These quality companies can pay you passive income for the rest of your life.
Investing in leading consumer brands can be a rewarding dividend investment strategy. History shows that brands that become household names tend to stay that way and keep growing for years.
Some of the best income investments may be companies where you shop routinely, which can give you insights about the company’s competitive position that Wall Streeters may not fully understand.
To give you some ideas, read why three Motley Fool contributors believe Costco Wholesale (COST 1.68%), Starbucks (SBUX 0.72%), and Home Depot (HD -0.55%) could continue paying dividends for decades.
A rock-solid business model
Jeremy Bowman (Costco Wholesale): It’s hard to think of a more bulletproof business model than Costco’s.
The warehouse retailer has a well-deserved reputation for bargain prices on high-quality bulk goods. Its membership model serves as a reliable income stream regardless of the retail business’s performance. In fact, the company makes a majority of its profits from membership fees.
Costco also regularly has one of the highest customer satisfaction rates in retail, and customers regularly rave about its low prices, wide selection, and high-quality merchandise. In fiscal 2023, it had a member renewal rate of 92.7% and 90.4% globally.
It continues to add new members and grow comparable sales.
As a dividend payer, Costco’s yield won’t blow anyone away at 0.6%, but the company has raised its dividend by at least 10% almost every year since it started paying one in 2004. More importantly, it has a history of rewarding investors with a generous special dividend every few years. It paid a $15 per share dividend at the beginning of this year, which yields about 2%.
Costco also looks like a good bet to pay you forever because the company has withstood multiple threats and has only gotten stronger. It’s begun offering some e-commerce options to push back on the threat from Amazon, and it’s done well during recessions and even the pandemic as its reputation for low prices makes it an appealing option during tough times.
Finally, Costco continues to open new stores, unlike most retailers, showing that there is still ample demand for its services and a lot of space for it to penetrate.
Over the next generation, Costco looks like a rock-solid bet to keep growing and raise its dividend.
The top coffee brand offers a tasty yield
John Ballard (Starbucks): Investing in time-tested consumer brands with a long history of growing dividends can make for a solid dividend investing strategy.
What makes Starbucks stock a timely buy right now is that it’s on sale over concerns about near-term growth. The stock fell recently after the company issued a weak outlook for sales. It doesn’t reflect anything negative about the business. Instead, it reflects near-term headwinds in consumer spending, which are affecting other consumer goods companies, too.
Starbucks reported an uncharacteristic 2% year-over-year decline in revenue last quarter. But the sell-off in the stock means investors can buy this top dividend payer at its highest yield in years.
Starbucks is a time-tested brand that has seen many economic challenges over the years. It was founded in 1971 and today has over 38,000 stores worldwide. It’s a great business that generates steady sales from serving people every day.
The stock currently pays a quarterly dividend of $0.57 per share, bringing the dividend yield to 2.92%. It has also increased the dividend every year for over a decade. The business generates healthy profits to continue funding the dividend even if revenue continues to weaken in the near term. It should pay dividends for many more years, given its strong brand and opportunities to expand internationally.
Reinvested dividends can lead to high gains
Jennifer Saibil (Home Depot): Home Depot operates 2,300 physical stores in North America and has a robust digital business. It’s not nearly as big as Walmart or Amazon, but its stock boasts gains over time that rival these two top stocks. If you’d reinvested every dividend over decades, even from a modest initial investment, you’d have a lot more money.
This isn’t Home Depot’s finest moment, but in some ways, it’s the best time to see how well it can perform under pressure. Sales and profits are down, but not that much. Revenue decreased 2.3% from last year, and earnings per share (EPS) fell from $3.82 to $3.63.
Home Depot is skilled in leveraging its efficient operations, strong logistics networks, powerful brand, and omnichannel organization to generate customer engagement and sales. It’s the big-ticket items that customers are staying away from in the inflationary atmosphere. Overall comparable transactions fell 1.5% in the quarter, while transactions over $1,000 fell 6.5%.
Home Depot stock is down about 3% this year. That makes sense, because stocks tend to move in line with performance. If earnings are down and the stock isn’t, the valuation would become high. But sales and income should bounce back easily in a better economy, which is why this creates a buying opportunity.
If investors buy in today, they can pick up shares at a great price, and they can also benefit from a top dividend and a strong yield. At the current price, Home Depot stock’s dividend yields 2.6%, or almost double the S&P 500 average. Home Depot has paid a dividend since 1987, and it has raised it annually since 2010. It’s increased 850% since then — and that’s just the dividend. If you’d invested $1,000 at that time, you’d have more than $16,000 today, or $5,000 more than the price gains.
Home Depot is a top dividend stock with an excellent business model, lots of cash, and a commitment to creating shareholder value.
