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3 Amazing Dividend Stocks That Should Pay You Forever

Motley Fool - Sat May 27, 8:00AM CDT

If you're looking for some extra income for your portfolio, you might want to consider buying shares of leading brands in their respective markets that have a record of growing their dividend payments. Companies that consistently grow their dividend usually possess profitable business models and a competitive advantage -- a key factor in determining a company's long-term success.

The average dividend yield on the S&P 500 index is currently 1.6%, but you can do much better than that. Let's see why Starbucks(NASDAQ: SBUX), Williams-Sonoma(NYSE: WSM), and Costco Wholesale(NASDAQ: COST) made the cut of three Motley Fool contributors' dividend stock buy lists.

The top coffee brand pays an above-average yield

Jennifer Saibil (Starbucks): With inflation woes impacting essentially every industry globally, it's much more common these days to see business slowdowns than high achievements. Coffee giant Starbucks, though, posted excellent performance despite the economic climate.

In the 2023 fiscal second quarter (ended April 2), revenue increased 14% year over year, including an 11% increase in comparable sales. Earnings per share (EPS) increased 36% to $0.79, and operating margin expanded from 13% to 14.3%.

That's not to say Starbucks wasn't affected at all by current and previous economic challenges. Sales tanked at the beginning of the pandemic, and it took time and a lot of change to get back on track. The company brought on a new CEO and is completely revamping its strategy, with a focus on improved equipment technology for better, faster customization, and more acutely, on becoming a digital-first company. It's been using artificial intelligence (AI) for years to collect data about customer preferences and to create popular beverages, so it's prepared for the mass embrace of AI functions.

It's not the first time Starbucks changed its focus to shift with current trends. It's already a four-decade-old company and a measure of its success is the ability to shift with its consumers. It usually takes a dent in sales for it to realize what's going on, but it adapts accordingly.

One thing that's been steady throughout is its dividend payments. It has paid and raised its dividend annually since 2010, and the dividend yields 2.1% at the current price, which is around its average yield.

Starbucks stock has been a long-term winner, although it's still making its way back up after pandemic-driven struggles. It didn't suspend its dividend at that time, and as it continues to dominate its industry and meet shifting trends, it's a top stock for reliable and above-average dividend payments.

A value retail stock with a solid dividend record

John Ballard (Williams-Sonoma): Shares of Williams-Sonoma have more than doubled over the last five years, with most of those gains coming in 2020 and 2021 at the start of the pandemic. The company's revenue growth slowed last year and may continue to slow in 2023 from a shaky economy. But the market could be undervaluing this leading brand's prospects in a growing home furnishings market over the long term.

The stock trades at a low forward price-to-earnings ratio of 8.2 and offers a dividend yield of 2.9%. The company has nearly doubled the dividend payment over the last five years but still only pays out a third of its earnings, which could support further increases.

WSM Dividends Paid (TTM) Chart

WSM Dividends Paid (TTM) data by YCharts

Williams-Sonoma is coming off a record year of revenue and profits. It's gaining market share in a home decor market expected to grow 5.3% per year over the next four years, according to Statista.

This isn't a fast-grower, but Williams-Sonoma has been consistent over the last decade, with revenue growth consistently hovering in the single-digit range. The company delivered excellent returns to investors through improving operating efficiency, which allowed the company's profits to grow faster than revenue and facilitated a growing dividend.

Williams-Sonoma reported a slight decline in comparable brand revenue in the fiscal fourth quarter, but adjusted earnings per share still posted a small increase. The company just recently raised the dividend by 15% to a quarterly payout of $0.12 per share.

Management structured the business to support a 15% operating margin over the long term, which should support the dividend even during a year of soft demand. This is a profitable retailer with a great dividend record worth considering.

A bulletproof retailer with a growing dividend

Jeremy Bowman (Costco Wholesale): When I think of reliable retail dividend stocks, Costco Wholesale is one of the first to come to mind.

The warehouse retailer has a number of evident competitive advantages, including its bargain prices on quality bulk goods, Kirkland private-label brand, membership-based business model, and high customer satisfaction scores and renewal rates.

Costco is one of the few retailers that continue to open up stores, showing strong demand for its services. And those new stores are coming even as it's invested significantly into the e-commerce channel, building up a steady online business.

Based solely on dividend yield, Costco isn't going to win any accolades from income investors. The company currently offers a dividend yield of just 0.8%, but that doesn't tell the whole story. It has a long history of paying special dividends every few years, worth as much as $10 per share in the most recent one in 2020.

Based on historical cadence, the company could be set to pay one again, and it could be even higher as the company's balance sheet is strong coming off of several years of outperformance during the pandemic and its aftermath.

Additionally, investors can rely on Costco to continue raising its regular quarterly dividend -- it's done so every year since 2004, usually by 10% or more.

Considering that Costco's business is recession-proof, continues to gain market share in retail, and is expanding both through brick-and-mortar locations and online, the warehouse retailer is likely to be around for a long time, and its dividend payout should continue to grow with it.

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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Starbucks. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Starbucks, and Williams-Sonoma. The Motley Fool has a disclosure policy.

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