Given the current economic climate, it's understandable that dividend stocks are among the most popular investments out there. By owning these investments, you do not give up the chance of long-term capital growth, but also immediately receive passive income through the regular quarterly payouts. Dividend stocks also tend to be financially stronger because their management teams have additional incentive to deliver positive – and growing – profits each year. These qualities can be very attractive in times of economic uncertainty.
However, it's not worth having all dividend stocks in your income portfolio. This investment niche has a mix of winners and losers that is comparable to that of any other market area. With that in mind, let's look at three standout options that are attractively priced today.
1. Garmin
Garmin (GRMN 0.54%) is a technology company focused on revenue growth while still paying a solid dividend, currently over 2%. The GPS device specialist can also demonstrate excellent results in operational business. Third-quarter revenue rose a whopping 12% year-over-year as four of the five major segments set sales records. This performance also demonstrated the strength of Garmin's diverse revenue streams, as gains in areas such as fitness trackers and smartwatches offset weaker growth in shipping and aviation.
Garmin generates ample cash flow, which management primarily uses to generate more growth through areas such as research and development. In order to lay the foundation for increasing sales, a steady stream of product launches is necessary. But its high profit margin (over 21% of sales last quarter) also leaves room for a generous dividend payment to boost shareholder returns over time.
2. McDonald's
MC Donalds (MCD -0.23%) is not only one of the most profitable companies in the fast food industry; It is also one of the most profitable companies on the stock market. Thanks to a combination of strong demand, rising prices and a steady stream of franchise, licensing and rental fees from its partners, the restaurant owner's operating profit margin recently exceeded 45% of sales.
Of course, this company faces some challenges. McDonald's reported a slight decline in customer traffic in its core U.S. market last quarter, which investors hope is just a temporary blip in its overall positive growth story. Like rivals Chipotle Mexican Grill are increasingly targeting the drive-through channel and striving to take market share from the industry leader.
Still, McDonald's has overcome many such trials throughout its history, as evidenced by its track record of 47 years of consecutive annual dividend increases. The 2024 distribution will be 10% higher than last year, which should be particularly pleasing to shareholders given their total return.
3. Costco Wholesale
Costco wholesale (COST 1.43%) is not a traditional retailer as most of its revenue comes from membership fees rather than product markups. The wholesale club essentially makes nothing from its huge sales base of goods. However, Costco is still a cash-rich company, as you can see from management's recent decision to pay a $7 billion special dividend to its shareholders. After this payout, cash balances are still expected to be well over $10 billion.
You may prefer a steadily increasing dividend payment to those sporadic one-time checks. However, given the chain's stellar track record of market share growth in the highly competitive retail industry, Costco investors can give the company some relief in this area. So when you look back in a few years, chances are you'll love having this dividend payer in your portfolio.
Demitri Kalogeropoulos has held positions at Chipotle Mexican Grill, Costco Wholesale and McDonald's. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Costco Wholesale and Garmin. The Motley Fool has a disclosure policy.