OA solid strategy for increasing the long-term value of your portfolio is to invest in dividend-paying stocks. These recurring payments will generate cash flow that you can use without selling your investments.
Three stocks that are great sources of recurring revenue are Novartis (NYSE: NVS), ECB (NYSE: BCE)and Kraft-Heinz (NASDAQ: KHC). Collectively, they can help diversify your portfolio and, at their current stock price, all are earning more than double the S&P500average yield of 1.3%.
Swiss drugmaker Novartis is the perfect type of investment to stash in your portfolio. It may not be an exciting hyper-growth company, but you can count on it for consistency. Over the past five years, the company’s revenue hasn’t deviated much: its revenue has remained in the range of $48 billion to $54 billion. And during this period, the lowest profit margin it achieved was more than 15%.
But that doesn’t mean growth isn’t on the horizon. The US Food and Drug Administration approved the company’s cholesterol drug, Leqvio, late last year. At its peak, it could generate more than $2 billion in annual sales for the company. But that’s not all. Novartis estimates that it has more than 20 candidate treatments in its pipeline that could be potential blockbusters and could gain regulatory approval by 2026.
The company has also generated more than $10 billion in free cash flow in each of the past four years, funds that the health care company can use to explore more opportunities and improve their pipeline. In 2021, Novartis also spent $7.4 billion on its dividend — which at the current share price yields 3.7% — and another $3 billion on share buybacks.
Novartis has a solid business, and with a modest payout ratio of 30%, its stock could be an income investor’s dream buy.
Canadian telecommunications giant BCE is an industry leader as well as a reliable dividend payer. There may not be a lot of growth here, but it’s pretty consistent. In 2021, its turnover increased by 2.5% to reach 23.5 billion Canadian dollars. And over the past four years, its sales have been fairly stable, hovering between C$22 billion and C$24 billion. Net profit rose 7.2% last year to C$2.9 billion as business returned to pre-pandemic levels. This equates to a strong profit margin of 12%, which is typical for the company.
In 2022, management expects sales to increase by up to 5%. The company continues to expand its 5G network, which it says now reaches 70% of the Canadian population. While all of this is good, the real value of the stock is an income investment. At the current share price, BCE pays a dividend that yields an impressive 5.5% annually. It announced a 5.1% rise in payouts earlier this month when releasing its year-end results.
Although the company’s payout ratio is technically over 100% now, BCE has a history of paying out a high percentage of profits. A return to something closer to pre-pandemic normal in terms of travel (and therefore roaming revenue) should help reduce this ratio in 2022. Historically, the company’s free cash flow has been sufficiently strong to support dividend payments.
BCE is not a dividend stock I would worry about – the company is quite stable and is among the leaders in the telecommunications industry in Canada.
3. Kraft Heinz
Kraft Heinz is another mainstay that investors can rely on. The company’s business is based on some popular household brands, including Oscar Mayer, Philadelphia and, of course, Kraft and Heinz. The company’s products are staples in many homes, which can make the stock a relatively safe buy, especially in a year when inflation could weigh on other investments.
Food companies like Kraft with popular and widely used products have greater flexibility to raise prices to offset the impact of rising costs. And during the company’s earnings call in October, management said it was confident it would be able to adjust to inflation. It’s not something every company can do, which could make Kraft particularly attractive to long-term risk-averse investors. It also doesn’t hurt that Kraft’s main customer is a big-box chain. walmart.
The company’s revenue of $26.3 billion in the past 12 months is remarkably similar to the $26 billion in annual revenue it generated in four of the past five years. Coupled with operating margins that normally hover around 20%, this makes this business quite stable.
While Kraft had to cut its dividend a few years ago and suffered a steep $10 billion loss in 2018 after recording impairment charges of more than $15 billion, the fundamentals of the business remain strong and its brands are top notch. And his payments are also much more manageable now. Kraft has generated free cash flow of $3.2 billion over the past four quarters, which has been more than enough to cover its dividend payments of just under $2 billion over that period. . Such excess cash was not common before the dividend cut. That makes its dividend – which yields 4.6% at the current share price – look much more attractive right now.
You may not expect much growth from Kraft’s business, but the stock can still be a solid income investment for hang in there for the long haul.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.