Whether you are investing for growth or income — depending on your investment style or the objective you’re trying to achieve — how you construct your portfolio matters.
The best dividend stocks offer both worlds — growth and income. And you get the peace of mind that comes from owning a company with enough confidence in its cash position to not only pay a dividend, but to consistently grow the annual yield over time.
Let’s look at three double-threat dividend stocks to sock away and never think about again:
3 Double-Threat Dividend Stocks: AT&T Inc. (T)
With an annual dividend of $1.88 per share yielding 5.5%, dividend aristocrat AT&T, Inc. (NYSE:T) has to bat leadoff.
If the Dallas-based telecommunications giant was still in the Dow Jones Industrial Average, it would be the top dividend-payer among all 30 companies. Not to mention, the annual yield of T stock is almost three times the 2% yield paid out (on average) by all of the Dow components in the last five years.
Sure, the stock is not cheap at 30 times earnings. But solid dividend stocks with a consistent focus on growing profits are rarely cheap. Plus, given the volatility the market has experienced so far in 2015, there’s a premium placed on safety.
And few companies are as safe as AT&T, which is the second-largest wireless carrier in world and arguably is a part of the few duopolies that exist, along with rival Verizon Communications Inc. (NYSE:VZ).
Moreover, AT&T has set its sight on growth. Its recent acquisition of Nextel Mexico and its pending merger with satellite television provider DirectTV (NASDAQ:DTV) are the most recent examples. These deals will make AT&T less reliant on its phone-subsidizing business model, which it’s moving away from. And its focus on long-term customer contracts will add the type of stability that will keep its profits growing well into the future.
And accordingly, its yield will continue to pay long-term investors.
3 Double-Threat Dividend Stocks: Apple Inc (AAPL)
Next on our list, we go from a wireless carrier to smartphone maker Apple Inc. (NASDAQ:AAPL).
It seems fitting, right? The iPhone giant recently increased its annual dividend by 11%, from $1.88 to $2.08 per share. I own AAPL stock and I have been long for five years. But Apple’s dividend, which has grown each year since the tech giant brought its dividend back in 2012, is only icing on the cake.
More important than the dividend are two main factors: cash and potential growth for the company and AAPL stock.
With $193.5 billion of cash/investments, AAPL has lots of security. Because of that cash, Apple was able to increase its current stock buyback plan by more than 50%, meaning Apple will now return $200 billion of cash to shareholders in the next two years.
And this adds an additional psychological level of support to a stock that’s trading relatively cheap at just 17 times earnings, compared to 21 for the S&P 500.
But here’s the thing — despite being the world’s largest company, Apple is still a growth company, posting a 27% year-over-year jump in revenue in its fiscal second quarter. Assuming that it does meet the Street’s revenue target of $48.1 billion for the June quarter, revenue would have accelerated sequentially by 1.5%.
And that’s not what one typically expects from a dividend stock — hence the best of both worlds.
3 Double-Threat Dividend Stocks: Cisco Systems, Inc. (CSCO)
No, it’s not the ’90s and Cisco is no longer an all world blue-chip tech stock. But Cisco has never lost its title as a bellwether of the Dow. And just as it did in the ’90s, more than 50% of Cisco’s equipment still powers the traffic traversing Internet.
Cisco is setting its sights on another phenomena, the Internet-of-Things (IoT). With Cisco being the leader of Internet traffic, CSCO hopes to dominate the devices connected to the Internet. Its version called Internet of Everything is poised to be in high demand.
Sure, there are competitors out there. But few offer the combined expertise Cisco can bring in terms of the cloud, mobility, big data and — more importantly — security.
As the world’s second-largest security vendor, Cisco has an added advantage its many IoT competitors don’t. And with market market research firms predicting 30 to 50 million devices will be connected on the Internet in the next five years, Cisco will be able to collect a toll on a large majority of those devices, making its stock one to own and forget about.
And as for its dividend, that, too, is icing on the cake. Cisco’s stock will — by then — do all of the heavy lifting in your portfolio. And as an investor, I wouldn’t want it any other way.
As of this writing, Richard Saintvilus was long AAPL.