The 9 Best Stocks to Own Right Now

Preface

The stocks featured in today’s special report are among an elite group of high-quality companies known for paying their shareholders increasing amounts of income through both good times and bad.

They’re called dividend growth stocks… and for many of the analysts we follow, they’re the consensus “investment of choice” for anyone looking to secure a lifetime of steadily-rising income no matter what’s going on in the economy.

What’s a dividend growth stock?

Put simply, it’s a company with a proven track record of paying and raising its dividend year-after-year.

These companies typically dominate their industry, realize steady and growing profits, and generate significant amounts of free cash flow.

And perhaps best of all, they pay their shareholders a generous amount of that cash in the form of a dividend that increases each and every year (often rising faster than the rate of inflation).

The beauty of owning a stock like this is that no matter what happens to its share price, as long as the company’s dividend is safe (meaning it has the ability to continue paying it), then we — as shareholders — stand to collect larger and larger payouts each year.

With this in mind, we’ve sifted through the analysis of a handful of our favorite investment analysts and singled out what we consider to be the “best of the best” dividend growth stocks on the market.

For this report, we’ve teamed up with one of our favorite analysts in this space, Brian Bollinger — a Certified Public Account (CPA) and the founder of Simply Safe Dividends.

What we appreciate about Brian’s work is that he’s a straight shooter who only provides analysis that’s 1) rooted in the facts and 2) offers a balanced look at the pros and cons of a particular investment opportunity.

In other words, you won’t find gimmicky analysis, sensational headlines or careless recommendations from Brian. Everything he does is done with integrity (which we hope you appreciate in this day and age).

For this report, we’ve asked Brian to analyze each and every stock that made our final cut on the merits of its:

  1. Dividend safety
  2. Dividend growth potential, and
  3. Key risks

Brian’s analysis takes into account more than a dozen fundamental factors that influence a company’s ability to continue paying dividends, such as:

  • Earnings and free cash flow payout ratios
  • Debt levels and coverage ratios
  • Recession performance
  • Dividend longevity
  • Industry cyclicality
  • Free cash flow generation
  • Business volatility
  • Near-term sales and earnings growth
  • Return on invested capital

As you’re about to see, the following nine stocks (as well as the “bonus” stock) appear to be among the safest dividend-payers AND growers on the planet.

Together, they could be the foundation of a solid dividend-generating portfolio that produces safe, growing income for years to come.

Here at Daily Trade Alert, it’s our firm belief you will do well if you:

Without further adieu, we’re pleased to introduce you to the July 2017 edition of what we think are The 9 Best Stocks to Own Right Now.

Data as of 7/3/17 Ticker Company Name Div. Yield Dividend Growth Streak 5-year Annual Div. Growth
Stock #1 AAPL Apple 1.8% 5 years N/A
Stock #2 HSY Hershey 2.3% 7 years 12%
Stock #3 IBM Int’l Business Machines 3.9% 22 years 14%
Stock #4 HRL Hormel Foods 2.0% 51 years 18%
Stock #5 PG Procter & Gamble 3.1% 61 years 5%
Stock #6 KO Coca-Cola 3.3% 55 years 8%
Stock #7 PEP PepsiCo 2.8% 44 years 8%
Stock #8 JNJ Johnson & Johnson 2.5% 54 years 7%
Stock #9 SBUX Starbucks 1.7% 7 years 25%
Bonus Stock DIS Disney 1.5% 7 years 20%

Stock #1: Apple (AAPL)

Apple needs no introduction.

The stock has already minted many millionaires over the years, and here at Daily Trade Alert, we think it will continue to make money for long-term shareholders going forward… courtesy of its fast-growing dividend.

The company is about as high quality as it gets: It’s “AA+”-rated from S&P, it has spectacular profitability, a massive cash pile (more than the U.S. Treasury!) and an incredible balance sheet.

Thanks to its premium brand, Apple has unmatched pricing power that regularly delivers gross margins in excess of 35% (unheard of in its two main markets, PCs and smartphones).

As a result, the company is gushing free cash flow and is growing its dividend like crazy.

