Dividends move in and out of fashion every few investment cycles. But, patient investors and study after study has made one thing clear: over the long run dividend stocks tend to outperform the market. Schwab recently summarized it well by concluding:
Over the past 40 years, stocks that maintained or grew their dividends outperformed those that cut their payouts or offered none at all. – Schwab, Dividend Stocks: Port in a Storm?
With volatility climbing again in recent weeks, I’ve screened our dividend equity research database and identified 3 fantastic dividend stocks that I’ll be buying this March.
Stock #1: The Hershey Company (NYSE: HSY)
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Chocolate can turn out to be a pretty sweet investment. The Hershey Company, maker of beloved sweets like Jolly Rancher, Reese’s, and Kit Kat has returned an incredible 8,123% to patient investors since its IPO, more than double the S&P during the same period. But recent concerns about the economy, inflation, and rising costs have taken the wind out of the company’s sails, pushing shares down 28% from their 52-week high. What gives?
The most recent quarterly earnings saw revenue edge up a mere .2% to $2.66 billion. Meanwhile, Hershey’s forecasted lower profit due to rising cocoa costs. But these are all ‘been there, done that’ familiarities for the company. Hershey’s was founded in 1894, and has been through more than a fair share of inflationary and low-growth environments since then.
And things already appear to be getting back on track. The company owns far more than its namesake chocolate brand, and has added Pirates Booty, Dot’s Pretzels, One Protein bars, and Skinny Pop popcorn to its brand portfolio. This sort of diversification into snacks has helped propel fellow juggernaut PepsiCo to a quarter-billion dollar company and could work for Hershey’s as well.
During that same quarterly announcement management increased the dividend by 15% and announced a multiyear plan to improve operating efficiency. Shares currently yield 2.75%, the highest in 5 years. What’s more, the payout ratio remains steady at 47.8%, the same ratio it’s had (roughly) since 2003. This company is committed to putting money back in your pocket.
Stock #2: Target Corp (NYSE: TGT)
Source: jeepersmedia / Flickr
Target often plays second fiddle to larger retailers like Costco (Nasdaq: COST), Walmart (NYSE: WMT), and Amazon (Nasdaq: AMZN), but for investors, it’s an easy first choice today. The company trades at a sharp discount to peers and pays a yield that’s almost twice that of Walmart, four times Costco’s, and infinitely more than Amazon’s 0% dividend.
|
Company |
P/E Ratio |
Dividend Yield |
|
Target |
21x |
2.60% |
|
Costco |
49x |
0.57% |
|
Walmart |
31x |
1.37% |
|
Amazon |
59x |
0.00% |
But this isn’t just about relative value today, the company has growth on its mind. During the most recent earnings Target Corp:
- Increased gross margin
- Normalized inventory levels after a recent glut
- Announced that comparable sales are expected to return to growth in 2024
- Announced Target Circle 360, a paid membership with free same-day delivery
The push into free same-day delivery echoes similar plans by Amazon and Walmart, which has driven growth for both companies.
Stock #3: Pfizer (NYSE: PFE)
Source: Leon Neal / Getty Images News via Getty Images
One of the investment darlings of the COVID pandemic, Pfizer appears to be on the back foot. Revenue dropped 42%, to $58.5 billion with the demand for vaccines waning. But this is a case of throwing the baby out with the bathwater. At the end of last year the company had seven major approvals of new drugs, some of the highlights include:
- Velsipity, to treat Ulcerative colitis
- Ngenla, to treat Growth hormone deficiencies
- Zavzpret, for migraines
- Abrysvo, to treat respiratory syncytial virus (RSV)
In an industry where annual approvals for new drugs average 1-3, for Pfizer to end 2023 with seven is very impressive. Today shares trade about 30% lower than they were just before the pandemic and the blockbuster vaccine for the company. But with everyone else focused on waning demand for COVID-19 products, many have missed the smoking 5.9% dividend yield, solid $4.8 billion in free cash flow, and share repurchases. But don’t just take my word for it, Pfizer lays out their capital allocation framework themselves in their most recent 10-k (emphasis added).
Our capital allocation framework is primarily devised to enhance shareholder value and is based on three core pillars: growing our dividend, reinvesting in the business and making share repurchases after de-levering our balance sheet. – Pfizer 2023 Form 10-k
I believe patient investors will be well rewarded for scooping up shares in these three companies today.
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