, cash flow, and overall dividend structure look at the moment, the investment picture wouldn't come together if its broader business weren't sound. While the company's consumer division has seen some notable stumbles, its commercial business has continued to thrive, helping to drive total revenues up roughly 18% over the last three years. Altogether, strong fundamentals and steady growth prospects for both its valuation and dividend make Microsoft's stock an attractive option for income investors.
Sean O'Reilly (AT&T): This isn't the first time AT&T has wound up on a top-dividend pick list and it certainly won't be the last. For Foolish investors looking for a top dividend pick for 2015 this is also with good reason -- the company has been around for over 100 years and boasts a current dividend yield of over 5.6%. The company's current dividend yield alone is nothing to sneeze at, but it is all the more impressive given the fact that AT&T, in its current form, has a dividend history dating back to 1987.
Competitively, AT&T is well-positioned to continue to reward shareholders for years into the future as well. It is the largest telecommunications provider in the U.S. Its wireless segment, which accounted for 54% of revenues last year, is second only to Verizon Communications in terms of market share. The company's debt load is large, coming in at over $195 billion supported by $287 billion in assets, but this is less scary when one takes into account the consistent nature of the company's business. AT&T's strong positioning in an increasingly connected world, coupled with its healthy and consistent dividend yield, makes it an ideal pick for Foolish dividend investors this year.
Ashraf Eassa (Broadcom): Chipmaker Broadcom is not the type of company that one might initially associate with a list of "top dividend stocks." After all, as of this writing, Broadcom's dividend sits at $0.56 per share on an annual basis (freshly raised from $0.48 per share), translating into "just" a 1.33% dividend yield. While not terrible for a chip company (many of them don't pay anything at all), one could easily find examples of chip companies that pay much larger yields.
That being said, the company signaled during its December 2014 analyst day that it is fundamentally changing its business model. In the past Broadcom, like many young tech companies, focused mostly on revenue growth and delivering value to shareholders through that fast growth. Today, though, Broadcom acknowledges that it is now a "mature" company and that as revenue growth slows down, it needs to focus more on profits.
The company revamped its operating model from a 50%-52% gross margin business at approximately 20%-22% operating margin, to a business that sees about 545-57% in gross profit margin and operating margin of 23%-28%. This means that the company will turn more of its revenues into profits, which the company can then return through dividends and/or buybacks.
The company has paid a dividend since 2010 and has increased it modestly each year. However, in 2014, Broadcom actually increased the dividend by $0.08 per share annually, which is the biggest year-over-year increase in its history since initiating the dividend. As Broadcom's new profit-focused strategy plays out, I expect it to continue to deliver robust dividend growth to its shareholders.
Anders Bylund owns shares of Walt Disney. Andrés Cardenal owns shares of Apple, International Business Machines, and Walt Disney. Ashraf Eassa owns shares of International Business Machines. Keith Noonan has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. Steve Symington owns shares of Apple. Tamara Rutter owns shares of Apple, Microsoft, and Walt Disney. Tim Brugger has no position in any stocks mentioned. TMFSupremes has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, PepsiCo, Procter & Gamble, and Walt Disney. The Motley Fool owns shares of Apple, International Business Machines, Microsoft, PepsiCo, and Walt Disney. 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.