Veteran dividend investor Nancy Tengler likes these stocks

Dividend investing has always been a part of Nancy Tengler’s career, which has spanned more than 40 years. Yet, her strategy does not just focus on stocks that are growing their dividends. She also looks at relative dividend yield, or the yield on the stock relative to its own history and the market, she explained. “What’s so important about it is that companies set the dividend as a portion of what they think long-term sustainable earnings power is,” said Tengler, the CEO and chief investment officer at Laffer Tengler Investments and author of “The Women’s Guide to Successful Investing.” “That’s been a really reliable way for us to gain access to what management and the board is thinking,” she added. “That’s a lot more reliable than looking at analysts’ earnings estimates.” An example of that is Walmart , she said. In February, the retailer announced a 9% dividend increase , marking its 51st consecutive year of dividend boosts. Historically, Walmart has only raised its dividend by about 1 cent annually for roughly the last decade, she said. “This told us … that management had a strong view about potential earnings growth,” said Tengler, who already owned shares of Walmart at the time. “Therefore, we added to our holdings, and indeed, the next quarter came out — this last one — and things look pretty darn good.” Walmart currently yields 1.3%, and shares are up more than 33% in the past year WMT YTD mountain Walmart year to date When investing in income-paying names, both the stock and the dividend act as a hedge against inflation, she said. “This is a workhorse strategy. It should be a core in everybody’s portfolio,” she said. “It’s really because of the power of the compounding of the dividend and the dividend growth.” On top of that, if the yield rises because the company has an issue, you are being paid to wait until it is fixed, she said. That said, she specifically stays away from the highest-yielding decile of dividend stocks. Usually the yield is high because the stock has sold off or there are concerns that the dividend will be cut, she said. She prefers the second and third deciles, which she says perform better. Here are some of her top picks, which include those that fit into her theme of old economy companies that have pivoted to digitization, cloud computing, generative artificial intelligence and cloud. Not only has Walmart recently boosted its payout, but it has also been investing in technology and has upgraded the quality of its stores, Tengler said. “Walmart has embraced every sort of pivot. They embraced digitization early, they are using generative AI in their advertising business,” she said. “They embrace robotics.” In addition, its e-commerce business is growing and the company is attracting higher-end consumers, she said. One of Tengler’s favorite financial names is American Express . While it is up roughly 40% over the past 12 months, she still finds it attractive on a relative yield basis. The stock’s dividend yield is 1.2% and it has been growing the payout 10.5% annually over the past five years, she pointed out. On top of that, American Express is embracing artificial intelligence, using it to improve fraud detection, Tengler said. The younger generations are also adopting the company’s higher-end platinum card and other products. Millennial and Gen Z consumers accounted for more than 60% of its new consumer account acquisitions globally in its first quarter, CEO Stephen Squeri said on American Express’ earnings conference call in April. “We realized that going after millennials and Gen Z was a key thing for us,” Squeri said in an April interview with CNBC’s Jim Cramer. “With millennials and Gen Zs, what we realized is that they wanted access, they wanted experiences, they wanted to get special privileges.” In addition, American Express customers tend to be in the higher income cohort. “The delinquencies and the charge-offs are much lower than the normal credit card companies,” Tengler said. “We like this one for the near and long term.” Another name on her list is Carrier Global , which has a 1.2% dividend yield. The company, which focuses on climate and energy solutions, has been growing its dividend 23% annually for the past three years, she said. Carrier Global is poised to ride the AI wave as data centers are built out and the company is called upon to provide HVAC, she said. In fact, HVAC business in the data center market is projected to increase to between $15 billion and $20 billion in 2027 from about $7 billion in 2023, CEO David Gitlin said on Carrier Global’s earnings conference call in April. “Today, AI makes up about 20% of the load of a typical data center, and some of our customers project that percentage to increase to 80% in the next few years, thus spurring huge demand on the grid and increasing the need for differentiated HVAC and control solutions,” he said. Carrier Global is up 41% in the past 12 months. Lastly, a new addition to Tengler’s income portfolio is Alphabet , which she already owned in her growth portfolio. The tech giant authorized its first-ever dividend in April, so it does not have a history of dividend growth. Yet, the company has the wherewithal to grow its payouts — and she thinks that is just what will happen. “This is a name that’s undervalued in many ways and they’ve kind of grown up as a company,” Tengler said. “They’ve taken costs into mind. They’ve done layoffs and rationalized the business.” Alphabet is up 38% over the past year and currently has a dividend yield of 0.5%.