There’s a tremendous amount of disagreement in the markets right now with respect to where the economy could be headed from here. Concerns related to inflation, overvaluation, and an eventual end to the existing accommodative monetary and fiscal stimulus measures have some investors considering taking the foot off the gas. Or, they’re looking at defensive dividend stocks to load up on heading into the winter.
Such a view certainly makes sense. Anything growth related has outperformed for so long, value has to catch up. At least, that’s the theory among many value investors who have been pushed aside for the past decade.
That said, technological innovation continues to drive the global economy. Perhaps taking an “all-in” or “all-out” approach doesn’t make sense. I’d agree with that view. However, easing off the gas and into some safer, dividend-paying stocks certainly seems like a prudent idea right now.
However, picking the best dividend stocks that provide not only income but capital appreciation potential — that’s a bit more difficult. These top seven stocks are ones on my watch list right now as potential additions in the near future. Let’s dive into why these companies provide a great defensive posture, while also providing decent upside potential in the years to come.
- Nestle (OTCMKTS:NSRGY)
- McDonald’s (NYSE:MCD)
- AT&T (NYSE:T)
- PepsiCo (NASDAQ:PEP)
- Iron Mountain (NYSE:IRM)
- Altria (NYSE:MO)
- Target (NYSE:TGT)
Top Dividend Stocks: Nestle (NSRGY)
Nestle is a conglomerate for conglomerate fans. A company with over $95 billion in annual sales and 273,000 employees globally, Nestle is one of the largest portfolios of food brands globally. This company’s highly-diverse product portfolio includes top-notch brings such as Nespresso, Smarties, Kit Kat, Stouffer’s, and Nesquik.
Personally, I’m a fan of Nestle’s products. But I’m also a fan of this company’s dividend. Currently, NSRGY stock pays a dividend yield of 2.3%. Not super juicy, I know.
However, this is a company that has relentlessly raised its dividend over the past decade. Accordingly, investors who have held steady have seen impressive yields materialize over time. It’s also worth noting that this is a company that’s seen an average yield closer to 3% over the years.
Thus, Nestle’s current dividend state is related to the capital appreciation this stock has seen over the years. That’s not a bad thing. For long-term investors seeking total return, Nestle has proven to be a stock worth considering on any dips, to lock in that bond-like yield.
Speaking of bond-like yields, McDonald’s is perhaps one of the most defensive stocks in the world, providing dividend stability like few other companies. Additionally, like many of the companies on this list, McDonald’s has a track record of more than four decades of continuous dividend growth.
I like dividend growth. But I also like McDonald’s positioning in the quick service restaurant space. The moat around this company’s core business is impressive. Indeed, the brand value associated with the McDonald’s name is really second to none in the market right now.
The entrenched nature of McDonald’s as a way of life for so many globally has made this company’s cash flows nearly as predictable as those of fixed income securities. Accordingly, it’s not surprising to note that the yield on MCD stock is relative low right now. Currently, investors pick up a yield of only 2.2% at the time of writing.
However, compared to where bond yields are at, that’s pretty decent. And given the potential upside McDonald’s could see as the global economy truly reopens following this pandemic, this is a stock with some nice growth upside as well.
Top Dividend Stocks: AT&T (T)
Sticking with the ultra-defensive dividend stocks space, AT&T is a company worth looking at. However, unlike other names on this list, T stock is among the highest-yielding dividend stocks on my radar right now.
Higher dividend yields can signal investors believe said company may not be able to pay out this yield over time. That, or investors don’t like the growth prospects of said company. Both might be true in the case of AT&T.
There’s not necessarily a lot of growth potential with this telecommunications player. This is a legacy business, and one many growth investors have simply moved on to. The returns provided by various hyper-growth stocks of late have made this so.
However, being able to pick up a dividend yield of 8.4% is extremely attractive to many investors. There are real arguments to be made why this yield is too high. Accordingly, this is a stock I think could see some material capital appreciation in the quarters to come, if this yield is recognized by the market.
In the food and beverage space, there are few better long-term bets than Pepsi. This is a company that’s been on my radar for a long time, for a number of reasons. However, Pepsi’s status as a dividend stock paying a 2.6% yield has something to do with this.
Pepsi has proven itself as a dividend growth play over the long-term. Indeed, over the past decade, the popular soda brand has raised its dividend by an average of 8.2% per year. Accordingly, for those looking for reasonable capital appreciation and dividend growth over time, Pepsi is a great company to consider.
PEP stock is one of those dividend stocks that continues to give back to investors. However, there’s a growing pie that the company’s divvying out. This past quarter, the company brought in adjusted net revenue of $20.2 billion. This was substantially higher than analyst estimates of $19.4 billion, making this stock stand out.
For such a large player in its sector, Pepsi’s recent 9% revenue growth speaks to the strength of the company’s underlying brand. I think there’s more room to run with Pepsi, and am considering this stock on any dips moving forward.
Top Dividend Stocks: Iron Mountain (IRM)
Records management services provider Iron Mountain is certainly a unique company to look at. Given the well-placed concerns many investors have with respect to privacy and data management, Iron Mountain is a company that has stealthily grown to an impressive size. This company deals with managing records, both physical and data backup media, while offering information management services globally.
Iron Mountain’s business has been booming. Like Pepsi, Iron Mountain posted 9% revenue growth this past quarter on a year-over-year basis. Earnings per share also jumped more than 20% on a year-over-year basis, some very strong results.
Accordingly, the fact that IRM stock currently yields 5.1% is something that should raise investors’ eyebrows. This is a defensive company with a strong balance sheet and competitive advantage I view as worth a look right now. Indeed, there are some strong secular growth catalysts underpinning Iron Mountain’s business model that investors appear to be ignoring, in favor of other more fancy options right now. One investor’s loss is another one’s gain.
Tobacco company Altria is one that many investors simply won’t touch. Rightfully so, given the health risks associated with smoking or using other products such as smokeless tobacco or vapes, this certainly makes sense, and I won’t disagree.
However, Altria, like its tobacco-related brethren, has been shifting away from its core cigarette business for some time. Notably, Altria reported in recent quarters that the company’s non-smokable tobacco products, along with cigarettes, account for the majority of its sales. That’s good news for investors looking for a reason to consider MO stock.
For investors seeking yield, Altria’s 8.1% yield is certainly attractive. This is on the higher end of the yield spectrum, likely driven by the company’s adverse business model. Accordingly, many analysts don’t necessarily believe this company’s low valuation will revert toward the market mean anytime soon (or anytime, for that matter).
That said, picking up such a safe yield is intriguing for many investors. Should Altria morph more into a cannabis-related play, and continue to purposefully let go of its cigarette business, perhaps the sentiment around this stock will change over time. We’ll see.
Top Dividend Stocks: Target (TGT)
Last, but certainly not least, we have retail giant Target. TGT stock’s relatively low yield of only 1.4% typically precludes this name from any sort of discussion among investors interested in dividend stocks. Fair enough.
However, one of the reasons for Target’s low yield right now are expectations this company will continue to raise its dividend over time.
One of the reasons for this assumption is Target’s recent impressive performance. During the past quarter, Target reportedly brought in total revenue of $22.6 billion. This represented growth of more than 21% over the same period the year prior. Sales growth of 21% and revenue growth of 18% in other segments helped to drive these results.
As consumers continue to open their wallets for the holiday season, expectations remain high for Target. Accordingly, this is a stock that may be more highly valued than it’s been in some time. That said, there’s a lot to like about how TGT stock is positioned right now. And investors won’t want to forget about that small, but growing yield as a cherry on top.
On the date of publication, Chris MacDonald did not have (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.