We may be stuck in an economic environment marred by oddly low overall interest rates. That has investors searching elsewhere for ways to get a decent return on their investment capital. One option available is dividend-yielding stocks. But finding a decent yield on a dividend-paying stock when the market is generating such high valuations isn’t easy.
Curiously though, not every dividend-paying stock currently sports a rock-bottom yield. A handful of high-quality names are still dishing out above-average dividends and should continue to do so into the indefinite future.
Here’s a closer look at my three favorite such picks right now.
Dividend yield: 3.1%
You know the brand, perhaps as well as any other company in the world. Coca-Cola (NYSE:KO) has been around since 1886 and its products are woven into the very fabric of our culture. Its stock has not only paid a reliable quarterly dividend for decades now, but it has increased its annualized payments every year since 1962. That’s the upside of selling products that consumers are willing to buy over and over again (often without a second thought).
Those who keep close tabs on Coca-Cola may well know the company’s top line has been contracting of late (and that was before pandemic-related shutdowns got in the way). Indeed, sales have been slumping since 2013, giving would-be buyers pause. That shrinking top line, however, isn’t nearly as much the result of health-minded concerns — the avoidance of sugary sodas — as you might think. It’s largely by design.
See, the company has made a point of getting out of the bottling business and it’s focusing more on the licensing and franchising business. Namely, it’s spent the past few years selling its bottling operations to third-party bottlers who in turn pay the beverage giant royalties for the right to use the brand name. This arrangement translates into lower sales, but brand licensing is a (much) higher-margin business. The new approach to doing business means Coca-Cola is generating more profits than it ever has. That’s what income-seeking investors ultimately want to see.
Dividend yield: 3.3%
If you’re looking for a thrilling stock pick, don’t even bother looking at 3M (NYSE:MMM). The company isn’t developing any cutting-edge technology, researching a cure for cancer, or embracing digital alternatives to government-issued currency. It’s boring.
But, that’s kind of the point.
There’s a suite of 3M products you probably know. This is the parent to Post-it notes, Scotch Tape, and Filtrete HVAC filters. That’s only a small sampling of what the company sells though. This company also makes products used in the manufacturing of consumer electronics, power line equipment employed by electric utility providers, reflective materials used to make road signs, and food-safety testing materials, just to name a few.
It’s not a stretch to suggest that 3M, in one way or another, is all around you every day. It’s a consumer staples stock within the industrial world at least as much as it is in the consumer goods arena. While 3M ran into some fiscal turbulence in 2018, those suppressed profits were ultimately linked to a business transformation meant to drive new growth as well as reduce long-term costs.
It seems to have worked too, in spades. The $5.91 worth of per-share dividends paid over the course of the past four quarters are only a fraction of the record-breaking per-share profits of $10.17 earned during this time. This company’s got plenty of room to keep funding (and raising) its payout.
3. Leggett & Platt
Dividend yield: 3.7%
Finally, I’m adding Leggett & Platt (NYSE:LEG) to my list of top dividend stocks to step into before September ends and October begins.
Leggett & Platt, of course, makes bedding, furniture, and flooring. They’re usually healthy industries, but hardly riveting. Ergo, it’s one of those names that’s easily — and often — overlooked.
Don’t let the ho-hum nature of its business deter you from noticing the fact, however, that this company’s top and bottom lines are resilient. For instance, while Leggett did suffer a slowdown in the aftermath of 2007-09’s subprime mortgage meltdown, it was only a slight one. That year’s revenue of just under $4.1 billion was still within sight of 2006’s peak sales of a little less than $4.3 billion, and by 2010 things were humming again. The company was even on pace to report record-breaking sales of around $4.8 billion in 2020 before COVID-19 disrupted things. Even so, Leggett & Platt managed to do nearly $4.3 billion worth of business last year, remaining within sight of 2019’s then-record revenue of more than $4.7 billion. Guidance for this year puts a new sales record within reach. And, thanks to a generous stock-buyback program, this year’s projected profit of between $2.30 and $2.60 per share puts the prospect of record-breaking earnings on the table as well.
Then there’s the even-more-overlooked detail about Leggett & Platt that investors don’t seem to fully appreciate. That is, not only is this furniture and flooring company a Dividend Aristocrat, it’s now a Dividend King, boasting 50 consecutive years of annual dividend growth. It’s also one of the highest-yielding names right now among the Dividend Aristocrats, dishing out nearly 3.3% of the stock’s present price.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.