If you have some money saved up this year, it would be a good idea to put it to use in the stock market. Instead of focusing on growth stocks, you can turn your attention to dividend stocks, as they can provide you with a check every quarter. Dividends act as a great source of passive income that can supplement your earned income. There is nothing more satisfying than sitting back, relaxing, and watching your dividends flow into your bank account.
However, you need to select the right types of dividend stocks to include in your investment portfolio. These companies should have a strong brand franchise and a solid competitive advantage, a track record of generating large amounts of free cash flow, and possess characteristics that allow them to continue to thrive in the future.
Armed with such qualities, these stocks should allow you to sleep soundly at night as their dividends grow over time to pad your bank account and beat inflation. Here are three compelling dividend stocks to consider buying if you have $5,000 to spare.
Mondelez International
Mondelez International (NASDAQ: MDLZ) is a snack food company that generated revenues of $36 billion in 2023 and has a presence in over 150 countries worldwide. The company owns well-known brands such as Oreo, Ritz, Milka and Cadbury and holds the number 1 position in the biscuit and chocolate market in several countries.
Mondelez has seen consistent growth in both revenue and net profit from 2021 to 2023. Net revenue increased from $28.7 billion to $36 billion, while net profit increased from $4.3 billion to $4.96 billion over the same period.
Importantly, Mondelez generated an average positive free cash flow of $3.3 billion over the three years. This consistent generation of free cash flow has allowed the snack food giant to increase its dividend without fail for more than 20 years. The last quarterly dividend stood at $0.47 per share, up 10.6% year-over-year from $0.425 a year ago.
Mondelez continued to impress in the first half of 2024. While revenue was flat year over year at $17.6 billion, operating income rose 22.2% to $3.6 billion as operating margin improved to 20.3% from 16.6%. Net income, after adjusting for one-time gains and losses, rose 37.4% to $2.7 billion. The company continued to generate healthy positive free cash flow of $1.5 billion for the first half of this year.
There could be more to come in the form of dividend growth. Mondelez’s fifth State of Snacking Report in March 2024 showed that global consumers still prioritized snacking. Two-thirds of consumers have made no significant changes to their snack spending, despite becoming more price-conscious. Encouragingly, 6 in 10 consumers use social media to search for novelty and are willing to try new snacks. These findings bode well for Mondelez as the company works to innovate with new snacks and slowly raise prices to offset the effects of inflation.
Management plans to continue its strategic growth initiatives, including reinvesting in brands like Oreo, expanding its distribution outlets in the U.S. and boosting M&A activity in Europe. Mondelez’s strategic partnership with Lotus Biscoff could help drive chocolate growth in Europe while also expanding its Indian biscuit business. These initiatives bode well for the company’s future, and investors can expect further dividend increases if this momentum continues.
Visa
Visa (NYSE: V) is a payments giant and industry leader, with 4.5 billion debit and credit cards outstanding as of March 31.
The company has steadily grown both its revenue and net income over the years, while generating truckloads of free cash flow. Revenue went from $24.1 billion in fiscal 2021 (ended Sept. 30) to $32.7 billion in fiscal 2023. Net income rose from $12.3 billion to $17.3 billion over the same period. Visa’s free cash flow generation has also improved over these three years, from $14.5 billion to $19.7 billion.
This track record of growing profits and free cash flow has allowed the payments giant to increase its dividend every year since it went public in 2008. Back then, the quarterly dividend was just $0.0263 per share, but it has now grown to $0.52 per share, an increase of almost 20x. On a compound annual growth rate, Visa’s dividend has grown by about 20.5% per year over 16 years, a truly impressive feat.
Visa’s strong performance continued into the first nine months of fiscal 2024, with revenue increasing 9.4% year-over-year to $26.3 billion. Both operating and net income posted healthy increases of 11.6% and 14.6%, respectively, to $17.2 billion and $14.4 billion. The company continued to generate positive free cash flow of $12.3 billion, consolidating itself as a solid dividend payer that can continue to increase its payouts.
The good news is that Visa continues to explore different ways to grow its business through partnerships and the launch of new services. In June, Visa entered into a partnership with Amazon to expand payment options for Amazon customers and offer them installment plans, which allow them to convert their purchases into smaller, fixed payments over a selected period of time.
A month later, Visa partnered with HSBC bank to develop the Zing International Money App, which allows members to store money in 10 different currencies and send money to over 30 countries while transacting in more than 200 countries worldwide. On the small business side, Visa relaunched its SavingsEdge service in the U.S. and Canada to support smarter spending and savings for small business owners and card issuers.
These initiatives should go a long way in maintaining customer satisfaction and should generate more revenue streams for the payment provider, allowing it to continue growing its presence and market share for many years to come.
Starbucks
With over 38,000 stores worldwide, Starbucks (NASDAQ: SBUX) coffee chain is well known. It has also shown a pattern of consistent free cash flow generation, although net income growth has stagnated in recent years.
Total revenue rose from $29.1 billion in fiscal 2021 (ended Sept. 30) to $36 billion in 2023. However, net income remained flat at about $4.1 billion over the same period. Starbucks still managed to generate an average positive free cash flow of $3.6 billion from fiscal 2021 to 2023, despite significant spending on store openings.
Because of the company’s reliable generation of free cash flow, it has been able to increase its quarterly dividend for 13 consecutive years, averaging 20% per year. Starbucks started its quarterly dividend at $0.05 in fiscal 2010 and has since grown it to $0.57 in the most recent fiscal quarter.
The coffee chain reported a resilient streak of profits for the first nine months of fiscal 2024. Total revenue rose 1.9% year over year to $27.1 billion, but operating income fell 1.5% year over year to $4.1 billion. Net income fell 1.8% year over year to $2.9 billion. Starbucks still reported a modest 6.2% year over year increase in free cash flow to $2.6 billion, giving investors confidence it can steadily increase its dividend.
In a surprise shakeup, the board of directors named Brian Niccol as the new chairman and CEO of Starbucks. Niccol, who was previously CEO of Chipotle Mexican Grillwill replace current CEO Laxman Narasimhan. During his tenure from 2018 to 2024, the Mexican restaurant chain saw its revenue nearly double, while net profit increased almost 7x. Niccol wrote an open letter to Starbucks stakeholders and customers, arguing that the company needs to get back to basics and focus on what sets it apart from other coffee chains.
His first plan is to ensure that baristas are empowered to care for customers and process orders on time and correctly. Stores are also being refreshed to make them friendly places where customers can linger and enjoy the experience. His appointment is a promising development for Starbucks and should positively transform the coffee chain in the coming months. The steady growth in earnings and dividends should continue as the benefits of the transformation start to flow through.
Should You Invest $1,000 in Starbucks Now?
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Royston Yang has positions in Starbucks and Visa. The Motley Fool has positions in and recommends Starbucks and Visa. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy Right Now with $5,000 was originally published by The Motley Fool
