Selecting dividend stocks to buy involves more than just pursuing high yields. Many companies with limited growth prospects resort to distributing excess cash to shareholders to keep the wolves (activist investors and angry stakeholders) at bay rather than face scrutiny for stagnant operational models.
More concerning is when firms borrow funds to artificially boost their dividend yields. This tactic has waned in popularity due to rising interest rates but hasn’t completely disappeared, as other deceptive practices continue to prioritize short-term gains over sustainable growth. That’s why balancing dividend yield with other financial stats, like payout ratio, leverage metrics, and cash flow, creates a more well-rounded approach to finding dividend stocks to buy.
The hallmark of enduring dividend stocks is their ability to balance growth potential with the sustainability of their payouts. These three companies exemplify these attributes, making them outstanding choices for inclusion in a long-term dividend-focused portfolio.
Dividend Stocks to Buy: Genuine Parts (GPC)
Genuine Parts (NYSE:GPC) is a dividend stock in the automotive and industrial sectors. Two-thirds of its sales are from automotive parts, and one-third from industrial components. This balance underscores the company’s stability. Yet, despite this solid market presence, the stock trades at just 0.88 times sales, suggesting that this Dividend Aristocrat is significantly undervalued given its industry standing.
The company’s recent financial report highlighted a modest year-over-year revenue increase of 0.3%, but more is its full-year 2023 growth rate of 4.5%. Furthermore, management projects strong tailwinds ahead as economic conditions improve.
Beyond these quarterly results, Genuine Parts excels in strategic capital management. The company maintains a consistent total yield of around 3%, with a notably low payout ratio of 40%. Unlike many firms that increase debt to fund share buybacks or dividends, Genuine Parts prudently manages its finances, relying on robust cash flow rather than leverage. This conservative financial strategy, increasingly rare in today’s market, underscores Genuine Parts’ commitment to sustainable growth and shareholder value, making it an appealing choice for those seeking reliable investments.
Deere & Co (DE)
Deere & Co (NYSE:DE) ranks highly as a dividend stock to buy, blending cutting-edge growth in robotics and automation with a robust 8.5% total yield. Despite the growing attention to robotics and automation, Deere is often overlooked in favor of startups and niche players. However, as Deere continues to unveil its extensive robotics capabilities, it may soon be recognized as a leading player in the global robotics market.
Deere’s groundbreaking products include fully autonomous tractors and tillage machines, which leverage sophisticated mapping and sensing technologies. These innovations save agricultural producers time and energy during crucial farming operations and highlight Deere’s technological prowess.
While Deere’s autonomous tractors already show practical operational benefits, the potential for additional revenue from licensing its proprietary technologies is significant. For example, companies in the self-driving car industry could license Deere’s terrain analysis technologies, and drone delivery companies might utilize Deere’s mapping tools to optimize urban delivery routes. These opportunities underscore Deere’s potential as a top stock for both innovation and income, making it a prime candidate among growth-oriented dividend stocks to buy.
Altria (MO)
Tobacco giant Altria (NYSE:MO), a stalwart in dividend portfolios, delivered robust earnings last week, reinforcing its appeal to income-focused investors.
Despite the global decline in smoking rates and the company’s mature market position, Altria sales remain strong, and the company is aggressively retiring debt to keep costs low. Better yet, Altria is adapting to changing consumer preferences by expanding its portfolio to include multiple smokeless nicotine products catering to health-conscious consumers.
The company just submitted a new series of smokeless tobacco product applications to the FDA, which, if approved, will further bolster Altria’s position—further boosted by recent Juul ban reversals, which will give the entire smokeless market a healthy boost.
Currently, Altria offers an impressive total yield of 12.55%. While this high yield may raise concerns due to a payout ratio close to 85%, Altria remains a cornerstone in dividend portfolios. Its reputation for consistent dividend growth and a stock price that analysts deem slightly undervalued further solidify its position as a desirable choice for those prioritizing income generation in their investment strategy.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.