Source: Simply Safe Dividends

As you’re about to see, not only does Apple offer one of the safest dividends in the world, but its dividend growth potential going forward is nothing short of outstanding — making it an ideal core holding for long-term income investors.

Perhaps this is why legendary investor Warren Buffett is betting tens of billions of dollars on Apple…

Buffett Bought Another 72 Million Shares of Apple
According to the latest SEC filings, investing legend Warren Buffett recently bought an additional 72 million shares of Apple.

All told, Buffett’s Berkshire Hathaway now owns 129.4 million shares.

And those shares will almost immediately pay off: Berkshire Hathaway stands to collect at least $81.5 million in Apple dividends within the next three months alone.

With this in mind, we’ve asked Brian Bollinger of Simply Safe Dividends to analyze the safety and growth potential of Apple’s dividend, as well as any key risks investors should be aware of…

Apple (AAPL) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Apple’s Dividend Safety Score is 95, which indicates that the dividend is not only much safer than the average dividend-paying stock in the market, but actually one of the safest overall.

Apple’s excellent Dividend Safety Score is driven by the company’s relatively low payout ratios, healthy balance sheet, strong business economics, and low industry cyclicality. Apple’s payout ratio over the last year is about 27%, which gives the company a large cushion to continue paying dividends. Investors can learn more about how to use payout ratios here.

Apple’s balance sheet provides even more assurance with over $15 billion in cash and more than $240 billion of marketable securities compared to total book debt of about $89 billion. Apple can cover its current annual dividend payments for more than 12 years with just the net cash and marketable securities on hand!

As long as Apple maintains its excellent iPhone margins and protects its brand, the company’s dividend should be very safe for many years to come.

Dividend Growth Analysis
Apple’s Dividend Growth Score is 92, which indicates excellent future dividend growth potential.

Apple initiated a quarterly dividend of 38 cents per share in 2012 and has since increased its dividend by 66%, raising it to 63 cents today. The last increase was an 11% boost earlier this year.

Within reason, Apple could probably grow its dividend as fast as it wants to. The combination of a relatively low payout ratio, an extraordinarily strong balance sheet, and end markets that should continue to grow can fuel dividend growth for many years to come.

In reality, Apple is likely to keep up the roughly 10% per year dividend growth rate for some time. The company still views itself as a growth company and is willing to invest billions of dollars into high risk, but high reward business ventures in huge addressable markets (self-driving cars, payments, etc).

Key Risks
The iPhone drives over 60% of Apple’s overall revenue and has fueled the company’s high growth over the past decade. Apple’s strong brand, superior user experience, and bargaining power with suppliers have allowed it to capture high margins on its phones.

However, with the smartphone market becoming increasingly saturated and phone differentiation harder to come by, Apple could struggle to find its next major growth driver. There is also a chance that iPhone margins come under pressure as consumer preferences and buying habits evolve. Many conservative dividend investors choose to avoid the technology sector because of its fast pace of change.

Stock #2: Hershey (HSY)

Thanks to Hershey’s high level of “capital-efficiency”, the company is well-positioned to continue rewarding shareholders for decades to come.

In fact, Hershey paid its 350th consecutive quarterly dividend on June 15, 2017.

Source: Simply Safe Dividends

But can we rely on its dividend going forward? And will it continue to grow at such a robust rate?

Hershey (HSY) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Hershey’s Dividend Safety Score clocks in at 75, indicating that the company’s dividend payment appears to be very secure.

Hershey’s dividend is supported in part by the company’s durability. Hershey was founded in 1894, and its sales actually grew each year during the financial crisis, underscoring the recession-resistant nature of its sweets and candies. Such stable performance, along with the company’s strong brands, has helped Hershey consistently generate positive free cash flow, which is needed to pay sustainable dividends.

The company’s focus on product quality, savvy marketing, and mass distribution should result in great cash flow generation for years to come. However, if Hershey were to fall on unexpectedly challenging times, its reasonable payout ratio near 50% and investment-grade rated balance sheet would be more than enough to continue protecting the dividend.

Dividend Growth Analysis
Hershey’s Dividend Growth Score is 40, suggesting that the company’s dividend growth prospects are about average going forward.

