They don’t usually make the front-page financial headlines, but that’s perfectly fine. In fact, for this particular class of stocks, their under-the-radar quietude is part of their appeal. Indeed, dividend stocks aren’t known for flash or fanfare, but for long-term, income-focused investors, I consider them a must-own.
Some folks call them dividend “kings” or “aristocrats,” but implications of nobility aside, these are stocks representing large-cap companies that reward shareholders quarter after quarter and year after year with cash payments. In looking for the best of the best among dividend yielders, I singled out companies that have paid dividends for years and have a long-standing track record of raising them.
Other factors I consider include the dividend payout ratio (calculated as the annual dividends per share divided by the annual earnings per share), along with the company’s annualized free cash flow per share.
In an e-mail to InvestorPlace, Lewis University Finance Department Assistant Professor John Nyhoff explained that free cash flow merits “strong consideration because it reflects a corporation’s ability to sustain dividend payments as well as to increase dividend payments over the future.” He also flagged cash flow and debt-to-equity ratios as numbers for investors to consider.
Those aren’t the only considerations, of course, as I would insist that a strong dividend yielder also be a fundamentally sound, globally recognized industry leader. With the foregoing in mind, let’s dive into three dividend stocks worth considering for your long-haul, safety-first, growth-oriented portfolio
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Dividend yield: 3.01%
Call it a “Dow darling” or a “safety stock,” if you will, but few dividend yielders have the pedigree of construction-machinery giant Caterpillar (NYSE:CAT). A global leader in this sector, Caterpillar consistently remains in the top two — and oftentimes number one — in terms of market share; in the worldwide-construction space, the company’s share is close to 20% and almost twice that of runner-up Kamatsu.
As far as dividends are concerned, Caterpillar remains solid with a 3% forward yield along with an impressive trailing 12-month dividend payout ratio of 35%. Moreover, Professor Nyhoff emphasized the importance of free cash flow, and Caterpillar excels in this category with trailing 12-month free cash flow per share of $7.45. That’s more cash for the company and, we can hope, more cash in your account as Caterpillar continues to mete out consistent dividend payments.
Exxon Mobil (XOM)
Dividend yield: 5.77%
A true champion among dividend yielders, Exxon Mobil (NYSE:XOM) has been paying out dividends since 1911, if you can believe it. This premier energy company has increased its dividend payouts for 37 years in a row.
Exxon Mobil’s current offering of a 5.77% forward dividend yield should be more than enough to whet the appetite of income seekers. Concerning its trailing 12-month free cash flow, XOM indicates $1.93 per share, which is not too bad in a sector that’s struggling at the moment.
This stock tends to follow the oil price, which is currently near the bottom of its year-long range. Investors could play this range by trading oil futures, sure, but there’s no dividend to collect there. Instead, dividend hunters might consider a long-term buy-and-hold position in Exxon Mobil stock, an energy-sector leader that’s not afraid to reward shareholders in both good and bad times.
Dividend yield: 2.27%
Ready to go shopping for a real dividend winner? Retail chain Target (NYSE:TGT) is known for its superstores across the United States, but the company has made strides in bumping up its e-commerce presence, as approximately 7% of Target’s sales are sourced through online channels. In terms of trailing 12-month free cash flow per share, $6.68 is more than respectable and suggests that Target remains a fiscally healthy retail contender.
So, what does TGT stock have to offer dividend hunters? At the moment Target provides a forward dividend yield of 2.27%, which represents an absolutely exceptional trailing 12-month dividend payout ratio of 41%. Talk about a commitment to rewarding the shareholders!
Since Target has been paying out dividends since 1967 and has raised the payouts for 52 years without exception, investors can rest assured that TGT stock will continue to enrich shareholders for a very long time to come.