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3 Top Dividend Stocks to Buy Hand Over Fist

Motley Fool - Sun Feb 25, 6:05AM CST

Companies that can grow their dividends steadily over time tend to produce strong total returns for their shareholders. Here are three stocks that are set to increase their cash payouts in the coming years.

1. Walmart

Persistent inflation is driving consumers to seek bargains wherever they can. Increasingly, they're turning to Walmart(NYSE: WMT) for groceries and other everyday essentials. The discount retailer's reputation for low prices is allowing it to capture more market share from its higher-cost rivals.

Walmart is the 800-pound gorilla in the $850 billion U.S. grocery industry, with a market share of roughly 25%. Its entrenched position as a leading provider of value-priced food and other household staples drives strong, repeat traffic to its stores.

Despite the ubiquity of Walmart's stores -- 90% of the U.S. population resides within 10 miles of one of them -- management sees room for further expansion. The company plans to open over 150 big-box locations during the next five years.

Importantly, Walmart has also become a formidable force in online retail. Rising demand for curbside pickup and delivery services drove its e-commerce sales up by 23% in the fourth quarter and above $100 billion in 2023.

Advertising is another promising growth driver. Walmart's high-margin global ad sales leaped 28% to $3.4 billion in 2023. The retailer's pending acquisition of TV maker Vizio should help broaden its offerings to advertisers by expanding its connected-TV services.

With multiple paths to profit growth, Walmart should have little trouble extending its impressive 51-year streak of annual dividend increases. The retail Goliath's shares currently yield a solid 1.4%.

2. Waste Management

Steadily growing cash payouts are also the domain of Waste Management (NYSE: WM), which does business these days as WM. The company is the leading provider of garbage collection and recycling services in North America. Yet a large portion of its future profits will be derived from a business you might not expect.

WM's landfill network stretches across the U.S. and parts of Canada. Strict regulation, together with opposition from homeowners, makes it difficult to build new waste facilities. These obstacles form a wide competitive moat around WM's business. They also enable the garbage king to steadily raise prices.

In addition to profits, the company's waste sites produce an increasingly valuable form of energy. Gases are produced as organic matter decomposes in landfills. WM is investing in technology that converts this biogas into renewable natural gas (RNG). It's easy to see why. Switching from diesel to RNG can help WM cost-effectively fuel its garbage trucks while slashing fleet emissions by up to 80%. Better still, adding an RNG plant can boost a disposal site's profitability by as much as 75%.

Additionally, with governments and businesses intensifying their decarbonization efforts, demand for RNG is projected to outpace supply until at least 2030. WM, in turn, expects to generate $450 million in annual free cash flow from its RNG operations by 2026. For context, the company produced a total of $1.9 billion in free cash flow in 2023.

With renewable energy set to power WM's expansion, investors can expect the company to further its 21-year streak of annual dividend raises well into the future. The trash titan's well-funded cash payout places its yield at a dependable 1.5%.

3. Ford Motor Company

If you'd like to earn even more dividend income, take a look at Ford Motor Company(NYSE: F) and its nearly 5% yield. The venerable automaker has an under-the-radar profit driver that many investors are overlooking. Their mistake could be your opportunity.

Ford is preparing for an electrified future. Its all-electric F-150 Lightning pickup was named the 2023 North American Truck of the Year, based on its innovative design, safety features, performance metrics, and relative value. The F-150 Lightning was also the best-selling electric truck in the U.S. last year.

While Ford's EV business is promising for its growth potential, gas-powered vehicles remain a key source of profits. Ford Blue, the division that houses the company's traditional combustible engine and hybrid vehicles, generated an operating profit of $7.5 billion in 2023.

Yet it's Ford Pro that could soon become the auto giant's most valuable business. The fast-growing segment contains Ford's commercial and government fleet operations, along with its software and services offerings. Ford Pro's operating profits more than doubled to $7.2 billion last year. Management sees that figure climbing as high as $9 billion in 2024.

CEO Jim Farley thinks investors are undervaluing Ford Pro and, by extension, Ford's stock. Buy today, and you can claim some of the auto leader's shares while they're still trading for a bargain price.

Should you invest $1,000 in Ford Motor Company right now?

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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