Hershey has paid uninterrupted dividends for more than 80 consecutive years and rewarded shareholders with 10% annual dividend growth over the last 20 years. Recent dividend growth has remained strong as well, including a 6% dividend increase in 2016.

With mid- to high-single digit annual earnings growth forecasted and a payout ratio expected to remain between 50-60% in the coming years, Hershey will likely continue increasing its dividend at a mid-single-digit clip going forward.

Key Risks
A company such as Hershey usually doesn’t have many fundamental risks thanks to its recession-resistant, consumable products and strong brands. Valuation is usually the biggest concern because high quality, stable businesses usually trade at a premium.

With that said, the major issue that could impact Hershey’s long-term growth rate is evolving consumer preferences that increasingly favor healthy, natural foods. However, it is admittedly difficult to imagine a world that doesn’t still have cravings for chocolate and other sweets.

Stock #3: International Business Machines (IBM)

IBM is among a group of “World Dominator” stocks that analyst Dan Ferris considers to be the strongest, safest stocks in the market.

It’s one of the largest companies in the world and it generates a ton of cash.

It also has an outstanding history of sharing a portion of that cash with its investors. IBM’s latest payout, on June 10, marked the company’s 409th dividend payment.


Source: Simply Safe Dividends

But what about IBM’s dividend going forward?

International Business Machines (IBM) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
IBM’s Dividend Safety Score is 93, which indicates that the company’s current dividend payment is one of the safest in the entire market. IBM is one of Warren Buffett’s dividend stocks, so the company’s solid dividend safety rating isn’t a big surprise.

IBM’s excellent dividend safety begins with the company’s low payout ratio. The company’s dividend payments have only consumed 44% of the free cash flow IBM has generated over the trailing 12 months, providing a nice cushion. IBM has also been a consistent free cash flow generator thanks to the mission critical infrastructure and services it provides, along with its long-standing customer relationships.

IBM’s dividend is also protected by the company’s balance sheet and business stability. IBM enjoys an investment grade credit rating and maintains reasonable debt ratios.

Dividend Growth Analysis
IBM’s Dividend Growth Score is 70, which indicates that the business has potential to continue growing its dividend at a fast pace.

IBM has paid dividends every year since 1913, amassing one of the longest track records of any company. Equally impressive, IBM has raised its dividend every year since the mid-1990s, recording a compound annual growth rate of 15.1% over the last two decades.

Despite some of the company’s sales growth struggles in recent years, the dividend has continued rising at a healthy pace. Management last raised the dividend by 7% earlier this year. Looking ahead, IBM’s dividend will likely continue growing at a mid-single-digit pace until the company has returned to more sustainable revenue growth.

Key Risks
IBM has become somewhat of a technology dinosaur over the last decade, a period that saw the company’s total revenue slip by roughly 10%. IBM has been shedding many of its legacy hardware businesses in favor of faster-growing areas such as the cloud, analytics, and security.

Unfortunately, IBM is late to the game in many of these areas. The cloud has also quickly disrupted the IT infrastructure market, challenging many of IBM’s legacy services. It remains to be seen if IBM can achieve profitable growth in these relatively new, fast-evolving markets.

Stock #4: Hormel Foods (HRL)

With roots dating back to 1891, Hormel is one of the most resilient companies in America.

And for good reason: It’s paid dividends through wars, recessions and bear markets… it’s one of the strongest, safest companies in the world… and it pays one of the safest dividends in the market.

Source: Simply Safe Dividends

Hormel (HRL) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Hormel’s Dividend Safety Score is 100, which indicates that it pays one of the safest dividends in the entire market.

Hormel’s earnings payout ratio has remained largely stable over the last decade and sits at to reach 38% over the trailing 12-month period, representing a very safe level, especially considering Hormel’s stability. The company’s sales dipped by just 3% during the last recession, and Hormel’s stock only lost 22% in 2008 while the S&P 500 returned -37%. These defensive qualities make the company’s dividend payment more secure.

As one of the largest consumer-branded food and meat manufacturers, Hormel’s key to success is favorably altering customers’ perceptions of its products to gain loyalty and market share. In fact, the company spent approximately $204 million on advertising last year, an amount nearly six times greater than Hormel’s spending on R&D.

