Many dividend stocks have lost their luster over the past two years as rising interest rates have pushed investors toward fixed-income investments. For these conservative investors, it didn’t make sense to buy riskier dividend stocks with a 3-4% yield when they could simply put their money in risk-free CDs or Treasuries to earn interest above 5%.
But with interest rates potentially expected to fall over the next year, these guaranteed returns are likely to decline and cause investors to turn their attention back to blue-chip dividend stocks. Before this change occurs, investors should consider investing a portion of available cash, say $10,000, in stocks for Coca-Cola (NYSE:KO), Real estate income (NYSE:O)And Philip Morris International (NYSE:PM) earn hundreds of dollars in additional dividends each year.
1. Coca-Cola
Coca-Cola is a classic dividend stock for three simple reasons: It has an evergreen portfolio of beverage brands, it generates consistent profit growth in good times and bad times, and it has increased its dividend every year for 62 consecutive years.
To counter the decline in soda consumption across the world, Coca-Cola has expanded its portfolio with more brands of bottled water, juices, teas, sports drinks, energy drinks, coffee and even alcoholic beverages. It also refreshed its flagship sodas with sugar-free versions, variable serving sizes and new flavors to attract new customers.
In 2023, Coca-Cola’s organic revenue and comparable earnings per share (EPS) increased by 12% and 8%, respectively. For 2024, it expects its organic revenue to increase by 8-9% while its comparable EPS increases by 4-5%. At $62 per share, Coca-Cola still appears reasonably valued, at 22 times forward earnings. It also earns a forward dividend yield of 3.1%, meaning a $10,000 investment today would generate about $310 in additional annual income.
2. Real estate income
Realty Income is one of the world’s largest real estate investment trusts (REIT). It owns 15,450 properties worldwide and counts resilient retailers like 7 eleven, Dollar GeneralAnd Walmart. It has maintained its occupancy rate above 96% for the past three decades, it pays monthly dividends and has increased its payout 124 times since its IPO in 1994. It has also consistently increased its holdings. adjusted operating costs (FFO), even through several economic downturns.
As a REIT, Realty Income must pay out at least 90% of its taxable profits as dividends to maintain a favorable tax rate. With a forward dividend yield of 5.9%, it currently generates around $590 in income per year on a $10,000 investment. At $53 a share, it looks historically cheap, or 13 times last year’s adjusted FFO.
Realty Income, like other REITs, struggled as rising rates made it more expensive to take on debt and buy new properties. But as those rates fall, investors should return to Reality Income and other well-managed REITs.
3. Philip Morris International
Philip Morris International, one of the world’s largest tobacco companies, was spun off Altria (NYSE:MO) in 2008. After this split, Phillip Morris focused on expanding into higher-growth overseas markets as Altria streamlined its operations in the United States only.
Phillip Morris and Altria are both struggling with declining smoking rates, and they are both offsetting that pressure by cutting costs and raising prices. Still, Phillip Morris has expanded into non-smoking products more quickly than Altria over the past decade. Its robust sales of IQOS devices, which electrically heat tobacco sticks instead of burning them, have offset weak sales of traditional cigarettes. It is also selling more snus, chewing tobacco and nicotine sachets to complement this change.
Phillip Morris’ revenue and adjusted EPS grew by 8% and 11%, respectively, in 2023. Analysts expect its revenue and adjusted EPS to grow by around 5% in 2024. At $102 per share, it trades at just 17 times forward earnings — so its 5.1% forward yield will add $510 to your annual dividend income. The company has also increased its payouts each year since its split from Altria.
Should you invest $1,000 in Coca-Cola right now?
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Leo Sun holds positions in Philip Morris International and Realty Income. The Motley Fool ranks and recommends Realty Income and Walmart. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy with $10,000 Right Now was originally published by The Motley Fool
