Top Three Dividend Stocks Worth Investing in Today

Top Three Dividend Stocks Worth Investing in Today

Major stock indexes hit new highs as growth stocks take center stage again. However, many investors like to have passive income to survive when the inevitable downturn occurs.

Here’s why three Motley Fool contributors believe PepsiCo (NASDAQ:PEP), Williams-Sonoma (NYSE:WSM)And Starbucks (NASDAQ:SBUX) are great dividend stocks to buy now.

A classic dividend stock

John Ballard (PepsiCo): Businesses that sell goods that people buy every day can be solid income-producing investments. PepsiCo is one of the best consumer brands to consider. It has a leading position in the snacks and beverages industry, with a broad portfolio of brands such as Quaker Oats, Doritos and Gatorade. Last year, the company generated a profit of $9 billion, which financed its 52nd year of dividend increases.

PepsiCo is still capable of generating growth to continue increasing its dividend for many years. Management sees huge opportunities in developing markets and fast-growing categories like energy drinks.

The dividend is expected to continue to increase as the company grows. Management’s long-term objective is to generate adjusted earnings growth in the range of 5% on an annualized basis.

PepsiCo’s above-average performance highlights the stock’s current value. The current dividend yield is 3.05%, about double the market average. The combination of earnings growth and yield is expected to generate total shareholder returns comparable to major market indices.

This Resilient Retailer Just Offered Investors a Raise

Jeremy Bowman (Williams-Sonoma): You might be surprised to learn that shares of Williams-Sonoma, the high-end home furnishings retailer, have more than doubled in the past year.

Even in a tough market for housewares, characterized by sluggish real estate sales and high interest rates, Williams-Sonoma continues to generate strong profits and has retained almost all of its revenue gains from the pandemic.

Although comparable sales fell 6.8% year-over-year in the fourth quarter, reflecting industry-wide challenges, Williams-Sonoma delivered impressive margin growth with gross margin in increase of 480 basis points to 46%. As a result, its operating margin increased from 19.2% to 20.1% and its earnings per share increased from $5.28 to $5.44, with net income continuing to benefit from share repurchases.

Better yet, Williams-Sonoma surprised investors with a 26% increase in the quarterly dividend to $1.13 per share and announced a new $1 billion stock repurchase program, a sign of confidence in the company. company and a commitment to return capital to shareholders.

The company’s forecast indicates that the worst of the industry downturn is behind it, as it expects revenue to stabilize this year, calling for stable top-line growth and an operating margin improvement of 16.1%. at 16.5%-16.8%. This, combined with share buybacks, should boost earnings growth this year and, longer term, the company should benefit from the expected fall in interest rates and a recovery in the property market, which will help furniture expenses.

Williams-Sonoma also reaffirmed its guidance for annual revenue growth and operating margin of between 15% and 15%.

With a dividend yield of 1.6%, the retailer may not impress income investors, but it has the right formula for consistent dividend increases and steady profit growth, and it appears well-positioned to reward long-term investors.

The largest coffee chain in the world

Jennifer Saibil (Starbucks): Starbucks is by far the largest coffee chain in the world, with over 38,500 stores. However, its expansion efforts are far from over and management believes it can reach 55,000 stores in the next few years. This could propel him to the greatest restaurant chain in the world.

At this point, Starbucks is running smoothly. It can open hundreds of stores in a quarter and start with a model that works and that customers love, leading to high profits and strong comparable sales (comps) growth. It continued to generate increased sales after a decline due to the pandemic, despite global economic and geopolitical volatility. And when it worried it was becoming stale, it brought in a new CEO to refresh and improve it. It has launched several recent initiatives to revitalize the brand, such as on-demand coffee machines and a broader food menu. The company is focusing on its membership program, which strengthens Starbucks’ relationship with its most loyal customers and leads to higher engagement and sales.

During the first fiscal quarter of 2024 (ended December 31), sales increased 8% year over year, driven by a 5% increase in comps. Operating margin widened to 15.8% and earnings per share increased 20% to $0.90.

As Starbucks has transitioned from a growth stock to a value stock, it is focusing on its dividend to create value for its shareholders. It yields 2.5% at the current price, well above the S&P500 on average 1.5%. On top of that, it has increased its dividend by 340% over the last 10 years, much more than traditional dividend stocks like Coca-Cola And Procter & Gamble.

Starbucks has faced numerous problems lately, including high union sentiment at several of its branches, and its shares have fallen 7% over the past year. But its fortunes could quickly change and it could start beating the market again while paying a reliable and growing dividend.

Should you invest $1,000 in PepsiCo right now?

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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman holds positions at Starbucks. John Ballard has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Starbucks and Williams-Sonoma. The Motley Fool has a disclosure policy.

3 Highest Dividend Stocks to Buy Right Now was originally published by The Motley Fool

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