With many of its brands dating back over 50 years (e.g. SPAM and Dinty Moore were introduced in the 1930s) and supported by billions of advertising dollars over the years, consumers know and trust Hormel’s products. As a result, more than 30 of Hormel’s brands have #1 or #2 market share positions in their category. As long as consumers need to eat, Hormel’s well-known brands will be there for them.

Beyond brand recognition, retailer relationships, and shelf space market share, Hormel also benefits from economies of scale. As one of the larger players in the market, Hormel is able to achieve lower production costs than smaller rivals and squeezes more value out of each advertising dollar it spends by extending well-known brands into adjacent product categories.

Dividend Growth Analysis
Hormel’s Dividend Growth Score is 78, suggesting that the company’s dividend growth potential is about average.

Hormel has raised its dividend for a remarkable 51 consecutive years. The company is a member of the exclusive S&P Dividend Aristocrats group and has rewarded shareholders with very impressive dividend growth.

In fact, Hormel’s dividend has grown by 17.8% annually over the past five years and at a double-digit pace over the last two decades. Hormel last raised its dividend by more than 20% at the end of 2016.

Going forward, Hormel’s dividend growth will likely follow growth in the company’s earnings and cash flow. Given that management believes it can maintain 10% bottom line growth, investors could expect annual payout growth of about 10% over the long term, in line with Hormel’s 20-year norm.

Key Risks
While Hormel has done an admirable job diversifying away from traditional commodity meats and into higher margin value-added brands such as Jennie-O, Justin’s, and Applegate, 20% of its product mix is still in relatively commoditized meats. That means it’s harder for Hormel to maintain stronger pricing power, especially as more consumers avoid pre-packaged foods in favor of fresher options.

Hormel is also exposed to unpredictable fluctuations in commodity prices (especially pork and turkey), which impact its costs and profitability. In fact, depressed turkey prices have weighed on Hormel for much of 2017. While these issues seem unlikely to affect Hormel’s long-term earnings potential, they can cause headwinds any given quarter.

Stock #5: Procter & Gamble (PG)

Companies like Procter & Gamble are able to do well no matter what’s going on with Washington, interest rates, or tension in the Middle East.

P&G in particular is both legendarily profitable and legendarily stable, which helps make it the ideal core holding for any portfolio.

The company has raised its dividend each year for the past 61 consecutive years, and it may be one of the best places to find steady, reliable income today.

Source: Simply Safe Dividends

Procter & Gamble (PG) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
P&G’s Dividend Safety Score is 99, indicating that the company’s dividend is extremely safe and reliable.

Procter & Gamble is one of the most dependable businesses of all time with roots dating back to 1837. Most of the company’s products are essential items needed by consumers, which helped the company power through the financial crisis with just a 3% dip in sales. In addition to P&G’s recession-resistant products, the company’s payout ratio sits below 70%, which provides a good level of safety to continue paying and growing dividends even if earnings unexpectedly decline.

Many of P&G’s top brands are in slow-moving industries and benefit from recurring consumer demand and the company’s heavy marketing spending. This results in excellent free cash flow generation, which is a sign of a healthy business and is needed to sustainably pay dividends. P&G’s balance sheet is healthy and also supports its strong Dividend Safety Score.

Dividend Growth Analysis
P&G’s Dividend Growth Score is 36, which indicates that the company’s dividend growth potential is somewhat below average.

P&G is a dividend king that has rewarded shareholders with 61 consecutive years of dividend increases. However, the pace of dividend growth has slowed from 10.2% per year over the last 20 years to just 6% annually over the last three years.

Management last raised the dividend by 3% in early 2017, and low-single digit dividend growth is likely to continue until P&G’s transformation hopefully delivers stronger profit growth. Either way, it would be surprising if P&G ever returned to its days of 5%+ annual dividend growth.

Key Risks
Like many other large and mature blue chip companies, P&G has been searching for profitable growth. Moving the needle for a sales base as large as P&G’s is no small task, and the rise of private label brands has only intensified the pressure.

