While capital appreciation is vital, dividends are also important to total returns. Dividend stocks for consistent income provide both and are often more stable.
Your portfolio can be a reliable source of income if you pick the right dividend stocks. There are numerous dividend stocks for consistent income that pay out dividends frequently, either monthly or quarterly. Moreover, as these businesses grow earnings, they increase their dividends periodically, gradually increasing your yield on cost.
As this year starts, it is time to bolster your portfolio income. While plenty of dividend stocks exist, focusing on the best of breed is worthwhile. Some of the best dividend stocks for consistent income are on the Dividends Aristocrats List. These are S&P 500 stocks that have increased their dividend for over 25 years.
From their dividend growth record, it’s evident that these are established businesses with economic moats. Otherwise, they would not have sustained the dividend growth for that long. Currently, the following three dividend aristocrats are undervalued and guarantee consistent income.
NextEra Energy (NEE)
Utilities are some of the best dividend stocks for consistent income due to their stable revenues. Typically, they sell an irreplaceable, essential product, allowing them to earn consistent cashflows to support dividends. Thus, it’s one of the first sectors to consider for dividend income.
NextEra Energy (NYSE:NEE) is one of the top dividend stocks in the utility sector. But the company isn’t any boring utility. Instead, it is the largest renewable energy utility in the U.S. The company has embraced the transition to renewable energy, positioning it for long-term growth.
In terms of dividends, this utility has rewarded shareholders for decades. As of this writing, its dividend yield is 2.97%, and it has grown the dividend for 28 consecutive years. Additionally, the dividend growth record has been impressive at an 11% annual rate over the last five years.
Fundamentally, NextEra is well-positioned to grow revenues. New solar and wind builds are at all-time highs, and the firm has seen renewable backlog growth. According to Reuters, CEO John Ketchum expects the company to top earnings expectations through 2026.
With a solid backlog of renewable projects, NextEra is set for earnings growth. And with a low 56% payout ratio, the company has room to maintain its dividend growth. Indeed, it is one of the best dividend stocks to buy.
Medtronic (NYSE:MDT), a leading global healthcare technology company, had a rough 2023. Fears over the impact of GLP-1s on its diabetes segment led to a 20% selloff in the third quarter. Although the stock has recovered, it’s still 35% below its August 2021 high.
So, why is this dividend aristocrat a buy? Simply, GLP-1 drug fears on its portfolio are overblown. Yes, the firm is exposed since it sells glucose monitoring systems and sensors as well as insulin pumps and consumables. However, investors have overreacted, and fundamentals are solid, as the Q2 FY2024 results revealed.
Indeed, in the Q2 FY2024 earnings call, management emphatically stated they were seeing minimal impact. CEO Geoff Martha noted, “…outside of a modest impact on the bariatric surgery market, which we believe will be temporary, we don’t see these drugs impacting Medtronic’s growth outlook, even long-term.” This sentiment was reflected in results where the diabetes segment grew organic revenues 6.7% year-over-year, the highest growth rate in 10 quarters.
Even if GLP-1s were to have an impact, the diabetes segment accounts for less than 4% of operating profit. Besides, the other segments – cardiovascular, medical surgical and neuroscience – are showing solid growth. In Q2 FY2024, Medtronic reported 5.9%, 7.0% and 4.7% YOY revenue growth in these segments, respectively. Over the long term, management is optimistic and expects to deliver mid-single-digit growth.
With this positive outlook for durable revenue and earnings growth, Medtronic is one of the best dividend stocks for consistent income. According to Sure Dividend, it has raised its dividend for 46 consecutive years. Moreover, at 16 times forward EPS, it’s a bargain and will rally as GLP-1 fears fade.
This retailer is undoubtedly one of the best dividend stocks for consistent income. Target (NYSE:TGT) pays a quarterly dividend and has a stellar record of 55 years of dividend growth. Moreover, as of this writing, it yields over 3%, providing a good income from the start.
As one of the largest retailers in the U.S., Target is as stable a business as you can get. Through innovative merchandising, the firm has grown from strength to strength. It’s well-positioned to maintain its position in U.S. retail and reward shareholders with higher payments.
Fundamentally, the stock had some execution challenges in 2022 and parts of 2023. After the economy reopened, it was hit hard by the decline in discretionary goods spending, a segment it’s heavily exposed to. What’s more, management was caught flat-footed with too much inventory, followed by a pride merchandise backlash. After a year of working through these challenges, Target is emerging from the downturn.
Overall, the holiday season has exceeded expectations. Abercrombie & Fitch (NYSE:ANF) and Lululemon Athletica (NASDAQ:LULU) raised quarterly targets highlighting the robust shopping trends. Another reason for optimism is the impressive December sales report by Costco Wholesale (NASDAQ:COST), which showed 9.9% YOY growth. Besides, Target has addressed its execution problems, reducing excess inventory and solving the pride backlash issue.
After two years of negative performance, TGT stock is one of the best dividend stocks for consistent income to buy. It has addressed its fundamental challenges, and the resilient consumer will support its discretionary segment. As of this writing, it trades at 16 times forward EPS with a healthy 3% yield. What’s more, the dividend growth record and low payout portends more increases in the future.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.