Holding a portfolio of quality dividend stocks that deposit cash in your account makes the occasional market dip much easier to tolerate. Three Motley Fool contributors recently selected three solid companies with long records of paying regular dividends to shareholders. Here's why Philip Morris International (PM -0.38%), Williams-Sonoma (WSM -3.16%), and Realty Income (O -0.47%) could set up you for years with passive income.
This classic Dividend King is delivering surprising growth
Jeremy Bowman (Philip Morris International): Philip Morris International might seem like a surprising choice for a dividend stock for life, but the company is more than just an ordinary tobacco stock during a time of declining cigarette consumption.
Philip Morris has the chops to compete with any dividend stock. Including the time when it was combined with Altria, Philip Morris has raised its dividend every year for more than 50 years straight. The international Marlboro seller also currently offers a dividend yield of 5.1%, enough to make it a high-yield stock, but what really makes the stock attractive for long-term dividend investors is the way the company has successfully pivoted to next-gen products like Iqos heat-not-burn tobacco sticks and Zyn nicotine pouches.
In fact, smoke-free products now make up roughly 40% of its revenue and that business is growing quickly. Overall shipment volume was up 3.6%, driven by 21% growth in heated tobacco units and 36% growth in oral smoke-free products.
That performance helped drive organic revenue up 11% to $8.8 billion and adjusted currency-neutral earnings per share (EPS) was up 23% to $1.50. The company also demonstrated confidence in the Iqos brand by buying back the rights to sell it in the U.S. from Altria for $2.7 billion, and it's now building out its presence in that market.
While cigarette consumption is falling, demand for nicotine products still exists and Philip Morris is ahead of its rivals in capturing it. That should deliver ample rewards for dividend investors over the coming years.
Price gains plus dividends
Jennifer Saibil (Williams-Sonoma): Williams-Sonoma is a top value stock struggling through inflation but demonstrating resilience. Sales have been declining, but the company is highly profitable and maintaining a strong operating margin despite inflationary pressure.
It services an upscale clientele, so it's less susceptible to customers pinching pennies. However, some of its home goods brands, which include its own name, Pottery Barn, and West Elm, target a mid-to-affluent population, and these customers are switching down or holding back. Despite the sales downturn, the company's rigorous cost efficiency is keeping cash flowing in. That translates into a solid business and a reliable dividend, even under these conditions.
In the 2024 first quarter (ended April 28), sales dropped 4.9% from last year. But EPS rose from $2.35 last year to $3.48 this year, or $4.07 with a one-time adjustment. Operating margin jumped from 11.4% last year to 16.6% this year, or 19.5% with the adjustment. Operating margin has increased to levels way higher than before the COVID-19 pandemic, and it shows no signs of sliding back.
WSM Operating Margin (Quarterly) data by YCharts
CEO Laura Alber said management is planning to spend 75% of capital expenditures this year on e-commerce capabilities, supply chain efficiencies, and giving back excess cash to shareholders through dividend payments and share repurchases. It has $1.3 billion in cash and no debt, and it's going to buy back $44 million in stock and spend $63 million in dividends.
Williams-Sonoma has a bit of an inconsistent dividend history, some years raising it more than once. But it has paid a dividend since 2006 and raised it at least annually since 2010, and it's grown 850% since then.
Wall Street is giving Williams-Sonoma a big thumbs-up for its handling of a rough time, and the company's stock is up 58% this year. The flip side of that is that the dividend yield is much lower than usual right now at 1.2%. But that illustrates why Williams-Sonoma is a winning stock that provides price appreciation and a steady and growing dividend.
A quality REIT with a high yield
John Ballard (Realty Income): Investing in real estate investment trusts (REITs) when they are on sale is one way to significantly boost your portfolio's average yield. REITs are required to distribute at least 90% of their taxable income to shareholders. Realty Income has a long record of paying monthly dividends, and based on its current monthly dividend payment rate, the stock pays a forward yield of 5.94%.
Rising borrowing rates have been a headwind for the real estate market over the past year. But that's why investors can buy this top REIT at such a great yield. Realty Income has focused on generating stable free cash flows to support returns to shareholders through all market environments over its history.
Even during the pandemic, it maintained high occupancy rates on its heavily diversified portfolio of more than 15,000 commercial properties. These high occupancy rates are the result of partnering with relatively strong and healthy businesses that have stood the test of time. For example, some of its largest retail clients are industry stalwarts Walmart, Dollar General, and Walgreens.
Realty Income has paid a monthly dividend for 55 years. Following the recent merger with Spirit, the company has $825 million of annualized free cash flow to make new investments to grow the business and pay growing dividends to shareholders without the need for external financing through the debt market.
With interest rates up, this is an ideal time to consider buying shares, because once interest rates stabilize or come down, the stock could rise sharply.