P&G’s management is in the middle of a major transformation plan that will shed 100 non-core brands (60% of current brands), or roughly 15% of P&G’s total sales. This will free up resources to focus more on growing P&G’s strongest, most profitable businesses. It remains to be seen if P&G can jumpstart revenue growth, but the company needs to successfully execute.

Stock #6: Coca-Cola (KO)
Not only is Coca-Cola a favorite holding of billionaire investor Warren Buffett, but it’s also one of the world’s greatest companies… it could be a perfect inflation hedge for your portfolio… it takes its shareholders seriously… and it can produce high returns on its assets without requiring large and ongoing capital investments.

With 55 consecutive years of dividend growth under its belt, Coca-Cola has survived the Vietnam war, hyperinflation in the 1970s, the ’87 stock market crash, the bursting of the ‘dot-com’ bubble, the ‘Great Recession’ and more.

Source: Simply Safe Dividends

Coca-Cola (KO) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Coca-Cola’s Dividend Safety Score is 93, which means that the company’s current dividend payment is practically as safe as they come.

Coca-Cola’s dividend is one of the safest in the market for several reasons. While the company’s earnings payout ratio sits in the 70% range, which is higher than many other businesses, Coca-Cola’s stability alleviates any concerns. The company’s sales dipped by just 3% during the financial crisis, and Coca-Cola’s free cash flow per share actually grew each year. Coca-Cola is a cash flow machine that sells recession-resistant products, a great combination for dividend safety. The company’s massive distribution network and billions of dollars of marketing and product innovation spending ensure it will remain a leader.

Coca-Cola’s balance sheet is another strength that protects the company’s dividend. Coca-Cola holds approximately $25.2 billion of cash compared to total debt of roughly $33.7 billion and dividend payments last year of $6.0 billion. In other words, Coca-Cola should easily be able to service its debt while continuing to pay safe, growing dividends.

Dividend Growth Analysis
Coca-Cola’s Dividend Growth Score is 47, which indicates that the company’s dividend growth potential is about average.

This blue chip dividend stock has paid uninterrupted dividends since 1920 and raised its dividend in each of the last 55 years. Coca-Cola’s dividend growth rate has also been consistent over the last two decades, sitting between 8% and 10%. Management last raised the dividend by 6% in early 2017.

Looking ahead, Coca-Cola should be counted on to continue delivering mid-single-digit dividend growth. The company’s payout ratios are somewhat high, but growth in emerging markets and the continued launch of innovative products should help drive earnings and dividends higher.

Key Risks
It’s no new news that Americans are consuming less soda per capita. With sparkling beverages accounting for over 70% of Coca-Cola’s global case volume, the company needs to continue achieving strong growth in developing countries and with still beverages such as juice, water, and ready-to-drink coffee. If soda demand deteriorates faster than expected in developed nations (even despite Coca-Cola’s marketing efforts), earnings growth could be pressured.

Stock #7: PepsiCo (PEP)

PepsiCo is the kind of company that is a dominant player in its industry and that can sell its products no matter what’s going on in the overall economy.

It’s one of the safest stocks on the planet… it has a strong history of paying dividends like clockwork… and it’s been growing its payout by margins that have well exceeded inflation year-after-year.

Source: Simply Safe Dividends

Going forward, the dividend appears rock-solid too, boding well for beginner investors looking to build a solid portfolio

PepsiCo (PEP) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Pepsi pays one of the absolute safest dividends in the market as evidenced by the company’s outstanding Dividend Safety Score of 97.

Pepsi’s excellent dividend safety rating begins with the company’s 63% free cash flow payout ratio over the last 12 months. For a business as stable as Pepsi’s (sales were roughly flat during the last recession), a payout ratio in the 60% range provides plenty of safety. Consumers continue to enjoy the company’s beverages and snacks regardless of how the company is doing, which allows Pepsi to maintain a generous, growing dividend.

Equally encouraging, Pepsi’s free cash flow per share, which is needed for a company to sustainably pay dividends over the long run, has steadily increased each year since 2006. This is a sign of a quality, cash-rich business. The company’s balance sheet is also pristine. Pepsi holds nearly $16 billion in cash, which could cover the current dividend for over 3.5 years. The company should have no trouble paying its dividend for many years to come.

