The Smartest Dividend Stocks to Buy With $5,000 Right Now
If you have saved up a bit of cash this year, it’s a good idea to put it to work in the stock market. Rather than focusing on growth stocks, you can turn your attention to dividend stocks as these can cut you a check every quarter. Dividends act as a great passive income source that can help supplement your earned income. There’s nothing more satisfying than sitting back, relaxing, and watching your dividends flow into your bank account.
However, you must select the right types of dividend stocks to include within your investment portfolio. These companies should have a strong brand franchise and possess a solid competitive edge, have a track record of generating copious amounts of free cash flow, and possess characteristics that enable them to continue to do well in the future.
Armed with such attributes, these stocks should allow you to enjoy a good night’s sleep while increasing their dividends over time to fatten your bank account and beat inflation. Here are three attractive dividend stocks you can consider buying if you have $5,000 to spare.
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Mondelez International
Mondelez International (NASDAQ: MDLZ) is a snack food company that generated $36 billion in sales in 2023 and is present in more than 150 countries globally. The business owns famous brands such as Oreo, Ritz, Milka, and Cadbury and holds the No. 1 position in the biscuits and chocolate markets in various countries.
Mondelez demonstrated consistent growth in both revenue and net income from 2021 to 2023. Net revenue climbed from $28.7 billion to $36 billion while net income jumped from $4.3 billion to $4.96 billion over the same period.
Importantly, Mondelez generated an average positive free cash flow of $3.3 billion over the three years. This consistent free-cash-flow generation enabled the snack food giant to increase its dividend without fail for more than 20 years. The latest quarterly dividend stood at $0.47 per share, up 10.6% year over year compared with $0.425 a year ago.
Mondelez continued to impress in the first half of 2024. Although revenue remained flat year over year at $17.6 billion, operating income jumped 22.2% to $3.6 billion as the operating margin improved from 16.6% to 20.3%. Net income, after adjusting for one-off gains and losses, climbed 37.4% to $2.7 billion. The business continued to generate a healthy positive free cash flow of $1.5 billion for the first half of this year.
There could be more to come by way of dividend growth. Mondelez’s fifth State of Snacking Report in March 2024 showed that global consumers continued to prioritize snacking. Two-thirds of consumers have not made significant changes to their spending on snacks despite being more price-conscious. Encouragingly, 6 out of 10 consumers use social media to search for novelty and are willing to try out new snacks. These findings are advantageous to Mondelez as the company works to innovate with new snacks and slowly raise prices to offset the effects of inflation.
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Management plans to continue with its strategic growth initiatives including reinvestment into brands such as Oreo, expanding its distribution points in the U.S., and driving merger and acquisition activities in Europe. Mondelez’s strategic partnership with Lotus Biscoff could help to drive chocolate growth in Europe while expanding its India biscuit business. These initiatives bode well for the future of the business, and investors can expect continued increases in the dividend if this momentum continues.
Visa
Visa (NYSE: V) is a payments behemoth and a market leader in the industry with 4.5 billion debit and credit cards in issue as of March 31.
The company has steadily grown both its revenue and net income over the years while generating truckloads of free cash flow. Revenue went from $24.1 billion in fiscal 2021 (ended Sept. 30) to $32.7 billion in fiscal 2023. Net income shot up from $12.3 billion to $17.3 billion over the same period. Visa’s free-cash-flow generation has also improved over these three years, going from $14.5 billion to $19.7 billion.
This track record of rising profits and free cash flow has enabled the payments giant to raise its dividends every single year since the company went public in 2008. Back then, the quarterly dividend was just $0.0263 per share but it has now grown to $0.52 per share, an increase of nearly 20-fold. On a compound annual growth rate basis, Visa’s dividend has increased by around 20.5% per annum over 16 years, a truly impressive feat.
Visa’s strong performance has carried on in the first nine months of fiscal 2024. Revenue rose 9.4% year over year to $26.3 billion. Both operating and net income logged healthy increases of 11.6% and 14.6%, respectively, to $17.2 billion and $14.4 billion. The business continued to churn out a positive free cash flow of $12.3 billion, cementing itself as a solid dividend payer that can continue to up its payouts.
The great news is that Visa continues to explore different ways of growing its business through collaborations and the launch of new services. In June, Visa partnered with Amazon to expand payment options for Amazon customers and provide them with installment plans that can convert their purchases into smaller, fixed payments over a selected period.
A month later, Visa collaborated with HSBC Bank to develop Zing International Money App, which allows members to hold funds in 10 different currencies and send money in over 30 countries while transacting in more than 200 countries worldwide. Over at the small business side, Visa relaunched its SavingsEdge service across the U.S. and Canada to support smarter spending and savings for small business owners and card issuers.
These initiatives should go a long way in ensuring customer stickiness and open up more revenue streams for the payment player, enabling it to continue growing its presence and market share for many years to come.
Starbucks
With more than 38,000 stores around the world, the Starbucks (NASDAQ: SBUX) coffee chain is known far and wide. It has also demonstrated a pattern of consistent free-cash-flow generation although its net income growth has stalled in recent years.
Total revenue increased from $29.1 billion in fiscal 2021 (ended Sept. 30) to $36 billion in 2023. Net income, however, stayed flat at around $4.1 billion over the same period. Starbucks still managed to generate an average positive free cash flow of $3.6 billion from fiscal 2021 to 2023 despite spending significantly on store openings.
Because of the company’s reliable free-cash-flow generation, it was able to increase its quarterly dividend for 13 consecutive years at an average of 20% per annum. Starbucks initiated its quarterly dividend at $0.05 back in fiscal 2010 and it has since grown to $0.57 in the latest fiscal quarter.
The coffee chain reported a resilient set of earnings for the first nine months of fiscal 2024. Total revenue inched up 1.9% year over year to $27.1 billion but operating income dipped by 1.5% year over year to $4.1 billion. Net income slid 1.8% year over year to $2.9 billion. Starbucks is still reporting a slight 6.2% year-over-year increase in free cash flow to $2.6 billion, giving investors confidence that it can steadily increase its dividend.
In a surprise shake-up, the board appointed Brian Niccol as Starbucks’ new chairman and CEO. Niccol, who used to be the CEO of Chipotle Mexican Grill, will replace incumbent CEO Laxman Narasimhan. Under his tenure from 2018 to 2024, the Mexican restaurant chain saw its revenue nearly double while net profit has soared nearly 7 times. Niccol penned an open letter to Starbucks stakeholders and customers stating that the company needs to get back to its basics and focus on what distinguishes it from other coffee chains.
His initial plan is to ensure that baristas are empowered to take care of customers and to get orders right and on time. Stores will also be refreshed to make them friendly places for customers to linger and enjoy the experience. His appointment is a promising development for Starbucks and should transform the coffee chain positively in the coming months. The steady growth in profits and dividends should continue once the benefits of the transformation start flowing through.
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Royston Yang has positions in Starbucks and Visa. The Motley Fool has positions in and recommends Starbucks and Visa. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy With $5,000 Right Now was originally published by The Motley Fool
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