Who says investors can’t have their cake and eat it too? You can absolutely collect good dividends from stocks that are also beating the market. You just have to find the right stocks!

With that as the backdrop, here’s a closer look at three dividend-paying names that have been outpacing the S&P 500 for a while now. All three of them have the potential to continue doing so for years, and their safe-as-houses dividends are even more likely to continue being paid.

Walmart
Brick-and-mortar retailer Walmart (WMT) may be one of the market’s very best stock picks hiding in plain sight. Shares are up nearly 60% for the past five years, and higher to the tune of more than 100% for the past ten. The stock also just touched an all-time high at a point in time when the market as a whole is far from doing the same.

Granted, the environment helped. Not only do investors seek out reliable defensive names when economic headwinds are blowing (like they are now), Walmart offers consumers the relief from inflation many of them need at this time. In other words, it’s thriving in this environment specifically because it can sell the most basic of consumer goods at lower prices.

To this end, the company’s touted several times since last year that the bulk of its growth is coming from households earning in excess of $100,000 per year, suggesting everyone’s being more cost-conscious these days — including the well-heeled cohort. Even if inflation finally starts cooling off, however, it’s going to be cooling off at still-elevated levels. Consumers earning above-average money may well continue shopping at Walmart now that they realize the savings they’d be passing up.

Walmart stock’s current dividend yield of 1.4% isn’t exactly earth-shattering. There’s more to the story though. This dividend payment has not only been raised every year for the past 50 years, but it’s been raised a lot during this timeframe. The retailer’s annual dividend payout has grown at an annualized rate of nearly 10% per year over the course of the past couple of decades. And yet, there’s still plenty of profit left over to fund growth initiatives.

Broadcom
It’s been a tough go of things for most chipmakers’ stocks of late… but not all of them. Broadcom (AVGO) shares are up nearly 300% for the past five years, with a huge chunk of that growth taking shape just this year.

What gives? The big bullish burst in May stems from its then-announced deal with Apple. In short, Broadcom will be manufacturing a bunch more iPhone components than it already is. Given Apple’s hold on a big piece of the smartphone market (and the U.S. smartphone market in particular), the news is a pretty big deal.

The agreement made with Apple, however, is only a microcosm of the reason Broadcom shares have been able to do what do many other chip stocks haven’t of late. Broadcom is predominantly a manufacturer of wireless (and wired) networking and connectivity solutions, including chips frequently found in smartphones. Demand for this tech is rather resilient even in so-so economic environments like the one we’re in now. Revenue through the first three quarters of 2023 is up 9%, driving net income up to the tune of 30%.

Perhaps the most curious aspect of Broadcom is that it’s one of only a handful of technology companies that’s serious about paying a dividend. Shares are currently yielding 2.1% based on a dividend that’s been increased for twelve consecutive years now.

Do note that Broadcom passes along approximately half of its profits to shareholders in the form of dividends. That’s a little bit high, particularly by technology stock standards. Don’t panic, though. Broadcom’s business is so steady that it essentially operates like a consumer staples company.

Toyota Motor
Last but not least, carmaker Toyota Motor (TM) belongs on your list of dividend-paying stocks that are outperforming investors’ favorite benchmark index. Shares are up nearly 60% since this point in 2018, largely thanks to this year’s incredible 40% advance. Even so, its trailing dividend yield of 2.6% is higher than many companies of its ilk.

This bullishness is tough to figure out with just a superficial assessment. The automobile manufacturing industry is still dealing with supply chain headaches that first surfaced during and because of the COVID-19 pandemic. Now, it’s struggling with economic lethargy and sky-high interest rates. Although up from 2020’s lull, automobile sales in the United States remain below pre-pandemic levels. Things aren’t exactly leaps and bounds better overseas either. So how did Toyota grow its top line by more than 24% during the first half of the current fiscal year, and more than double its pre-tax operating income?

A big piece of the bottom line’s boost was driven by advantageous foreign exchange rates. It’s also worth noting, however, the carmaker may simply be doing well because it’s not been overinvesting in the wrong things.

Case(s) in point: While Toyota manufactures all-electric vehicles (EVs), it’s not designing them from the ground up. The company uses chassis and bodies it already manufactures as the basis for many of its hybrid EVs, keeping their net production costs relatively low. It’s also making a point of investing in the infrastructure needed to support electric vehicle sales.

For instance, the company has earmarked $8 billion worth of expansion for its North Carolina battery manufacturing facility, directly tackling one of the EV movement’s chief vulnerabilities. Perhaps more than anything, Toyota is keeping its finger on the pulse of what consumers actually want. The Japanese company is doing particularly well with hybrids (as opposed to all-electric battery-powered cars), sidestepping consumers’ charging and driving-range worries with a touch of old-school gas technology.

These aren’t nuances many investors see as the reason this stock’s such a reliable performer. But, they are the reason, and should remain so into the foreseeable future.

— James Brumley

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Source: The Motley Fool