They may not offer the very highest yields, but their dividends are built to last, and even grow.
Need dividends? The highest-yielding stocks aren’t necessarily your best choice. Quality counts. A company should not only be able to continue funding its payouts, but should also be capable of growing its dividend payments in the future.
If you’ve got a few thousand bucks you’re ready to commit to some new income-producing investments, here’s a look at three of the market’s smartest dividend stocks to buy right now.
1. Merck
There’s no denying the pharmaceutical industry’s glory days are in the past. This market’s simply become very crowded, by a bunch of similar drugs as well as by a bunch of companies making them. Merck (MRK 1.48%) is no exception.
What Merck may lack in raw growth firepower, however, it makes up for with savvy portfolio management.
Take its best-selling drug Keytruda as an example. It’s on pace to generate on the order of $30 billion worth of revenue this year, up from nothing in 2013 when the oncology drug won its first approval (before going on to secure a few dozen more). But Merck didn’t actually develop it. It was acquired by virtue of 2009’s acquisition of biopharma outfit Organon, which figured out Keytruda’s winning formula back in 2006, years before any approval and subsequent revenue. Before that, Merck’s breadwinner was arthritis treatment Remicade. Prior to that it was blockbuster asthma treatment Singulair, which was part of Schering-Plough’s portfolio when Merck bought it in 2009. Before Singulair, Merck’s flagship product was diabetes drug Januvia.
In this vein, even though Keytruda’s sales have never been stronger, the drugmaker’s already made a point of securing the developmental rights — at a bargain price, no less — to a cancer immunotherapy being developed by China’s LaNova Medicines that’s merely showing promise as a superior option to Keytruda.
The point is, Merck recognizes and preemptively responds to the inevitable end of its top-selling drugs’ dominance by finding its next top seller before it’s an obvious winner.
Merck’s track record of updating its drug portfolio early and often with the right pharmaceuticals is a big reason the company’s now been able to raise its dividend for 14 consecutive years. And by more than a little. Its quarterly per-share payout of $0.44 a decade ago now stands $0.77. That’s an annualized growth rate of nearly 6%, handily outpacing inflation for the same time frame. Merck stock itself has also advanced more than 70% during this stretch, and that’s with a recent, sizable sell-off.
Newcomers will be plugging into this ticker while its forward-looking yield stands at 3.2%.
2. Sirius XM Holdings
Anyone keeping tabs on Sirius XM Holdings (SIRI 1.14%) probably already knows the satellite radio platform and Pandora parent has been shedding paying subscribers since early 2020, which makes sense. Although satellite radio offered clear value in its infancy, the rise of broadband (and wireless broadband in particular) is an obvious threat to the business. Pandora is a leading name in its sliver of the market as well, but streaming radio’s low barrier to entry and competition like Apple also bring clear challenges to the table. Sirius XM’s revenue has been unsurprisingly stagnant for years now.
Largely being overlooked, however, is that Sirius XM Holdings is in the midst of a pretty serious overhaul that will dramatically change its business model for the better.
One of these chief changes is the introduction of a completely free/ad-supported version of its satellite radio service available in certain new cars. While this plan’s programming isn’t quite as robust as what’s available to paying customers, it’s an opportunity to monetize a bunch of consumers that might otherwise never become listeners.
The company’s also improving its ability to serve the ad-driven market. In June of this year Pandora became the first audio platform to adopt an advertising technology called Unified 2.0, which is an identity solution that helps advertisers more precisely and more effectively deliver ads to listeners.
There’s still much work to be done as the company enters this new advertising-oriented era (which doesn’t leave its old business model behind, by the way). But, given consumers’ growing tolerance of ads within their streaming video feeds — along with the company’s continued growth of programming options like the recent addition of shows hosted by football coach Bill Belichick and podcaster Alex Cooper — the near and distant future looks much more promising than the recent past’s results have suggested.
You’d be buying this stock at an attractive forward-looking yield of 4.1%, by the way, which is based on a dividend that’s been raised for seven years in a row. The new-and-improved Sirius should be able to extend this growth streak indefinitely.
3. Dominion Energy
Finally, add Dominion Energy (D 0.98%) to your list of smart dividend stocks to buy while its forward-looking dividend yield stands at 4.6%. You’d be hard-pressed to find much better than that from a company of this ilk.
At first blush Dominion Energy isn’t all that different from most of its electric utility peers. The company serves 3.6 million households and businesses in Virginia, North Carolina, and South Carolina, plus another half-million natural gas customers in South Carolina. The company did $14.4 billion worth of business last year, turning it into a fairly predictable $2 billion in net income.
A bit of deeper digging, however, reveals that for a second year in a row this utility outfit dished out more in dividends than it actually earned on a per-share basis. Moreover, its dividend hasn’t actually been raised since early 2022. Although both are ultimately the result of a strategic rethinking rather than an indication of trouble, it’s still frustrating. That’s why the stock’s still below its 2022 peak despite its rally from last year’s low. Indeed, shares are currently priced where they were a decade ago.
This may be one of those cases, however, where the market’s so fixated on a company’s disappointing past that it’s forgetting to look to the future.
Although Dominion isn’t in any particular hurry to raise its dividend, several important developmental projects are underway, with a few of them nearing completion. For instance, the construction of a floating wind turbine (called Charybdis) should be finished sometime early next year. At the same time, even as Dominion is investing in new projects, it’s worth mentioning the company also sold a couple more assets last quarter (its public service company of North Carolina and the CVOW partnership with Stonepeak, to be specific), adding to a list of divestures that’s reduced debt to the tune of $21 billion. These are all part of larger reconfiguring that — while admittedly annoying in the short run — will pay off in the long run.
More important to income-minded investors, Dominion Energy’s current dividend payments aren’t in any real jeopardy while you’re waiting for them to increase, whenever that may be.
Of course, falling interest rates will only help this ticker in the meantime.
