The never-ending quest for yield.
Interest rates are in the gutter and they’re unlikely to shoot higher any time soon. For income investors, everything boils down to one central question: Where can I find a decent yield now? The answer is simple: quality dividend stocks. Finding the best dividend stocks to buy now is a little harder, but thankfully it’s not brain surgery. If you can find good businesses that comfortably pay at least a 2 percent dividend — and have a history of increasing payouts — then bravo! They’re worth a closer look. Each of the following seven dividend stocks pay more than 10-year Treasurys, and give you an equity stake in a solid business to boot.
Texas Instruments Incorporated (ticker: TXN)
If there’s one tool that semiconductor company Texas Instruments has proven it can build, it’s a cash cow machine. Investors like those, and so do income investors. TXN has raised its dividend for 12 consecutive years, and should have no problem turning that streak into a baker’s dozen. The stock’s payout ratio, or percentage of net income used to pay the dividend, is just under 50 percent, meaning it could hypothetically double the dividend tomorrow and still have profits leftover. Aside from the 2.2 percent dividend, shareholders should also be excited about TXN’s longer-term focus on the automotive market, which holds great promise for chipmakers as the connected car evolves.
Qualcomm (QCOM)
Another semiconductor heavyweight, Qualcomm, boasts an even more impressive dividend of 3.5 percent, and has raised its payout for 13 consecutive years. Its payout ratio is a bit higher than Texas Instruments at 56 percent, but that still leaves plenty of room for further dividend hikes, especially if profits ramp up. While analysts don’t expect explosive earnings growth in the near term, QCOM is investing in several high-growth areas that should help it diversify away from its reliance on the smartphone market. Specifically, Qualcomm is investing in drones and the Internet of Things. If Qualcomm can achieve a first-mover advantage in either industry, investors should be handsomely rewarded over time.
Microsoft Corp. (MSFT)
The Microsoft of 2016 is nothing like the Microsoft of 1996. Twenty years ago, MSFT was one of the hottest growth stocks on Wall Street; its Windows operating system was so dominant that the U.S. government brought an antitrust suit against it for abusing its leverage. Today, Windows is still the dominant operating system, but it’s now a subscription-based recurring revenue model, smoothing out Microsoft’s revenue stream. CEO Satya Nadella has firmly embraced the cloud, where Microsoft’s Azure is the second-leading cloud computing platform next to Amazon.com’s (AMZN) Amazon Web Services. With Windows still reliably throwing off cash, Microsoft has boosted its dividend for 12 years and counting.
International Business Machines Corp. (IBM)
Perhaps the archetypal blue-chip stock, computing giant IBM has also morphed into a dividend dynamo over the years. Big Blue has a low payout ratio of just 41.5 percent, and has been raising its dividend for the last 16 years. IBM stock currently yields 3.6 percent, and trades for just 11 times forward earnings. While its sales have been declining in recent years, its “strategic imperatives” like cloud computing and analytics are seeing revenue gains. On top of that, Big Blue’s focus on quantum computing and artificial intelligence could quietly prove to be a game-changer in ways we can’t yet predict.
Abbott Laboratories (ABT)
A well-rounded health care stock, Abbott has been raising its dividend for a remarkable 43 consecutive years. ABT has taken great strains to remain a reliable dividend stock, even spinning off AbbVie (ABBV) in 2013, when one of its products, Humira, began threatening to make the company too one-dimensional. Today, Abbott operates in four business segments: diagnostics, nutrition, pharmaceuticals and medical devices, with no division making up more than 34 percent or less than 18 percent of sales. Long-term shareholders can sleep easy; a 2.5 percent dividend, 47 percent payout ratio and favorable demographic trends all bode well for investors.
Target Corp. (TGT)
Target first began paying a dividend in 1965. Shortly thereafter it began raising its dividend and never looked back. TGT stock has now increased its dividend for 48 years, which is the kind of track record you have to search far and wide to find. The retail behemoth is constantly battling Wal-Mart Stores (WMT) for market share, but while the two of them were fighting for brick-and-mortar dollars, Amazon.com snuck in and quickly seized the fast-growing online marketplace. Thankfully, there’s room for all three of them, and Target is rapidly building its online presence. And with a payout ratio of 48.5 percent, its 3.5 percent dividend is sustainable as ever.
3M (MMM)
3M is one of a handful of companies that has been paying dividends for 100 years or more. The industrial conglomerate hasn’t increased its dividend in all of those years — just the majority of them. For the past 57 years 3M has boosted dividends for its faithful stakeholders. If that, combined with its 2.5 percent yield and 54 percent payout ratio, aren’t enough to convince you of its sturdy reliability, nothing will. Like Abbott, 3M prides itself on being diversified, although 3M takes an arguably more radical path to achieving this, aiming to drive 30 percent of all revenue from products brought to market in the last four years.
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7 Dividend Stocks to Buy That Pay More Each Year originally appeared on usnews.com
