As the old saying goes, there’s more than one way to skin a cat. Although most investors might assume that the likeliest path to wealth lies in growth stocks, there’s a lot to be said for the slow but compounded upside of receiving regular dividend payments, even if you don’t reinvest. not these dividends in the same stock that’s flat out them.
Here’s a closer look at three dividend-paying stocks that, given enough time, could make you richer than you think.
It’s a tough time to be excited about owning bank stocks. Interest rates are sure to rise, which runs counter to the current prices of all dividend-paying stocks. And, higher interest rates make borrowing money for some reason a less compelling idea. Banks that lend to businesses are apparently under threat here, with or without the prospect of a recession.
But there is one small detail about banks that is often overlooked. In other words, the higher the interest rates, the more profitable the loans become.
Enter Citigroup ( VS -1.22% ), which, thanks to its 30% decline in the share price from last June’s highs, now pays 3.6% on its dividend. Assuming the world emerges from its current economic turmoil and avoids sliding into a recession, this sell-off on the stock should not last long. Indeed, with rates poised to rise on the order of at least a few percentage points by the end of 2024, it’s arguable that Citigroup will be better off two years from now than anyone expects it to be now.
In the meantime, the bank continues to offer a variety of reliable, revenue-generating services that are not only perpetually marketable, but also less prone to rising interest rates. Investment banking, wealth management and other institutional offerings are also in its wheelhouse. These other lines of business are a key part of why Citi has been able to increase its dividend payout by almost 60% over the past five years and has continued to make its quarterly dividend payout even when rates are falling. interest began to drop in 2019.
Income investors looking for outsized returns may also consider taking an equity stake in Medifast ( MEDIUM 1.34% ). While the company is generally viewed more for its potential as a growth engine and less as an income investment, the stock’s steady sell-off since the middle of last year has pushed its dividend yield to 3%.
You may know more about Medifast than you think. This is the organization behind the diet and weight loss coaching service known as Optavia, which at the end of last year – with the help of almost 60,000 personal trainers – helped more than 2 million customers better manage their weight. Medifast leveraged this customer and trainer base to generate over $1.5 billion in sales last year, improving the 2020 tally by 63% and converting $164 million of this business into revenue. net. This net result was 59% higher than the previous year. As noted, these are the kinds of results that inspire growth-seeking investors.
Look no further for that kind of growth rate anytime soon, if ever. Most of this searing expansion appears to stem from the unique circumstances of the pandemic. Analysts expect more moderate growth of 15% this year and almost 14% next year, which explains why the stock has performed so poorly since last May.
However, the stock’s recent tumble is also arguably an overreaction to slowing earnings. Now that the company has the scale it needs, earnings per share this year are expected to rise from $13.89 last year to $15.44 this year to $18.62 next year. That’s growth worth considering, especially in light of the fact that the stock now trades at less than 10x expected 2023 earnings. The above-average dividend with yield 3.16% is just a nice bonus.
Finally, add Prudential Financial ( ERP 1.62% ) to your list of dividend-paying stocks to buy if you’re looking to grow your portfolio into a small (or even large) fortune.
Much like Citigroup, Prudential is misunderstood in one key way. This misunderstanding is the assumption that the insurance industry’s bottom line is completely unpredictable because its payouts are unpredictable, as they may not be fully covered by customer premiums. That’s far from being the case. Insurance companies employ teams of mathematicians to determine likely future payment costs, and costs that exceed expectations in a given year are usually offset by premium increases the following year. Since all insurers work with the same basic data, the cost of coverage is roughly the same from one insurer to another. Of course, insurance protection isn’t really optional for most businesses or individuals.
It’s the short way of saying that Prudential Financial’s results are rarely major surprises, even if they don’t progress perfectly straight.
This long-term reliability has not prevented Prudential stock from falling more than 15% in just under a month. Its price is now less than 10 times expected earnings per share of $11.89 this year, and this lull is unlikely to last longer than the past two years. Stepping in now means you are entering a position when the dividend yield is 4.5%.
Incidentally, this underlying payout has been increased for 14 consecutive years now. The company can aim for Dividend Aristocrat status, which requires an increased dividend payment every year for at least 25 consecutive years.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging 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 wealthier.