Looking to increase your portfolio’s exposure to dividend-paying positions? This is certainly the right time to do that. Not only will the Federal Reserve’s expected rate cuts over the next few years lower dividend yields, they will do so by inflating the prices of dividend stocks themselves. Acting now will ensure above-average returns on new dividend names before they catch the emerging bullish tailwinds.
The question is: which dividend stocks are the best to buy right now? Here are three of your best prospects.
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If you think the global movement to quit smoking is working, you’re right. But it doesn’t work nearly as well as you might expect.
The World Health Organization reports that there are still roughly 1.25 billion regular smokers across the planet, only a small decline from 1.36 billion in 2000. The movement is also losing steam, with the organization predicting that by 2030 there will still be almost 1.2 billion tobacco users.
In other words, despite well-organized, well-funded resistance efforts, smoking remains relatively common. There will be a huge amount of money to be made from this ever-growing $1 trillion global business in the coming years.
Enter British-American tobacco (NYSE: BTI).
Although it’s technically a foreign company (for US residents), and most of its business is done abroad, you’re probably more familiar with it than you think. This is the parent company of cigarette brands such as Kent, Lucky Strike and Pall Mall, and its 2017 acquisition of Reynolds added a handful of popular US brands such as Newport and Camel to its offering. It is even developing alternative products such as heated tobacco and a vaping platform.
This diverse portfolio (including geographically) means that British American’s revenue is fairly consistent. After the modest improvement in organic sales last year, sales in the first half of 2024 are more or less in line with last year’s total sales at this point. Operating income is also stable and ultimately provides the cash needed to finance further dividend payments.
To be clear, there is no real growth here. This is purely a dividend play. With a forward-looking yield of 8.7%, based on a dividend that could last for decades, British American Tobacco offers superior income opportunities with longevity.
The arguments against ownership Bank of America (NYSE: BAC) are now in abundance. Chief among these are a tepid economy and falling interest rates, both of which are working against banks’ bottom lines. Not to mention the growing number of loan delinquencies and defaults; Bank of America’s net charge-offs through the first three quarters of the year are up 75%. BofA stock’s modest forward-looking dividend yield of just 2.5% isn’t exactly exciting either.
However, there’s a reason Bank of America shares have risen since late last year, despite the warnings. That is, these concerns are more proverbial bark than bite.
That doesn’t mean you should simply dismiss these concerns. The economic context is changing and may still deteriorate.
But it is wiser to respond to what is actually happening and what the plausible future holds, rather than assuming that the worst-case scenario is about to become reality. And what analysts suggest is likely to happen in 2025 is that 4.6% revenue growth will boost earnings per share from this year’s expected $3.25 to $3.64.
Simply put, things are not as ugly for the economy as they are made out to be.
Clearly, this stock’s recent bullishness leaves a little less upside potential on the table. However, there is still plenty to gain. Wall Street’s current 12-month consensus price target of $47 per share is still well above Bank of America’s current share price of just over $41. Most of these analysts also view BofA stock as a strong buy right now, despite the recent rally.
Last but not least: add the wireless telecom giant Verizon Communications (NYSE: VZ) add it to your list of dividend stocks to double down on right now.
There isn’t much meaningful growth in store for this company, and by extension, its shareholders. Pew Research reports that 97% of American adults already own a cell phone, mostly smartphones. And although Verizon is still active in landline telephony, that sector continues to shrink.
While the company offers connectivity services at the institutional level (factories, office buildings, etc.) and benefits from individual customers who increasingly need connected devices, much of the growth it is achieving is driven by sheer population growth. Overall, the company and its peers/rivals like it AT&T And T-Mobile are just changing customers.
However, what Verizon lacks in growth strength, it more than makes up for in reliable dividends.
Simply put, consumers are addicted to their mobile devices. Data from Reviews.org shows that more than half of Americans admit to being addicted to their smartphones, and even more say they feel uncomfortable leaving the house without a smartphone. Separately, Harmony Healthcare IT, a healthcare technology company, says the average American spends more than four hours a day looking at their phone screen.
So what? Whether healthy or not, these people are unlikely to stop using their devices anytime soon. They’re going to pay whatever it takes to stay connected. Verizon simply needs to remain price competitive, and it has done so.
The resulting demand has translated into consistent income, which in turn has produced reliable income, which has ultimately produced reliable dividends. Not only has the telecom company paid a quarterly dividend since it became the company consumers know today in 2000, it has increased its annualized payout every year for the past eighteen years. This growth streak will not end anytime soon.
Newcomers will benefit from this dividend payer, while the forward-looking dividend yield stands at a solid 6.5%. It would be difficult to find better from a company of this caliber.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: If you had invested $1,000 when we doubled in 2010, you would have $22,469!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,271!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $411,970!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 4, 2024
Bank of America is an advertising partner of Motley Fool Money. James Brumley has positions at AT&T. The Motley Fool holds positions in and recommends Bank of America. The Motley Fool recommends British American Tobacco Plc, T-Mobile US and Verizon Communications and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
3 Dividend Stocks to Double Now was originally published by The Motley Fool
