Investing in leading consumer brands can be rewarding dividend investment strategy. History shows that brands that become household names tend to stay that way and grow for years.
Some of the best investments for income may be companies that you regularly buy into, which can give you insight into the company’s competitive position that Wall Streeters may not fully understand.
To give you some ideas, read why three Motley Fool contributors believe Costco wholesale (NASDAQ: COST), Starbucks (NASDAQ:SBUX)And Home deposit (NYSE:HD) could continue to pay dividends for decades.
A foolproof economic model
Jeremy Bowman (Costco basically): It’s hard to imagine a more resilient business model than Costco’s.
The warehouse retailer has a well-deserved reputation for great prices on high-quality bulk products. Its membership model provides a reliable source of revenue regardless of retail performance. In fact, the company makes the majority of its profits through membership contributions.
Costco also consistently boasts one of the highest customer satisfaction ratings in retail, and customers regularly rave about its low prices, wide selection, and high-quality merchandise. In FY2023, the member turnover rate was 92.7% and 90.4% globally.
It continues to add new members and increase its comparable sales.
As a dividend payer, Costco’s yield won’t blow anyone away at 0.6%, but the company has increased its dividend by at least 10% almost every year since it started paying one in 2004. More importantly, it has a history of rewarding investors. with a generous special dividend every few years. It paid a dividend of $15 per share earlier this year, representing a yield of about 2%.
Costco also seems like a good bet to pay you forever, as the company has withstood multiple threats and has only gotten stronger. It started offering e-commerce options to fend off the threat of Amazonand it has worked well during recessions and even during the pandemic, as its reputation for low prices makes it an attractive option during tough times.
Finally, Costco continues to open new stores, unlike most retailers, showing that there is still strong demand for its services and plenty of room to enter.
Over the next generation, Costco looks like a solid bet to continue growing and increase its dividend.
The Best Coffee Brand Delivers Tasty Yield
John Ballard (Starbucks) : Investing in proven consumer brands with a long history of growing dividends can be a solid dividend investment strategy.
What makes Starbucks stock an opportune buy right now is that it’s on sale amid concerns about near-term growth. The stock recently fell after the company issued a weak sales outlook. This does not reflect anything negative about the company. Instead, it reflects near-term headwinds in consumer spending, which also affect other consumer goods companies.
Starbucks reported an unusual 2% drop in revenue last quarter. But the stock selloff means investors can buy this top dividend payer at its highest yield in years.
Starbucks is a proven brand that has faced many economic challenges over the years. It was founded in 1971 and today has more than 38,000 stores worldwide. It’s a great business that generates consistent sales by serving people every day.
The stock currently pays a quarterly dividend of $0.57 per share, bringing the dividend yield to 2.92%. It has also increased the dividend every year for over a decade. The company generates healthy profits to continue funding the dividend even if revenue continues to weaken in the near term. It should bear fruit for many years to come, given its strong brand and its international development opportunities.
Reinvested dividends can lead to high gains
Jennifer Saibil (Home Depot): Home Depot operates 2,300 physical stores in North America and has a strong digital business. It’s not as big as Walmart or Amazon, but its stock posts gains over time that rival those two top stocks. If you had reinvested every dividend over several decades, even from a modest initial investment, you would have a lot more money.
It’s not the best time for Home Depot, but in some ways it’s the best time to see how well it can perform under pressure. Sales and profits are down, but not by much. Revenues declined 2.3% from last year and earnings per share (EPS) increased from $3.82 to $3.63.
Home Depot knows how to leverage its efficient operations, strong logistics networks, powerful brand and omnichannel organization to drive customer engagement and sales. These are the big-ticket items that customers avoid in the inflationary atmosphere. Overall, comparable transactions fell 1.5% in the quarter, while transactions over $1,000 fell 6.5%.
Home Depot stock is down about 3% this year. This makes sense because stocks tend to move with performance. If earnings are falling and the stock is not, the valuation will become high. But sales and revenues should rebound easily in a better economy, which is why this creates a buying opportunity.
If investors buy today, they can acquire shares at a bargain price and enjoy a high dividend and high yield. At current prices, Home Depot stock’s dividend yields 2.6%, almost double the S&P 500 average. Home Depot has paid a dividend since 1987 and has increased it every year since 2010. It has increased by 850 % since then – and that’s just the dividend. If you had invested $1,000 then, you would have over $16,000 today, or $5,000 more than the price gains.
Home Depot is a high dividend stock with a great business model, plenty of cash, and a commitment to creating shareholder value.
Should you invest $1,000 in Costco Wholesale right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Starbucks. John Ballard has no position in any of the stocks mentioned. The Motley Fool posts and recommends Amazon, Costco Wholesale, Home Depot, Starbucks, and Walmart. The Mad Motley has a disclosure policy.
3 Highest Dividend Stocks That Should Pay You Forever was originally published by The Motley Fool
