I’d Put $500 Into Each of These 5 Dividend Stocks and Throw Away the Statement
When you invest in stocks, you should look at it as if you were buying the entire company. Sure, you are only getting a small piece of a company, but if you “buy the company,” you look at the investment in a different way. It shifts from a short-term trading decision to a long-term investment, with business quality taking precedence over the stock price.
This long-term view is why I’m happy to own PepsiCo (PEP -1.85%), Hormel (HRL -1.18%), Hershey (HSY +0.12%), McCormick (MKC -2.46%), and Realty Income (O +0.02%) today despite all of them being out of favor. In fact, I don’t even bother to look at my brokerage statements each month (I might as well just throw them away). Here’s a quick look at each company.
Image source: Getty Images.
Consumer staples are unloved right now
Four of these five stocks are pure consumer staples companies. Right now, inflation has increased operating costs while consumer belt-tightening has made it more difficult to raise product prices. Meanwhile, consumer tastes are shifting toward healthier fare, requiring companies to invest to adjust to new buying trends. It is a tough environment.
PepsiCo and Hormel are both Dividend Kings, with each having more than 50 consecutive annual dividend increases. McCormick has increased dividends for 39 years, so it is no slouch here. Hershey hasn’t increased its dividend every year, but has a long history of generally rising dividends. They have all lived through periods like this before and survived.
Today’s Change
(-1.85%) $-2.37
Current Price
$125.97
Key Data Points
Market Cap
Day’s Range
$125.29 – $127.10
52wk Range
$123.47 – $171.48
Volume
9.9M
Avg Vol
8.3M
Gross Margin
54.11%
Dividend Yield
4.61%
PepsiCo stands out for its diversification, with operations across beverages, snacks, and packaged foods. It is an industry leader in the first two. Hormel is focused on packaged foods, but has a unique focus on protein. It also has a strong business selling to restaurants. Hershey is a leading confectionery and salty snack maker, offering affordable luxuries. People love chocolate, and that’s not likely to change anytime soon. And McCormick sells spices and flavorings to individuals and businesses. Bold flavors are an increasingly important story for consumers. I actually just doubled my position in McCormick. While each company is facing headwinds, none of these businesses is at any risk of being less relevant.
Today’s Change
(-1.18%) $-0.23
Current Price
$19.19
Key Data Points
Market Cap
Day’s Range
$19.16 – $19.41
52wk Range
$19.16 – $26.60
Volume
6.3M
Avg Vol
4.7M
Gross Margin
15.43%
Dividend Yield
6.08%
Simply put, I’m so confident that they’ll work through the current headwinds that I’m not worried about their stock prices. What I focus on is the business, and each one is doing exactly what I would expect in the current situation. Innovation, notably, is a key focus for all these companies, and I expect that to help drive long-term growth.
For dividend investors who think long term, as I do, however, now could be a great time to jump aboard. Each of these consumer staples companies has a historically high dividend yield. PepsiCo’s yield is 4.7%, Hormel’s is 6%, Hershey’s is 3.5%, and McCormick’s is 4.1%. The S&P 500 index‘s (^GSPC +0.59%) yield is 1%, while the average consumer staples stock yields 2.2%.
Today’s Change
(-2.46%) $-1.13
Current Price
$44.81
Key Data Points
Market Cap
Day’s Range
$44.61 – $45.92
52wk Range
$43.25 – $72.41
Volume
3.4M
Avg Vol
3.3M
Gross Margin
39.42%
Dividend Yield
4.22%
Real estate investment trusts are on the outs, too
Rising bond yields and interest rates have left investors downbeat on real estate investment trusts (REITs). That makes sense because REITs borrow money to buy properties. In the near term, profits are likely to be under pressure. However, property markets are likely to adjust to the new environment just as they have many times before. Realty Income and its lofty 6% yield, backed by 31 annual dividend increases, should be just fine.
Today’s Change
(0.02%) $0.01
Current Price
$54.18
Key Data Points
Market Cap
Day’s Range
$53.83 – $54.31
52wk Range
$53.15 – $67.94
Volume
5M
Avg Vol
6.5M
Gross Margin
50.82%
Dividend Yield
5.99%
I’m confident in that because Realty Income is an industry giant, with a portfolio of over 15,500 properties. It has long operated conservatively, with an investment-grade balance sheet. Its size and financial strength have long afforded it advantaged access to capital markets. That gives it an edge when buying properties throughout the entire cycle. Moreover, its portfolio is spread across North America and Europe, so it can raise capital wherever it can get the best rates. Yes, rising yields and rates are a headwind, but Realty Income is so well-positioned to handle them that I’m considering adding to my position while other investors are running for the hills.
Letting the dividends compound
The truth is, I’ve owned many of these stocks for a fairly long time. I’m even losing money on some of them because of the current difficult environment. But I’m not stressing over my investments because I have a deep understanding of the companies and believe they are operating their businesses very well, despite the headwinds. I’m just not worried, and there’s no reason to fret over the month-to-month stock fluctuations that show up on a brokerage statement. That said, I do watch my dividend checks roll in, happily buying more shares via automatic dividend reinvestment while the stocks are depressed. You could easily do the same thing with $500 or $5,000.
