We looked at some of the top dividend stocks, with an eye on sustainability of the existing dividend, as well as selecting companies that are likely to continue dividend growth for years to come. Each of the high yielding dividend stocks below offers investors a decent annual yield and these stocks also score well on our dividend safety score.
Pepsi (NYSE:PEP): We recently published an article titled ‘Get on the Elevator, Pepsi’s Yield Is Moving Up‘. We make the case that Pepsi’s dividend is extremely safe, and at a 3% yield its worth picking up a healthy position, or holding on to it if you already own it. Not only are we comfortable with Pepsi’s ability to continue paying its dividend we also expect it will increase the divvy by 7% per year for the foreseeable future, which gives dividend growth investors a nice little kicker. We acknowledge Pepsi is expensive on traditional valuation metrics and expect it will remain so, especially in a low yield environment. When rates start to rise we will reconsider our position. Pepsi’s payout ratio is expected to remain in the 60% range and we do not expect the company to blow its cash pile on frivolous M&A, they are superb capital allocators after all. Pepsi has also earned a coveted position as one of 50 Dividend Aristocrats.
Macy’s (NYSE:M): Another top dividend stock is Macy’s whic we oulined in our Macy’s Dividend Story article. We highlight the growing dividend as a great way to sit any wait for a real estate kicker. This story partially played out exactly one week after writing the article, with the stock moving up about 17% that day. We think there is more upside in the real estate and still see a rising dividend as likely. Macy’s yield is now down from the 4.5% yield at the start of August but we still think its attractive at 3.6% as of the end of August. Macy’s ‘only’ has 12 years of consecutive dividend increases behind them, but they have recovering free cash flow, a great debt profile, and a reasonable payout ratio of 45%, we think its worth considering for your portfolio.
Whole Foods Mart (NYSE:WFM): Our final top dividend stock is WFM, even though the company has seen investor sentiment turn away from them. We recently wrote an article called ‘Healthy Dividend Growth From Whole Foods Market‘ where we outline a case for further dividend increases. Whole Foods offers investors a very safe dividend, but lower earnings and a slowdown in same store sales has kept many investors on the sidelines. Nonetheless, WFM has made the right moves in terms of capital allocation and is a good business, making much higher margins that its grocery peers. While the dividend yield is currently a low 1.7% we expect this to continue growing in the coming years, supported by a strong balance sheet and growing FCF and earnings. Beyond this, large share repurchases mean the dividend will pose less of a strain in the future, as the shares outstanding are reduced. We think WFM is well on its way to 10+ years of dividend growth, which means the Smart Dividend Investor can get many years of growing dividends.