In a world where bank accounts pay low interest rates, dividend-paying stocks are becoming a more attractive avenue for retiree income. Admittedly, the average cash yield of dividend-paying stocks in the S&P 500 is only 1.3%, and companies can theoretically end payments at any time. Such conditions may not appeal to income investors when advisers like Charles Schwab believe retirees should save enough to withdraw 4% of their account value per year in retirement.
However, some dividend-paying stocks give investors the confidence they are looking for because of a company’s long track record of making regular payments. Three examples that correspond to this bill are AbbVie (NYSE: ABBV), STORE Capital (NYSE: STOR), and Verizon Communications (NYSE: VZ) – and they also pay rising dividends that even exceed Schwab’s recommended 4% yield.
Drugmaker AbbVie is offering its investors an annual payout of $ 5.20 per share. At the current share price, this equates to a dividend yield of around 4.8%. And thanks to its history as part of Abbott Laboratories, the company holds Dividend Aristocrat status (for companies that have increased their dividend annually for at least 25 years).
Nonetheless, its long-time successful drug Humira faces patent expirations around the world. While AbbVie has built a substantial development pipeline, its second-best-selling drug, Imbruvica, generated just $ 2.6 billion in sales in the first six months of 2021, well below revenues of Humira $ 9.9 billion.
Nonetheless, some of Humira’s U.S. patents will remain in place until the 2030s, giving AbbVie more time to develop alternative sources of revenue. And the company generated $ 9.4 billion in free cash flow in the first six months of the year, which positions it to easily cover the $ 4.6 billion in dividend costs for that period.
Investors have noticed that the stock has risen 26% in the past 12 months. In addition, its price / earnings (P / E) ratio fell from 19 to 30 a year ago. AbbVie offers a thriving drug pipeline and billions of free cash flow, factors that should help fund a growing dividend for years to come.
STORE Capital, based in Scottsdale, Ariz., Pays a dividend of $ 1.54 per year, delivering a cash return of about 4.6% – and that payout has increased every year since the company’s IPO in 2014.
STORE’s name stands for “single-tenant operational real estate” – and what it owns are single-tenant buildings that include grocery stores, health clubs and distribution facilities. With these assets, it has maintained an occupancy rate of 99.6% for the past five years and has generally increased rents by 1.9% per year as a hedge against inflation. These factors have helped make STORE a reliable dividend stock.
Investors should note that this is a real estate investment trust (REIT). In exchange for not paying taxes on its operating income, STORE must pay dividends amounting to no less than 90% of its net income. This REIT designation makes it highly unlikely that the company will cancel its dividend, and the real estate portfolio is expected to continue to increase this payout.
In the past six months, STORE has reported $ 261 million in adjusted operating funds (AFFO), a measure of free cash flow for REITs. This money enabled the company to pay out $ 195 million in dividends to shareholders.
STORE had more benefits than just its payment. Its stock has increased by 17% over the past year. Although his P / E of 38 may seem high, his par Duke real estate offers a comparable multiple with a much lower dividend yield. This track record, along with STORE’s ability to keep tenants at increasing rents, should help maintain a generous and growing cash return.
Telecommunications giant Verizon has just increased its dividend for the 15th year in a row. Now, with an annual payout of $ 2.56 per share, investors can earn a 4.9% return on its shares.
Despite operating in a competitive industry, Verizon is nonetheless only one of three 5G providers nationwide. With around $ 18 billion a year in capital spending over the previous two years, this spending makes the industry prohibitive for new entrants, reducing the likelihood of further competition.
In addition, these expenses helped make Verizon the most awarded company for the quality of its network by JD Power 27 times in a row. Additionally, on its last conference call, Verizon discussed the burgeoning Network as a Service (NaaS), a data subscription company that can connect various devices and applications powered by artificial intelligence. Investors should take note as the NaaS looks set to give Verizon an additional revenue stream that was not there before.
Verizon’s focus on quality and innovation enabled it to generate $ 11.7 billion in free cash flow (after capital expenditures) in the first half of 2021. With just $ 5.2 billion covering the costs of dividends, it should not face problems with future payment increases.
Admittedly, the stock’s 12% drop over the past year could deter some investors. Nonetheless, its P / E ratio of 11 makes it an affordable choice for income investors who want increasing cash returns and a new source of income to help fund that long-term payout.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.