Reliable Dividend Stocks To Buy: While dividends are a great way for investors to generate additional passive income, it’s not always easy to know which businesses are the most likely to achieve this goal.
So, we look at three reliable dividend-paying companies, examining what makes them so enticing – and why you may should keep them on your radar screen.
Few brands in the tobacco manufacturing industry have a more trusted reputation than Altria. The company’s new smoke-less options are helping reduce the harm associated with traditional smoking, making the firm’s most popular offerings even more appealing to customers looking for a healthier replacement.
Moreover, MO’s commitment to reducing its environmental impact has made it a leader in sustainability, and its corporate responsibility strategy is currently being rolled out across its entire value chain.
Interestingly, Altria’s strategy of moving away from typical tobacco products has turned out to be very lucrative for the business. For instance, the company’s reported earnings per share of $0.12 were up more than 100% year-on-year, while its EBITDA margin grew a further 60.1% over the last twelve months as well.
With profitability metrics as good as this, it’s no surprise that Altria should offer a massive 8.47% forward-yielding dividend too. In fact, the company has increased its distribution 57 times in the preceding 53 years, and currently sports a 10-year compound annual growth rate of 8.10%.
Furthermore, at just over $44 per share, Altria is some way off its earlier yearly high of $57. Indeed, with a PE multiple of 9.34, the firm trades at less than half its industry rivals, making it appear cheap at its present valuation.
One thing investors might be concerned about, however, is the amount of money MO is spending on its dividend. Its payout ratio, which stands at 76.3%, could be too high for some shareholders to stomach.
As it is, that would make it hard for Altria to continue funding its dividend. If it wanted to increase its distribution again, it would depend on other sources of capital – such as borrowing or further share dilution – to accomplish such an aim.
That said, there’s no denying that companies selling tobacco products face an uncertain future. The public health concerns surrounding tobacco use are well-documented, and there’s a growing movement to restrict or ban the sale of cigarettes and other tobacco products.
Many countries have already implemented strict regulations on the sale of tobacco products, and others are likely to follow suit. This spells trouble for businesses that rely on tobacco sales for a significant portion of their revenue.
However, Altria is already demonstrating it’s well-placed to meet this challenge, and its prudent moves in expanding its alternative product line may make it the preeminent former tobacco company in a future tobacco-free world.
T. Rowe Price
Global investment firm T. Rowe Price has seen its share price sell-off by more than 30% over the past twelve months, helping to drive up a fairly modest dividend into one that’s now yielding a very respectable 3.60%. This should be especially pleasing to investors, as the company is known for its relative safety and strong distribution growth.
In fact, having increased its annual payout for the last 35 years, TROW has long held a coveted place in the Dividend Aristocrat’s hall of fame. And even though the company faces some serious revenue headwinds – its top line decreased 18.7% during the last reporting period – it’s still been able to grow its dividend an average of 16.2% every year for the previous three years.
As it happens, that difficult macro situation isn’t getting any better. T. Rowe Price’s assets under management were down 6% at $1.23 trillion in the third quarter, while returns for overseas U.S. investors fell due to a decline in global equities markets.
On top of that, bonds veered into negative territory, as the Bloomberg U.S. Aggregate Index saw out the quarter with its worst month since 1980.
Luckily, then, the strength of TROW’s dividend speaks for itself. The company enjoys a manageable payout ratio of 49.6%, and its levered free cash flow margin of 32.9% is well above the Financials sector median of 13.6%.
Furthermore, its trailing twelve-month total debt-to-equity fraction is tiny at just 4.28%, while its high cash per share multiple of 10.6 suggests it has the liquidity to maintain its dividend for quite a while yet.
Outside of its superb dividend, one of the other standout numbers for T. Rowe Price is its 210% return on net tangible assets. Indeed, this figure is important because it makes the company more attractive to lenders, increases its liquidity, and ultimately improves the firm’s options in dealing with its debt position.
And for an investment company often at the mercy of cyclical trends and broader market downturns, anything that bolsters its safety profile can only be a good thing for investors in the long term.
Stanley Black & Decker
From hand tools to power tools, Stanley Black & Decker offers a standard of quality and durability to its customers that its competitors find hard to match. And with the firm’s acquisition of Craftsman in 2017, the company is now the #1 go-to source for hardware implements and devices.
Indeed, in addition to its vast array of product offerings, SWK is also a leading provider of industrial solutions. Its products can be found in factories and warehouses around the globe, ensuring that mission-critical operations can run smoothly and on time.
So whether it’s home improvement or high-end manufacturing, Stanley Black & Decker provides the market with products that people and businesses want to get the job done.
Yet, despite its towering presence in the space, Black & Decker suffered a significant price decline this year. Its stock has fallen almost 55%, while its enterprise value has also dropped a spectacular 43.9%.
However, as with T. Rowe Price, this correction has only made SWK that much more appealing. For example, the firm’s forward price-to-sales ratio now looks cheap at 0.74, and its dividend is again yielding an enticing 3.80%.
In fact, as the company likes to point out, Black & Decker has 146 consecutive years of dividend payments under its belt. Furthermore, those distributions have been increasing for the last 53 years, with no indication that they’re likely to stop anytime soon.
While its gross margin was down 760 basis points for the third quarter, SWK’s 9% revenue spike looks pretty impressive for a relatively mature business. And if the company’s focus on “streamlining and simplifying the organization” is successful, this should lead to improved cash flow generation – and a radical supply chain transformation from here on out.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.