When it comes to picking dividend stocks, you not only want a firm that can support a generous payout, but one that can grow it at a fairly predictable rate over extended periods of time. Indeed, when thinking about dividend stocks with a long-term horizon in mind, I think it makes more sense to focus on the growth profile and the shareholder-return policy than just how large the upfront yield is.
While those with higher income needs, like retirees, may prioritize yield above all else, including growth, I do think that analyzing the dividend from different angles, as well as a company’s overall fundamentals, could allow for a dividend that not only pays you in perpetuity, but can deliver on dividend growth and total returns.
At the end of the day, you don’t need to settle for below-average total returns if you’re going for dividend payers. In some instances, a dividend payer can deliver solid risk-adjusted total returns, and in this piece, we’ll have a look at two such names that I think offer an impressive value proposition at the current price of admission.
AT&T
AT&T (NYSE:T) has come a long way in the past two years, and while the impressive 84% worth of gains in the last two years may suggest the easy money has already been made, I still think there’s a longer-term opportunity in the name, especially as shares come in.
The dividend yield is still incredibly attractive at 4.3% after shares corrected more than 11% from their late-summer highs. While it could prove difficult to grow wireless subscribers relative to its rivals, there’s no discounting the efficiency gains the firm has unlocked.
The turnaround has worked wonders, at least so far, and I think there’s more room to the upside as the firm makes good use of AI tech to improve the service it provides. Not to mention the potential for additional cost savings, which could translate to fatter margins and more cash to return to shareholders.
Undoubtedly, churn remains a concern for the top industry players, but with promos in place and the potential for an iPhone 17-driven upgrade cycle, I certainly wouldn’t bet against AT&T while it’s going for 15.1 times trailing price-to-earnings (P/E).
American Express
American Express (NYSE:AXP) really impressed as it topped expectations for its fourth quarter. Indeed, shares rocketed 7.3% on Friday in response to the big beat, which saw strength in the consumer at a time when many investors were bracing for some bumps in the road. For now, it looks like smooth sailing for the premier credit card firm.
With credit card price hikes in the books and better-tailored perks for Millennials, I view shares of AXP as still incredibly undervalued. While uncertainty may still be ahead, I wouldn’t at all be surprised if the firm continues punching above its own sales estimates, especially if the consumer proves more resilient going into the new year.
Additionally, premium card price hikes, I think, have been taken quite well, given the even more significant hike in the value proposition (the value of the upscale perks). Indeed, communicating the extra value provided is a fantastic way to go about increasing prices without sparking a wave of customer outrage.
Sure, the nearly 1% dividend yield makes the name less enticing for income investors. However, with robust growth and the means to keep raising the payout, I’d look to stash away the name for the long haul. It’s a premier financial with a dividend poised to keep climbing.
For now, the revenue growth forecast has been narrowed to 9-10%. If more users sign up for Amex’s pricier Platinum cards because of the extra perks (pay more to get much more), while the firm continues expanding its international footprint, while beckoning in younger Millennials, I wouldn’t be surprised if another 11% (or higher) worth of growth is in the cards for the premier Buffett stock.
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