Who doesn't love dividend stocks? You buy shares of a company -- hopefully one you believe in and use yourself on a regular basis -- and you hold them for years. Whether or not the stock price goes up or down, you get to collect dividends all along, and either use them to live off of or reinvest them back into your portfolio.
With spring right around the corner, we asked three of our analysts what dividend stocks they think are great deals in March. Read below to find out why Microsoft (NASDAQ:MSFT), Nestle (NASDAQOTH:NSRGY), and Veolia Environment (NASDAQOTH:VEOEY) are all solid bets for long-term, buy-to-hold investors.
Dan Caplinger (Nestle)
Many U.S. investors never think to go outside the nation's borders, but plenty of international companies pay hefty dividends. One is Nestle, the Swiss food giant known best in the U.S. for its chocolate. It currently has a yield of about 2.5%, based on the dividends it has paid out over the past year, yet a recent event involving currency exchange rates has led some to think of the stock as riskier than it actually is.
Earlier this year, the Swiss National Bank allowed the nation's currency to appreciate against the euro, reversing a long period of a self-imposed ceiling on the Swiss franc's value. That move sent Swiss stocks into a sharp decline, as those companies that export products from Switzerland suddenly faced an increase in their costs compared to foreign competition.
However, Nestle is relatively insulated from those pressures, because it has production facilities that are outside of Switzerland. The costs for these plants tend to be tied to local currencies, giving Nestle a hedge against a strong Swiss franc. Moreover, for U.S. investors, strength in the franc means that Nestle shares are worth more in U.S. dollars, and that makes the company an especially sweet investment right now.
Brian Stoffel (Veolia)
Like Dan, I think investors can benefit from looking abroad for great dividend payers. While most Americans might know Veolia from its waste collection business in the United States -- which, by the way, is being sold off -- many may not realize that it is in water infrastructure that the company's future lies. As our global population grows and access to clean, potable fresh water becomes evermore important, Veolia stands to benefit.
Currently, the stock has a dividend yield of 5.1%, based on dividends paid over the last 12 months. Unlike most American companies, European entities like Veolia tend to pay out two dividends per year, and these dividends can go up or down depending upon results from the previous year's operations.
The big-picture takeaway is that Veolia suffered greatly during and after the Great Recession. Former CEO Henri Proglio took on far too much debt in trying to expand Veolia's reach. But under current CEO Antoine Frerot, the company has been shedding off ancillary businesses and focusing on water, environmental, and energy services. Because of this, net financial debt has fallen 45% since the end of 2011.
Of greater importance, Veolia recently announced that its net free cash flow nearly tripled in 2014, and that it would -- at a bare minimum -- be maintaining the same dividend yield over the next two years. At current exchange rates, that equates to a 4.2% yield. Given the unmatched infrastructure Veolia has in water management, I think that's a great payout to collect while the company continues to right its ship.
Selena Maranjian (Microsoft)
Yup, Microsoft. It's not the first company you think of when you think about dividends, but it was recently yielding 2.8%. The company has boosted its payout by an annual average rate of 19% over the past five years, yet its payout ratio is only about 50%, reflecting plenty of room for further grow. Maintaining and increasing its dividend over time doesn't look like it will be too difficult.
Of course, it all does depend on how well the company executes. Microsoft was late to the mobile party and stumbled with its Windows 8 OS, with its reputation taking a hit, but don't count it out. It has a lot of irons in the fire: the forthcoming Windows 10 operating system (OS) -- which will be unified across platforms -- the Surface Pro 4, cloud-based services, and even a Halo-game-based TV series.
The company's profit margins have been shrinking in recent years, in part due to its new-product development, but its net margins remain above 20%, which is rather impressive. Over the past decade, revenue has grown by an annual average of about 9%, while earnings per share have averaged 13%.
That's pretty good for a behemoth with annual revenue above $90 billion and a market capitalization near $360 billion. Its cash pile of more than $85 billion gives it lots of potential, too. That money can be used to grow its business via acquisitions, or to reward shareholders via stock repurchases and more dividends.