3 of the Best Dividend Stocks for a Lifetime of Dividends

If you want to make your retirement funds last, dividend-paying stocks can help you achieve that goal. Beyond the cash payments, there’s evidence that companies with a history of paying dividends generate higher total returns with lower volatility than the overall stock market.

Additionally, a company that pays a dividend is a signal of confidence to the market that the business is mature and its balance sheet is strong.

With that in mind, here are the three best dividend-paying stocks that can pay you for life.

1. Home Depot
Anyone who has ever tackled a home improvement project has likely made a weekend trip to a Home Depot (HD) store — or five trips once you realize the project requires more troubleshooting than initially thought. The largest home improvement retailer by market cap has paid a dividend for 35 consecutive years and raised it yearly since 2010.

Home Depot stock has struggled in 2022 with a negative total return of roughly 21%, which is 4% worse than the S&P 500. However, if you zoom out, Home Depot outperformed the overall market over the past three-, five-, and 10-year periods.

One reason why the stock has disappointed in 2022 could be that Home Depot’s sales haven’t kept up with inflation as consumers rein in their spending.

During Q3 2022, Home Depot generated $38.9 billion in sales with an average ticket price of $89.67. Compared to Q3 2021, sales and average ticket prices increased by 5.6% and 8.8%, respectively. However, Home Depot’s customer transactions decreased 4.3% from 428.2 million to 409.8 million year over year. Home Depot’s sales are up, but that’s because of price increases, not more customers.

Still, Home Depot stock is trading at a historical discount when you consider its price-to-earnings (P/E) ratio. Home Depot’s current P/E ratio is about 19, significantly below its five-year P/E ratio average of 22.45.

Lastly, the home improvement retailer currently pays an annual dividend yield of roughly 2.4%, equaling $7.60 per share. With a low payout ratio of about 44%, expect an announcement soon that Home Depot will raise its dividend for a 13th consecutive year.

2. Paramount Global
Paramount Global (PARA.A) (PARA) stock has also performed poorly in 2022, with its price down about 47% year to date. The entertainment giant pays a quarterly dividend of $0.24, equaling a dividend yield of roughly 5.6%.

Its film division, Paramount Pictures, is one of the oldest film studios in Hollywood and has a long history of making blockbuster movies. These include the highest-grossing film of 2022, Top Gun: Maverick, which grossed $1.5 billion worldwide. Additionally, Paramount owns the intellectual property rights to significant franchises like Mission Impossible, Scream, and Sonic the Hedgehog to tap for future blockbusters.

Paramount Global does have some debt concerns, with $15.6 billion in long-term debt on its balance sheet. However, the company reduced its debt by about 11% over the past year from $17.7 billion in Q3 2021.

With a low dividend payout ratio of about 22%, Paramount isn’t very likely to cut its dividend. In fact, the entertainment conglomerate has raised its quarterly dividend nine times since the Great Recession, with the last increase coming in 2019.

Today, Paramount’s stock trades at a P/E ratio of 3.6, well below its five-year average of 12. Its shockingly low valuation has even gotten the attention of Warren Buffett’s Berkshire Hathaway, which bought a 14% stake in the company in 2022. And if investors have learned anything over the past 50-plus years, a Buffett stock typically wins in the long term.

3. Wingstop
On the surface, Wingstop’s (WING) quarterly dividend of $0.74, representing a dividend yield of 0.5%, isn’t overly impressive. However, the leading chicken wing chain is known for paying periodic special cash dividends, with the last coming in April 2022 at $4 per share. In fact, since going public in 2016 for $19 per share, the company has paid out a total of $20.53 per share in dividends.

With a franchise business model, Wingstop grows its revenue by expanding its footprint with more locations. Over the past year, Wingstop added 215 franchise restaurants to its 1,856 total, which was a 13% increase. The company’s long-term goal is to have 4,000 domestic and 3,000 international units, representing a 268% increase from its current total count.

Additionally, Wingstop claims it is on its way to delivering an impressive 19-year streak of same-store sales growth with 6.9% same-store sales growth in its latest quarter (this essential metric for restaurant stocks indicates how well existing stores are performing). For comparison, competing franchise-model fast-food restaurants Domino’s and McDonald’s had same-store sales increases in the U.S. of 2% and 6.1%, respectively, for their most recently reported quarters.

If Wingstop stock has a downside, it’s unquestionably its valuation. Wingstop’s P/E ratio is roughly 107, whereas Domino’s and McDonald’s are 29 and 34, respectively. Still, there’s a reason Wingstop deserves a high valuation: Wingstop stock has handily beaten the likes of Domino’s, McDonald’s, and the S&P 500 since going public.

Are these dividend stocks buys?
If you’re an investor nearing retirement, you should generally look for more stability and less risk in your portfolio. These three dividend stocks, in particular, have a proven track record and offer consistent, higher-than-average dividends, making them great additions to any retirement portfolio.

— Collin Brantmeyer

Source: The Motley Fool