3 Stocks to Buy Now for Dividends and Growth - InvestingChannel

3 Stocks to Buy Now for Dividends and Growth

Proprietary Data Insights

Top Dividend Aristocrat Stock Searches This Month

Rank Name Searches
#1 Exxon Mobil 138,802
#2 Chevron 99,597
#3 Johnson & Johnson 91,345
#4 Caterpillar 78,995
#5 Abbvie 68,529
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Here at The Juice, we’re spending part of Q1 2023 going back to personal finance and investing basics. So we’re diving into subjects such as retirement, ETF investing, and dividend growth investing. 

Today, we turn to dividends. Particularly dividend growth stocks. 

We classify companies that have increased their dividends for at least 25 consecutive years as dividend aristocrats. Between 10 and 24 years, dividend contenders. And you might have seen the dividend achievers classification, which refers to stocks with dividend-increase streaks of 10 years or more. 

To be an achiever (which contenders are too), the company must trade on the NYSE or Nasdaq with a three-month average trading volume of $1 million or more. An aristocrat must trade on the S&P 500 with a minimum market cap of $3 billion and average trading volume of $5 million or more. 

In 2022’s weak stock market, investors viewed dividend aristocrats as a flight to relative safety. There’s never a surefire safe bet in investing. But the ETF that tracks the dividend aristocrats index the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) generated a negative return of just 6.6%, not bad relative to the beatings the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ) – which track the S&P 500 and the Nasdaq-100, respectively – took. They dropped 16.2% and 28.1%, respectively, last year. 

If you have a long-term time horizon and want to own dividend stocks that are still growing, it makes sense to start with dividend contenders. At the moment, you have just under 350 names to choose from. 

The Juice scoured the list and chose three of our favorites. Companies we think will continue raising their dividends all the way to aristocrat status.

Dividend Growth Investing

3 Stocks to Buy Now for Dividends and Growth

Key Takeaways:

  • Sometimes you want income from a stock, but not at the expense of growth. 
  • One way to achieve this is with dividend contenders. 
  • AAPL, SBUX, and COST make sense if your time horizon is multiple decades.

Sometimes people ask us, “Why doesn’t Tesla (TSLA) pay a dividend?”

Funny thing. You heard investors ask the same about Apple (AAPL) prior to 2012, when it started paying a dividend again. Little-known fact, Apple paid a dividend throughout the late ’80s and early-to-mid-’90s. 

The answer is twofold. 

One, when a company is in hypergrowth mode with a soaring stock (at least most of the time), that stock’s price appreciation is the reward to shareholders. The business reinvests profits into itself to spur further growth and, theoretically, more growth. 

Two, some companies fear a dividend could send the wrong signal. This was the big argument against Apple paying one. That if it became an income stock, maybe it was indirectly saying it was no longer a growth company

The reality is stocks can provide both growth and income. One day, Tesla might start paying a dividend. Just like Apple did. 

Speaking of Apple, it’s a dividend contender we think has one of the best chances of becoming a dividend aristocrat. Apple’s current dividend-increase streak is 11 years. The company holds back way more of its profit than it pays out to cover its growing dividend (a metric called payout ratio, which we’ll cover later this month). Plus, it’s flush with cash. 

After Apple, we think Starbucks (SBUX), which currently has a 12-year dividend-increase streak, will become an aristocrat within the next 20 years. It has only 13 years to go. Beyond its strong financial metrics, what gives us confidence in Starbucks is its resilience. 2022 was tough for the company, yet the stock ended the year up 1.5% amid a broad market rout. 

The love we had for Starbucks in 2022 still stands in 2023. 

See “It’s Not in Your Head, Restaurants Are Closing Earlier,” where we bullet-point our bull case on the company, linking to some longer treatments of the subject. 

Our third recommendation will be a dividend aristocrat faster thanks to its current 18-year streak: Costco (COST)

Costco is still growing. The company plans on opening 11 stores this year. It’s flush with profits and cash and returns only a small fraction of its net income to shareholders to cover its impressive $3.60 annual dividend. So it has plenty of room to continue increasing the payout. 

The Bottom Line: Beyond quantitative metrics that support dividend increases over the long term, these three companies have something else in common: customer loyalty. That’s a big deal in this fickle world of short attention spans. While it doesn’t directly connect to the ability to sustain a dividend, it’s one of those intangibles that tells you a company will (generally) outperform during tough times and remain a leader in its space. 

Apple is the cream of the crop as what amounts to a consumer-products tech company. Starbucks isn’t even full-service, but as a coffee chain, it’s the model for the larger food and beverage industry. And Costco leads the pack as not only a warehouse store, but also a place where relatively affluent households like to spend money.

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