Sometimes the greatest gift from investing can be the dividends you receive, and hopefully reinvest, each quarter. Not only is receiving payment for having skin in the game a nice bonus, but dividends also help reduce portfolio risk and mitigate stock price declines.
If you’re shopping for dividend stocks during the holiday season, here are three no-brainer options: Costco (COST -2.47%), Ford Motor Company (F -1.83%), and Procter & Gamble (PG -1.55%).
A special gift
Costco is a unique dividend stock, and if you were simply screening for dividend yields above a certain threshold, this stock probably wouldn’t show up. However, savvy investors won’t overlook the fact that Costco has a solid history of special dividends that aren’t wrapped into the dividend yield figure.
In fact, Costco has done five special dividends over its history in 2012, 2015, 2017, and 2020 for $7, $5, $7, and $10, respectively. But recently the company announced an even larger special dividend, thanks to its cash-rich coffers and an upbeat quarterly earnings report. Costco announced this special dividend would deliver $15 per share on Jan. 12, 2024 to shareholders of record as of the close of business on Dec. 28, 2023.
Costco has a solid balance sheet with only $7 billion of debt and roughly $18 billion of cash, cash equivalents, and short-term investments, as of the fiscal first quarter. The company’s strong business in the first quarter was led by growing demand for its groceries and essentials, right alongside growth in membership fees.
Costco also offers double-digit earnings growth — up 17% year over year in the first quarter — and it’s not so much “if” than “when” Costco will deliver another large special dividend to its shareholders.
A Detroit icon
While Ford and Costco don’t share many similarities in business, they do share numerous special dividends. Ford’s most recent example was early in 2023 when the company was paying $0.15 quarterly for its regular dividend and declared a supplemental dividend of $0.65 per share, a solid boost.
The reason for the supplemental dividend was its early investment in Rivian, as the two had planned to develop a vehicle together before going their separate ways. Ford eventually sold off its stake in Rivian at a handsome profit and dished much of the cash back to shareholders.
Unlike Costco, however, Ford is trading at a cheap price-to-earnings ratio of less than 8 times, making its dividend yield a robust 5%. What’s interesting about Ford when it comes to income investors and the company’s dividend, is that the Ford family owns a massive chunk of Class B stock. Only Ford family members can hold these shares, and the dividend pays them over $40 million in annual income.
It’s not a stretch to say the Ford family appreciates the automaker paying more attention to dividends, and that’s great news if you’re along for the ride.
A consumer brand juggernaut
The consumer goods company that sells brands such as Charmin, Dawn, Downy, Gillette, Head & Shoulders, Pampers, and Tide, among others, is on a short list when it comes to dividends. The company has increased its annual dividend for 67 consecutive years and offers income investors a healthy 2.6% dividend yield.
What makes P&G attractive for income investors, beyond its healthy dividend, is that the company is both resilient to economic downturns and has a proven history of developing incredible brands. Further, the company can flex its brand power through price increases even during a time of inflation.
P&G’s pricing contributed 7 percentage points to organic sales growth during the first quarter, while product mix only contributed 1 point and organic volume declined 1 point. That pricing power has helped boost its margins: Gross and operating margins were up 460 basis points and 240 basis points, respectively, during the first quarter.
P&G offers investors a healthy dividend, pricing and brand power, a safe haven during economic downturns, and its diluted net earnings per share jumped 17% during the first quarter. When choosing dividend stocks, P&G should make the short list.
No-brainer picks
These stocks look like no-brainers due to their luxurious special dividends, impeccable and powerful brand names, cheap trading valuations, and the fact that even during downturns they perform. Each has its own reason for being a no-brainer heading into 2024, and savvy investors would be wise to at least put them on a watch list.
