Top 4 S&P 500 dividend payers

While for some titles of the S&P 500, it’s their high dividend yields that make them attractive choices, I like to focus on companies with payout ratios below 50%. This shows a balance between fueling the company’s future growth and returning money to shareholders. Ultimately, these dividend-growing stocks steadily outperform the market, despite lower dividends initially.

Let’s take a look at four stocks that fit this bill and offer one of the highest dividend potentials in the S&P 500.

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1. AbbVie

While Humira’s loss of exclusivity (LOE) in 2023 still looms AbbVie (NYSE: ABBV), its stock has generated total returns to shareholders of nearly 400% since its spin-off from Abbott Laboratory on January 1, 2013. An LOE event occurs when a drug’s patent expires, exposing the drug to competition from generic and biosimilar versions.

Representing over a third of AbbVie’s $ 14.4 billion in revenue in Q3 2021, Humira’s loss will weigh on overall sales and the company’s valuation has deflated somewhat in anticipation. of this decline. However, only trading at nine times the profits over time, AbbVie’s various trades should prove that he is more than a single trick pony.

For example, AbbVie’s other two immunologic drugs, Rinvoq and Skyrizi, are expected to combine for $ 15 billion in revenue by 2025, helping to offset Humira’s decline. In addition, the company has several additional perspectives in its other three lines of business, namely hematologic oncology, neuroscience and Allergan aesthetics.

With the highest dividend yield in this group at 4.2% and the highest dividend growth rate of 18% annualized over the past five years, AbbVie would be a great home base for growth investors in long term dividends. Trading at just 11 times its free cash flow (FCF) over the past 12 months, the company could be a sneaky value game to start 2022.

2. Target

Despite his status as the king of the dividend, Target (NYSE: TGT) could quietly be a choice for surprise growth in 2022, thanks to its promising omnichannel development. Led by booming digital sales, up 29% year-over-year for the third quarter, Target saw same-store sales increase 13% for the quarter and growth across its top five product lines.

This digital sales growth is exciting for investors once you consider that it was above 155% growth in the third quarter of 2021 – meaning the company has passed some incredibly difficult comparisons with the help of a pandemic. This highlights that Target’s omnichannel strategy is at the heart of the company’s future and not just a one-off event thanks to a more locked-in economy.

Additionally, with a Net Promoter Score (NPS) of 51, the company essentially has four promoters of its product for every detractor, making it the # 8 mark on Comparably’s Top 100 Global Brands. Rated on a scale of -100 to 100, Target’s NPS of 51 shows it to be a beloved brand in an often commoditized industry, especially given its rival. Walmart has a score of only 14.

With a 1.5% dividend yield and a 53-year streak of consecutive annual dividend increases, Target offers investors the rare blend of safety and growth potential of Dividend King.

3. FedEx

Sporting a newly increased dividend in 2021, the juggernaut of international shipping FedEx (NYSE: FDX) relaunched its dividend growth story after a two-year hiatus. Better yet, management is targeting earnings per share (EPS) growth of 10 to 15% over the long term, thanks to the emergence of e-commerce.

With its core FedEx Ground operations now accounting for 33% of the overall land market, the company appears ideally positioned to increase the efficiency of its international operations, especially as its acquisition of TNT Express in 2016 becomes fully integrated. Since its last quarter, FedEx has increased sales 14% year on year, while EPS has remained the same, leaving the company to trade at 12 times its earnings eventually.

Ultimately, the company’s vast network (which connects 99% of the world’s gross domestic product), its 33% ground market share, and favorable winds from e-commerce give FedEx investors something to be excited about. long term. Pair these facts with its reasonable valuation and a 1.1% dividend yield, and it’s clear that the shipping giant is making extraordinary holdings.

4. Kroger

Finally, Kroger (NYSE: KR) and its quietly accelerating digital grocery operations have grown 103% in the past two years. While Kroger’s digital sales in Q3 2021 are down 5%, management still expects digital sales to double by 2023.

These digital sales are extremely important to investors as they help the company grow its treasure trove of customer data across more than 60 million households. With this valuable customer data, Kroger can continue to personalize its Boost loyalty program for each member, adding valuable savings and unique recommendations.

While revenue for the past 12 months has only grown 4% year-over-year, the company generated just under $ 3 billion in FCF during that time. Compared to Kroger’s $ 33 billion market cap, this FCF has the company in great shape to continue reducing its $ 21 billion debt and increasing its dividend along the way.

After reducing its stock count by 21% over the past five years and maintaining a promising dividend yield of 1.8%, Kroger stock could anchor any portfolio looking for growth and stability. dividends.

Four perspectives of dynamic dividends

Metric AbbVie Target FedEx Kroger
Dividend yield 4.2% 1.5% 1.1% 1.8%
The payout ratio 45% 27% 14% 24%
Dividend yield potential ten% seven% seven% 8%
5-year dividend growth CAGR 18% 6% 15% 12%
Consecutive Years of Dividend Growth 8 53 1 15

Data source: in search of the alpha. Dividend yield potential = yield / payout ratio. CAGR = compound annual growth rate.

AbbVie may have the highest dividend yield, but all four stocks have similar dividend yield potential – that is, the dividend yield divided by the payout ratio. This shows us what a company’s dividend yield would be if it paid out 100% of its net income.

With this potential for growth in payments and their history of increasing dividends, I think these stocks are great choices for almost any investor looking to see green in their portfolio.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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