Two Top Dividend Stocks to Consider for Your Portfolio
Investing can be unpredictable, with the market naturally going through ups and downs. Long-term investors understand that these fluctuations are par for the course. Rather than being scared of market volatility, it's better to see it as a potential for higher returns in the long run.
While you can't control external factors like interest rates, global events, or daily stock fluctuations, you can decide how you allocate your assets, stay disciplined with your long-term plan, and manage your emotional responses to market changes. If you're in search of dividend stocks to diversify your portfolio and increase your profits, here are two you might want to think about.
1. A Reliable Real Estate Investment Trust
This Real Estate Investment Trust (REIT) has shown its reliability by consistently paying its dividends every month, with 666 consecutive payments to date. Notably, since making its debut on the NYSE in 1994, it has increased its dividend 133 times and made 113 quarterly increases in a row. The stock's yield is just below 6% based on the current share price, providing investors with a total return of roughly 80% over the last decade.
The company's business model revolves around purchasing single-tenant commercial properties and leasing them out on a long-term basis using triple-net (NNN) leases. This system means that tenants cover taxes, insurance, and maintenance costs, reducing the company's expenses and supporting its profitability and regular, monthly dividends. The REIT is mainly focused on indispensable businesses that are not affected by economic conditions.
As one of the biggest net lease REITs, it has a solid, investment-grade-rated balance sheet, giving it an advantage in accessing capital markets at a low cost. This puts the company in a position to pursue large acquisition deals that are often out of reach for smaller competitors.
Furthermore, the company is making significant strides in expanding into European real estate markets, which lately accounted for a major portion of its investment volume, offering higher initial cash yields compared to properties in the U.S. It is currently active in eight European countries, including the UK, Spain, Ireland, and Poland.
In the third quarter of a recent year, Europe represented about 72% ($1 billion) of the company's total investment volume, compared to $380 million invested domestically. European properties offer an initial weighted average cash yield of approximately 8% to the company's portfolio, a significant premium to the roughly 7% yield on new U.S. property acquisitions.
In the same quarter, their revenue reached $1.47 billion, a 10.5% increase year over year, and it delivered stable portfolio performance with 98.7% occupancy. Adjusted funds from operations per share ($1.08) met analyst forecasts, and this metric was up single digits from the prior year. This top dividend stock seems to be a smart buy at the moment.
2. A Renowned Beverage and Snack Manufacturer
This beverage and snack manufacturer has consistently increased its dividend for 53 consecutive years, making it part of the elite group of stocks known as Dividend Kings. The stock's total return -- including dividends -- amounts to more than 100% over the trailing decade, despite its somewhat dismal performance over the last few years. The stock yields about 3.8% based on share prices at the time of this piece.
They manufacture, market, and sell a vast portfolio of drinks and snacks, including universally recognized names. The company has had a rough few years due to a combination of factors. Persistent inflation has led consumers, especially those in low- and middle-income households, to reduce spending and choose cheaper alternatives over the company's branded snacks and beverages. This has resulted in declining sales volumes across key segments.
Moreover, there's a growing trend among consumers towards healthier products with less artificial ingredients. This has impacted sales of traditional snack and soda brands, which are perceived as less healthy. The company initially maintained revenue growth by aggressively raising prices. However, this strategy seems to have reached its limit.
The beverage business has lost market share, even as the company has faced high operating costs, which have squeezed margins. High debt levels and free cash flow issues have also put a strain on its financial flexibility. However, a major activist investor known for investing in underperforming companies, has taken a significant stake in the company and pushed for an overhaul of its operations. As part of these changes, the company agreed to cut about 20% of its SKUs and reformulate some snacks to be healthier. To counter consumer shifts, they will also lower prices on core food items.
The activist investor also pushed for the company to refranchise its bottling network. While the CEO has stated that a full refranchising of the North American beverage operations wasn't on the table, the company is testing an integrated model that combines the supply chains and distribution operations of its snacks and beverages businesses. This could improve margin efficiency and reduce costs. If successful, it could be expanded to other manufacturing sites.
Despite lower earnings, the company is still growing revenue and remains profitable. The company's total net revenue rose 2.6% year over year to just under $24 billion, and it reported net income of $2.6 billion. The company has also generated more than $7 billion in free cash flow over the trailing 12 months.
A significant leadership change, including a new CFO and a new CEO for North America, should be key to the plan to accelerate growth and integrate food and beverage operations. Strategic acquisitions, such as the purchase of a popular health-conscious soda brand, also indicate the company's push into healthier, high-growth categories.
The company has provided a preliminary outlook where it expects organic revenue growth of 2% to 4% and core constant currency EPS growth of 4% to 6%. Investors willing to stay with the company through this volatile period who have confidence in its turnaround story could benefit from a robust dividend in the meantime and a position in a respected consumer business.