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These dividend stocks are every investor’s best friend

Dividend stocks tend to struggle in high interest rate environments. The main reason is that investors have an abundance of low-risk, high-reward income options when interest rates rise.

Conversely, fund managers have historically turned to prime dividend stocks when interest rates fall. The logic behind this trend is that in a low interest rate environment, dividend stocks should deliver superior returns to risk-free assets such as U.S. Treasury bonds.

Which Dividend Stocks Should Investors Buy Before the Federal Reserve Starts Cutting Rates? Although there are countless possibilities, Abbott Laboratories (NYSE: ABT) And Medtronic (NYSE:MDT) have proven for decades to be investors’ best friend when it comes to reliable dividend checks that are growing in size every year. Here’s an overview of the most crucial aspects of each company’s value proposition, dividend mechanism and risk factors.

A sticky block that reads dividends.

Image source: Getty Images.

Abbott Laboratories: a proven value creator

Abbott Laboratories is a healthcare company with significant assets in high-growth markets such as metabolic diseases and cardiac devices. The shares trade at 22.3x forward earnings, which is in line with benchmark indices such as the S&P500.

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The company faces stiff competition in key segments such as diabetes care, but its tremendous scale and innovation-oriented pipeline give it a significant economic advantage.

Abbott is seen as a top dividend play for three main reasons:

  • Dividend yield and sustainability: Abbott shares pay an annualized yield of 2.12%, which is significantly higher than the 1.35% average among S&P 500-listed stocks. It also has a trailing twelve month payout ratio of 64.8%, indicating that its cash distributions are well covered by profits.

  • Consecutive dividends: Abbott has paid 399 consecutive quarterly dividends since 1924, making it a reliable choice for income-seeking investors. Additionally, the company has increased its dividend payout for 51 years in a row, demonstrating management’s commitment to paying a top dividend.

  • Exciting dividend growth: Over the past five years, Abbott has increased the size of its dividend checks by about 11.4% per year. Within the large-cap peer group of companies with no less than 15 years of consecutive increases, the average annual dividend increase is only 6%.

All told, Abbott has a proven track record as an elite dividend stock that investors can count on in all economic cycles. This feature makes this blue chip medtech stock a valuable addition to almost any type of portfolio.

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Medtronic: A dividend check you can count on

Medtronic, a global medical device company, has consistently rewarded its shareholders with dividends. On this point, the company has increased its dividend for the past 46 consecutive years. This remarkable achievement underlines the company’s commitment to creating value for shareholders.

Medtronic shares pay a significant annualized return of 3.27%. However, the medical device titan’s payout ratio stands at 87.2%, meaning future payout increases could be limited by earnings growth.

In fact, Medtronic’s five-year dividend growth rate of about 5% is below the average for peers (see above). The good news is that the medtech company’s shares are trading bargain prices at 15.4x forward earnings, and revenue growth will accelerate in the coming years, thanks to its strong pipeline of cardiac devices.

Bargain hunters may want to stock up on this great dividend stock before interest rates start falling. Thanks to its stellar track record, this medical device titan is likely to attract significant interest from fund managers once the Fed starts cutting rates.

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Should You Invest $1,000 in Abbott Laboratories Now?

Before purchasing shares in Abbott Laboratories, consider the following:

The Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Abbott Laboratories wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $559,743!*

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.

These Dividend Stocks Are an Investor’s Best Friend was originally published by The Motley Fool

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