We’d all love to be paid for the rest of our lives, especially if that payment arrives without our having to work for it. Getting paid for the rest of your life without working isn’t a pipe dream, though. You can get it from dividends.
Here’s a look at three dividend-paying stocks that seem poised to keep growing — and keep paying out cash to shareholders — for the foreseeable future.
1. Iron Mountain
Iron Mountain (NYSE:IRM) has a fat dividend that recently yielded 5.7%. Iron Mountain specializes in the storage and protection of documents and data. It’s also in the midst of shifting its focus toward digital storage and data centers — a sensible reaction to our changing world that’s ever more digital. Iron Mountain is also a real estate investment trust (REIT), which means it’s required to pay out at least 90% of its income as dividends.
High dividend yields can sometimes signal issues with a company. So is there a problem with Iron Mountain? Well, it’s carrying a lot of debt right now, and it needs to spend significantly in order to build out its data center business. That’s a tricky task when you’re loathe to add to your debt levels. Management is bullish, though, noting its ongoing plan to cut costs across the company, called Project Summit, on a recent conference call: “We are confident that our continued delivery of overall revenue growth, together with the expansion of margins due to Project Summit, will enable us to continue our acceleration in cash generation, which will allow us to continue to invest in our future, while returning more and more cash to our investors.”
Income-seeking investors should consider Iron Mountain, but keep an eye on it to make sure it keeps executing well and shrinking its debt load.
Another promising dividend payer is McDonald’s (NYSE:MCD), which needs little introduction. Interestingly, while most people think of it as merely a restaurant chain, it’s actually very much a real estate company as well, because it owns much of the land and buildings at its locations — both owned and franchised — and collects lots of rent payments. McDonald’s dividend recently yielded 2.2%, and the company has been increasing that payout by an annual average of about 7.7% over the past five years.
As huge an enterprise as McDonald’s is, it’s still planning to grow significantly, aiming to open 1,300 more locations this year. (At the end of 2020, it had more than 39,000 locations worldwide, including more than 13,000 in the U.S.) It’s also looking to boost profitability by cutting costs, such as by increasing the automation at drive-thrus, and its profit margin has been growing.
McDonald’s stock isn’t trading at bargain-level prices lately, but it could still serve long-term-minded investors well. For even better results, you might wait, hoping for a pullback — or compromise and just buy into the company over time, in chunks.
Sanofi (NASDAQ:SNY) is a major pharmaceutical company, and like Iron Mountain, it’s transforming itself — in this case by having spun off its active pharmaceutical ingredient (API) manufacturing business as a new company, Euroapi. It’s not the pharma company that most investors are excited about, in part because many of its drugs are coming off of patent protection and others have slumping sales. But things may be changing soon.
The company’s eczema drug Dupixent, for example, saw revenue grow 45.6% year over year in the first quarter, while its vaccine business (such as flu vaccines) grew 5.3%. Sanofi has partnered with GlaxoSmithKline (NYSE:GSK) to develop a COVID-19 vaccine, but that’s only commencing phase 3 trials soon. Meanwhile, revenue and earnings per share grew by 2.4% and 15%, respectively, year over year in the first quarter, in constant currency.
With a recent price-to-earnings (P/E) ratio of nine and a forward-looking P/E ratio of 14, Sanofi’s stock is attractively valued. Its dividend recently yielded 3.6% and it has been upping that payout by an average annual rate of 3% over the past five years. Its payout ratio, representing the portion of earnings being paid out as dividends, was recently just 32%, suggesting that there’s plenty of room for further growth.
Dividend-paying stocks can be terrific wealth builders. Consider that a $300,000 portfolio with an average overall dividend yield of 4% will generate $12,000 annually — and that sum will grow over time.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.