Dividend investing is a common path to long-term wealth. Buying stocks that distribute cash flow to their investors every quarter can help with living expenses while allowing you to hold onto your shares. Many dividend-paying companies raise their payouts each year, allowing investors to reap additional funds. They are the dividend value plays we are considering today.
If retirement is decades away, reinvesting your quarterly dividends can help significantly in the long run. Each reinvestment ensures that the next quarter’s dividend payout will be higher than the previous quarter. Building that out for several years can make it easier to cover various expenses with your dividend portfolio.
One weakness of this strategy is that some dividend stocks require you to sacrifice long-term gains. While AT&T (NYSE:T) has a high yield, its stock price hasn’t gone anywhere positive for years. However, some dividend stocks offer a good combination of growing payouts and the potential to deliver impressive gains. These are some of the top dividend value plays to keep on your radar.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) has outperformed the stock market with a 44% year-to-date gain. The steakhouse chain has also more than tripled over the past five years and comes with a 35 P/E ratio. Texas Roadhouse also has a 1.42% yield and has maintained a double-digit dividend growth rate for several years.
A rising dividend payout and a respectable yield aren’t Texas Roadhouse’s only strengths. The company’s first quarterresults pointed to financial growth. Revenue increased by 12.5% year-over-year to reach $1.3 billion. Net income increased by 31.0% year-over-year to reach $113 million. Texas Roadhouse closed out the quarter with an 8.6% net profit margin which is above the industry average.
Texas Roadhouse has 753 restaurants in domestic and international markets. The steakhouse chain has 644 company-owned restaurants and 109 franchises. Texas Roadhouse has been a big hit with customers, as comparable restaurant sales increased by 8.4% year-over-year. While other restaurant stocks have soared and amassed high P/E ratios, Texas Roadhouse still trades at a reasonable valuation.
American Express (AXP)
American Express (NYSE:AXP) has delivered a 23% year-to-date gain for investors and is up by 87% over the past five years. The fintech firm has a 19 P/E ratio and a 1.21% yield. American Express has consistently maintained a double-digit dividend growth rate for several years, including a 17% hike earlier this year.
Consumers tend to use their credit and debit cards for most purchases. These cards come with enhanced security features and rewards that make it hard to go back to regular cash purchases. American Express’ first quarter results indicate growth is still solid for the firm. Revenue increased by 11% year-over-year while net income was up by 34% year-over-year. It’s part of the company’s multi-year plan to maintain 9% to 11% year-over-year revenue growth and EPS growth in the mid-teens beyond 2026. This long-term vision should result in plenty of value for patient investors. The company’s ability to attract millennials and Gen Z consumers should fuel higher profits moving forward.
Caterpillar (CAT)
Caterpillar (NYSE:CAT) has been in the construction business for almost 100 years. Dividend investors seeking long-term picks will appreciate the company’s ability to withstand various economic cycles. Shares are only up by 13% year-to-date but have gained 143% over the past five years. The $162 billion company trades at a 15 P/E ratio and has a 1.70% yield. Caterpillar is currently rated as a Moderate Buy among 16 analysts and has a projected 12% upside. The highest price target of $440 per share implies a potential 33% gain.
The construction equipment provider delivered stable revenue year-over-year and a 53.7% year-over-year increase in profit per share. Caterpillar’s profit margins are rising and prompted the company to deploy $5.1 billion toward stock buybacks and dividend distributions. Caterpillar has maintained an annualized 8% compounded dividend growth rate for a decade. Caterpillar is a leader in the construction industry that looks primed to reward long-term investors.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On this date of publication, Marc Guberti held a long position in TXRH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
