Many dividend stocks have lost their luster over the past two years as rising interest rates pushed investors toward fixed-income investments. For those cautious investors, it didn’t make sense to buy riskier dividend stocks with 3% to 4% yields when they could simply park their money in risk-free CDs or government bonds to earn interest payments above 5%.
But with interest rates potentially falling in the coming year, those guaranteed returns are likely to shrink, driving investors back toward top dividend stocks. Before that shift happens, investors should consider investing some available cash, say $10,000, in stocks Coca-Cola (NYSE: KO), Real estate income (NYSE:O)And Philip Morris International (NYSE:PM) to earn hundreds of dollars in additional dividend income every year.
1. Coca Cola
Coca-Cola is a classic dividend stock for three simple reasons: it owns a portfolio of evergreen beverage brands, it generates consistent earnings growth in both good times and economic downturns, and it has raised its dividend annually for 62 years in a row.
To combat declining soft drink consumption around the world, Coca-Cola has expanded its portfolio to include more brands of bottled water, fruit juices, tea, sports drinks, energy drinks, coffee and even alcoholic drinks. It also revamped its flagship soft drinks with sugar-free versions, variable portion sizes and new flavors to attract new customers.
In 2023, Coca-Cola’s organic sales and comparable earnings per share (EPS) grew by 12% and 8%, respectively. For 2024, the company expects organic revenue to increase 8% to 9%, while comparable earnings per share to increase 4% to 5%. At $62 per share, Coca-Cola still seems fairly valued at 22 times forward earnings. It also pays a 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 (REITs). It owns 15,450 properties worldwide and its top tenants include resilient retailers 7-Eleven, Dollar generalAnd Walmart. Its occupancy rate has remained above 96% for the past three decades, it pays monthly dividends and has increased its payout 124 times since its initial public offering in 1994. It has also consistently grown its adjusted funds from operations (FFO) even through multiple economic recessions.
As a REIT, Realty Income must distribute at least 90% of its taxable income as dividends to maintain a favorable tax rate. With a forward dividend yield of 5.9%, the company currently generates approximately $590 per year in income from a $10,000 investment. At $53 per share, it looks historically cheap, 13 times last year’s adjusted FFO.
Realty Income, like other REITs, struggled as rising interest rates made it more expensive to take on debt and buy new properties. But as these interest rates fall, investors should return to Reality Income and other well-managed REITs.
3. Philip Morris International
Philip Morris International, one of the largest tobacco companies in the world, was spun off Altria (NYSE:MO) in 2008. After that split, Phillip Morris focused on expanding into higher-growth overseas markets, while Altria streamlined its operations to the US only.
Phillip Morris and Altria are both struggling with declining smoking rates, and they are both offsetting that pressure by cutting costs and raising their prices. Still, Phillip Morris has expanded into non-smoking products faster than Altria over the past decade. Robust sales of IQOS devices, which electrically heat tobacco sticks instead of burning them, have offset weaker sales of traditional cigarettes. It’s also selling more snus, chewing tobacco and nicotine pouches to complement that shift.
Phillip Morris’ revenue and adjusted earnings per share grew 8% and 11%, respectively, in 2023. Analysts expect both revenue and adjusted earnings per share to rise about 5% in 2024. At $102 per share, it trades at just 17 times forward earnings. – so the 5.1% future yield will add $510 to your annual dividend income. The company has also increased its payout every year since splitting with Altria.
Should You Invest $1,000 in Coca-Cola Now?
Before you buy Coca-Cola stock, consider the following:
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Leo Sun has positions at Philip Morris International and Realty Income. The Motley Fool holds positions in 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 Now with $10,000 was originally published by The Motley Fool
