Not all companies pay dividends; not even the most highly valued ones, so here are three that do and are solid long-term investments for beginners.
Of the four trillion-dollar companies trading on the U.S. stock market, only two pay a dividend to shareholders (Apple and Microsoft). What is a dividend and why do companies pay them? To put it simply, a dividend is a form of profit-sharing by a corporation for its shareholders which the company usually pays out every quarter.
An organization chooses to pay dividends to not only share in its profits but also to attract new investors with the promise of a steady income stream; it solidifies the company as a strong, financially-sound entity. Arguments against dividends include the fact that dividend payments are taxed at a higher rate than capital gains, along with advocacy for the company to re-invest in itself through avenues like stock buybacks, acquisitions, or new projects. Here are three dividend-paying companies that we feel are good investments for market rookies.
Hasbro (NASDAQ: HAS) is known the world-over for its popular Nerf, Play-Doh, and Transformers products. It is also known as the exclusive toy manufacturer for highly-lucrative Disney brands like Marvel and Star Wars — including the massively popular ‘Grogu’ doll, more commonly referred to as ‘Baby Yoda’, from ‘The Mandalorian’ series on Disney+. That is quite a resume, and the company also pays a quarterly dividend of $0.68, a sum which has grown nearly 60% over the last five years.
Last year, the company acquired eOne studios, which is responsible for distributing films like Oscar-winner ‘Spotlight,’ television programs like ‘The Walking Dead,’ and owns music libraries of studios like Death Row Records. Although the pandemic provided the company with headwinds in its media production capacity along with delaying the company’s endeavors into a greater digital presence, Hasbro has also seen tailwinds in its gaming sales as people were forced to stay indoors. The company is available at a discount as its stock price is down a little over 12% year-to-date (YTD).
2. General Dynamics
Defense contractor General Dynamics (NYSE: GD) recently signed a deal — worth nearly $10 billion — with the U.S. Navy to construct the first Columbia-class ballistic missile submarine, as part of the most expensive program in naval history. It is the main contractor for 12 such submarines. The company is also responsible for manufacturing business jets, like its Gulfstream, which holds nearly 18% of the market share in the sector.
In addition to its Navy contract, the company has secured a $4.4 billion U.S. Department of Defense Enterprise cloud contract as well as a nearly $800 million cyber modernization deal with the U.S. General Service Administration (GSA). General Dynamics pays a dividend of $1.10, which has increased by over 77% in the last five years. The company is also available at a discount as its stock price is down nearly 13% YTD.
The pandemic has fueled sales of Kimberly-Clark’s (NYSE: KMB) toilet paper, sanitary wipes, and diaper products. This gave the company a boost in its stock price of over 3% YTD and the company is well on its way to becoming a dividend king in 2022, should it continue to raise its dividend payments until then. Kimberly-Clark is currently paying a dividend of $1.07 to shareholders, an increase of nearly 22% over the last five years.
Recently, the company entered a deal to acquire Softex Indonesia, a company that is 3rd in all sales of personal care products in Southeast Asia, to expand its footprint in a growing market that is expected to nearly double in value to over $10 billion by 2025.
Dividends are a powerful indicator of success. Warren Buffett, whose company does not pay a dividend, as he doesn’t believe it’s a good use of capital, receives billions of dollars annually from dividend payouts in his portfolio. When a company chooses to pay dividends, it sees itself as firmly financially stable to the point of offering to share its wealth with investors. Ultimately, that, and a steady payout, is what makes these investments sound for not only beginners but for investors of all classes.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.