Dividend stocks can be an appealing option when markets are volatile, as they are an excellent source of passive income. Hence, investors could consider buying fundamentally sound dividend stocks PepsiCo, Inc. (PEP), International Business Machines Corporation (IBM), and AT&T Inc. (T) for their retirement portfolios.
The International Monetary Fund projects that U.S. interest payments on federal debt will increase to 3.2% of GDP by fiscal year 2024, up from 2.4% in fiscal year 2023, driven by rising interest rates. This highlights persistent fiscal challenges. However, there is optimism that a potential interest rate cut by the Federal Reserve could help mitigate the situation, and many are looking to this as a possible solution.
Amid this economic instability, dividend stocks provide a reliable income stream through regular payouts, making them attractive for long-term investors. They also tend to be more stable, offering potential capital appreciation along with consistent returns.
Considering these factors, let’s take a look at the fundamentals of the three best dividend stocks.
PepsiCo, Inc. (PEP)
PEP manufactures, markets, distributes, and sells beverages and convenient foods worldwide. It has seven operating segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region.
In terms of the trailing-12-month EBIT margin, PEP’s 15.15% is 59.3% higher than the 9.51% industry average. Likewise, its 18.30% trailing-12-month EBITDA margin is 38.1% higher than the 13.25% industry average. Its 0.94x trailing-12-month asset turnover ratio is 10.4% higher than the 0.85x industry average.
PEP has been paying dividends to its shareholders for the past 51 years. Its annualized dividend of $5.42 per share translates to a dividend yield of 3.05% on the current share price. Its four-year average yield is 2.74%. Over the past three and five years, PEP’s dividend payments have grown at CAGRs of 7.5% and 6.6%, respectively.
PEP’s net revenue for the fiscal second quarter that ended June 15, 2024, increased marginally year-over-year to $22.50 billion. Likewise, the company’s operating profit increased 10.7% year-over-year to $4.05 billion. Also, its non-GAAP attributable net income came in at $3.08 billion and $2.23 per share, representing increases of 12% and 12.1% year-over-year, respectively.
Analysts expect PEP’s revenue for the fiscal third quarter (ending September 2024) to increase 2.6% year-over-year to $24.06 billion. Its EPS for the same quarter is expected to grow 2.3% year-over-year to $2.30. Furthermore, PEP surpassed the consensus revenue and EPS in each of the trailing four quarters.
Over the past six months, the stock has gained 8%, closing the last trading session at $178.52.
PEP’s POWR Ratings reflect its outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability, Sentiment, and Quality. It is ranked #13 in the 33-stock B-rated Beverages industry.
Beyond what is stated above, we’ve also rated PEP for Growth, Momentum, and Value. Get all PEP ratings here.
International Business Machines Corporation (IBM)
IBM focuses on hybrid cloud and AI solutions, leveraging a platform-centric strategy to deliver client value through technology and business expertise. Core segments include Software, Consulting, Infrastructure, and Financing, enabling the company to address the evolving needs of enterprise clients.
On August 5, IBM unveiled a generative AI-powered cybersecurity assistant using the watsonx platform. The advancement reduces manual tasks and enhances threat detection, enabling quicker, more precise responses. By improving operational efficiency and strengthening client security, IBM solidifies its leadership in cybersecurity technology.
On July 23, IBM and ASMPT, a top global semiconductor and electronics manufacturing solutions supplier, renewed their partnership to enhance chiplet packaging technologies.
They will focus on advancing thermocompression and hybrid bonding techniques with ASMPT’s Firebird TCB and Lithobolt tools. The collaboration supports IBM’s drive for innovation in smaller, more powerful, and energy-efficient chips, reinforcing its leadership in the chip production market.
IBM’s forward annual dividend rate of $6.68 yields 3.32% on prevailing prices. Its dividend payouts have increased at a CAGR of 2.2% over the past three years and 1.8% over the past five years.
In the fiscal second quarter that ended on June 30, 2024, IBM’s total revenue increased 1.9% year-over-year to $15.77 billion. It also reported a non-GAAP gross profit of $9.12 billion, indicating a 5.4% growth from the prior year’s quarter.
In addition, IBM’s non-GAAP income from continuing operations came in at $2.27 billion, up 13.6% year-over-year, whereas its non-GAAP EPS from continuing operations grew 11.5% from the prior-year quarter to $2.43.
The projected consensus for revenue and EPS stands at $15.07 billion and $2.22, respectively, marking a modest year-over-year increase of 2.1% in revenue and 1.1% in EPS for the fiscal third quarter ending September 2024. Furthermore, the company topped the EPS estimates in each of the trailing four quarters.
IBM shares have surged 23.1% over the past three months and 38% over the past year to close the last trading session at $204.11.
IBM’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
IBM has a B grade for Stability and Sentiment. It is ranked #11 out of 75 stocks in the Technology - Services industry.
In addition to the POWR Ratings highlighted above, one can access IBM’s ratings for Growth, Value, Sentiment, and Momentum here.
AT&T Inc. (T)
T is a global telecommunications and technology company, operating in two segments: Communications; and Latin America. It provides wireless and wireline telecom services to consumers and businesses worldwide, including Mobility, Business Wireline, and Consumer Wireline.
On August 12, Oracle Corporation (ORCL) announced the incorporation of AT&T IoT connectivity and network API into its Enterprise Communications Platform (ECP). With these partnerships T is advancing itself in the IoT and cloud application landscape, offering customers a more streamlined and convenient experience and growing its market presence and overall growth as well.
T pays an annual distribution of $1.11 per share, which translates to a yield of 5.43% on the prevailing share price. Its four-year average dividend yield is 7.13%.
For the fiscal 2024 second quarter that ended June 30, 2024, T’s adjusted EBITDA came in at $11.3 billion, increasing 1.8% year-over-year. Also, the company’s free cash flow for the quarter increased 9.5% from the prior-year period to $4.60 billion.
Street expects T’s revenue for the fiscal 2025 first quarter (ending March 2025) to increase 1.8% year-over-year to $30.57 billion, while its EPS for the same quarter is expected to grow 1.8% year-over-year to $0.56.
T’s stock has gained 6.2% over the past month to close the last trading session at $20.57.
T’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. It is ranked #2 among 18 stocks in the Telecom - Domestic industry.
Click here to access T’s ratings for Growth, Stability, Momentum, and Sentiment.
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PEP shares were trading at $179.23 per share on Thursday afternoon, up $0.71 (+0.40%). Year-to-date, PEP has gained 7.17%, versus a 16.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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