Like income? It’s tough not to. Even if you’re a growth investor, there’s clear value in cash being reliably deposited into your bank account. And against the backdrop of rampant inflation, even a little extra cash these days is a pretty big deal.
To this end, here’s a rundown of three top dividend stocks you might want to consider scooping up sooner rather than later to help push through this tricky period. You can find bigger yields at this time, but few other stocks offer a better balance between yield and dependability than these three names.
1. Philip Morris
Dividend yield: 4.9%
There might come a time when smoking-cessation campaigns finally make it impossible for tobacco giant Philip Morris International ( PM 0.46% ) to fund its dividend. But that day isn’t today, nor is it coming in the foreseeable future. While an ever-shrinking proportion of the planet’s population is still smoking, numbers from the medical journal The Lancet indicate population growth is facilitating a growing — not shrinking — number of smokers worldwide.
Philip Morris is a truly international outfit, selling tobacco-based products in more than 175 different markets other than the United States (where tobacco use is successfully being curbed).
But what about the day when the rest of the world finally starts to beat back smoking — or, for that matter, smokeless-tobacco consumption?
Image source: Getty Images.
Not that this tidal shift is anywhere on the horizon, but Philip Morris is preparing for this eventuality. Indeed, you could argue that the company is working to put itself out of the smoking business by developing safer alternatives to its own products. Philip Morris is the name behind the IQOS heated tobacco/e-vapor device, for instance, offering consumers all the enjoyable sensations of smoking without actually burning anything.
While they’re still a work in progress, these so-called reduced-risk products accounted for 29% of last year’s revenue, well up from the 2020 proportion of 23.8%. At its current pace of progress, the company could well reach its goal of ending traditional cigarette sales sometime in the early 2030s without ever actually disrupting its revenue and earnings that support a solid dividend.
2. Citigroup
Dividend yield: 4.1%
The past few months have been tough for most banking stocks, but they’ve been especially tough on Citigroup ( C 0.34% ). Shares of the nation’s fourth-biggest bank (as measured by assets) are down by a third from last year’s peak price, and they’re still within reach of yet another 52-week low.
Investors are mostly betting that a combination of rising interest rates and the economic headwind they’ll create will prove problematic for the company. And perhaps they will. Last quarter’s 46% decline in net income certainly speaks volumes about the potential problems the bank could be facing this year.
Largely overlooked, however, is just how transitory this year’s perceived weakness might be. Much of last quarter’s earnings dip is linked to the fallout from Russia’s invasion of Ukraine. And the portion that isn’t reflects a transition out of 2021’s frenzied period of mortgage loan activity paired with sheer complications linked to pandemic-prompted restrictions on loan defaults and foreclosures.
In other words, the current environment is too complicated to use as a barometer for the banking industry’s current and near-term health.
Also being ignored is the fact that even if banks start making fewer loans, higher interest rates mean higher profit margins from borrowers. Given that Citi’s current annual dividend payment of $2.04 per share is still only a fraction of the $6.70 analysts expect the bank to earn this year, the dividend is more than well-protected enough to count on.
3. Kraft Heinz
Dividend yield: 3.8%
Lastly, add The Kraft Heinz Company ( KHC 1.74% ) to your list of dividend stocks to buy now.
You might recognize the company as the combined parent to the world’s most-recognized brands of mac and cheese as well as ketchup. But Kraft Heinz is so much more than that. Oscar Mayer, Jell-O, Velveeta, Kool-Aid, and Ore-Ida potatoes are all part of this company’s brand family, in addition to some brand names that consumers in the United States might not recognize.
This diverse portfolio is important because consumer goods companies want to remain ready to prompt purchases in every aisle of a grocery store. There’s more investment upside to Kraft Heinz’s product mix than its breadth and depth, though. The company also offers consumer-familiar, value-oriented goods that will be sought out in earnest if the economy sours. That is to say, making a sandwich at home using Oscar Mayer deli meats might replace a restaurant-made burger, if budgets tighten due to rampant inflation.
But doesn’t inflation threaten good companies just as much as other industries? Not so fast. While Kraft Heinz lamented the price increases it had to impose last year, consumers didn’t exactly balk. Although last year’s top line didn’t compare favorably to 2020 sales (when consumers were doing most of their eating at home), 2021 revenue was 2.6% better than in 2019. Organic sales improved to the tune of 9.4% vs. 2019 despite the average 3.8% increase of 2020 pricing.
The point is, people are more apt to skip a shopping trip than they are to skip a meal, regardless of that meal’s cost. It’s this sort of resiliency that makes for the reliable revenue that in turn supports Kraft Heinz’s dividend payout.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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