Dividend Growth Analysis
Pepsi’s Dividend Growth Score is 62, which indicates that the company’s dividend growth potential is above average.

Pepsi has increased its dividend for more than 40 consecutive years while rewarding shareholders with outstanding dividend growth. As seen below, Pepsi’s dividend has increased by 10.3% per year over the last 20 years. Dividend growth in recent years has remained solid as well with 9% annual income growth recorded over the last three years. Pepsi’s management team last raised the dividend by 7% in May 2017.

How fast can Pepsi’s dividend grow going forward? Thanks to its balanced portfolio of beverages and snacks, the company has good potential to continue growing earnings by 5-10% per year. Dividend growth will likely follow earnings growth and remain in the upper-single digits.

Key Risks
While Pepsi also faces some challenges from declining soda consumption in developed countries, its business is much more diversified than Coca-Cola’s. Carbonated beverages account for less than 30% of Pepsi’s total beverage volume compared to over 70% for Coca-Cola. However, Pepsi still faces challenges from consumers shifting to healthier, more natural products, which impacts both its snack and beverage categories.

Stock #8: Johnson & Johnson (JNJ)

Johnson & Johnson, or J&J, is one of the world’s best businesses and the kind of stock that has outlasted wars, recessions and financial panics.

In fact, there have been 10 bear markets since 1961… and J&J has increased its dividend through all of them.

Source: Simply Safe Dividends

In addition, if you’re worried about inflation, you most certainly want to park your money in stocks like J&J. That’s because history has shown that businesses like J&J, that are committed to treating shareholders well, are a better option than owning a hard asset such as gold.

With all of this in mind, if you’re looking for a true “sleep-at-night” investment that you can feel comfortable holding through any kind of market, then J&J should be near the top of your list. No wonder Simply Safe Dividends has made it a core position in their Conservative Retirees dividend portfolio.

Johnson & Johnson (JNJ) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Johnson & Johnson has a Dividend Safety Score of 98, which indicates that the company’s dividend is arguably one of the safest in the market.

The strong safety of J&J’s dividend starts with the company’s fortress balance sheet, which boasts a AAA credit rating from S&P. The company has plenty of cash to cover its debt, invest for growth, and continue raising its dividend. J&J’s payout ratios are also healthy. The company’s dividend has consumed just 51% of its free cash flow over the last 12 months, providing a nice margin of safety in case J&J’s business results dip.

In business for more than 130 years, J&J has built up number one or two market share positions in most of its business lines. The company generates very consistent free cash flow that even grew throughout the financial crisis as consumers continued to need healthcare products and services. Even more impressive, J&J’s adjusted earnings have increased for over 30 consecutive years. Investors will struggle to find a company that pays safer dividends than J&J.

Dividend Growth Analysis
J&J’s Dividend Growth Score is 69, which indicates that the company has very good dividend growth potential.

J&J is another dividend king that has increased its dividend for 55 consecutive years. The company’s dividend has compounded by 11.7% per year over the last 20 years. More recently, dividend growth has hovered in the upper-single digits, providing a nice rate of growth in excess of the rate of inflation. J&J last increased its dividend by 5% in 2017.

J&J appears well positioned to continue showering shareholders with at least mid- single digit dividend increases. The company’s payout ratio is very reasonable for a company of J&J’s size and could be increased, and there is a hoard of cash on the balance sheet waiting to be used.

Key Risks
J&J’s diversified mix of drugs (no single drug accounts for more than 10% of J&J’s total sales) and business segments helps shelter it from many risks. The biggest long-term risks facing the company are arguably drug pipeline disappointments and patent expirations (J&J’s pharma segment contributes the most to overall profits) and price pressure across several of the company’s segments, such as medical devices.

Stock #9: Starbucks (SBUX)
Starbucks could be the perfect stock to offer investors a hearty combination of safety, growth AND income.

On the growth front, thanks to number of catalysts, shares look headed higher in the coming years.

At the same time, the company has recently joined the list of “Dividend Challengers” –- stocks that have increased their dividend each year for at least the past five years.

While shares only currently yield about 1.7%, income investors with a bit of a time horizon could enjoy spectacular dividend growth (making the stock an appealing candidate for long-term dividend growth portfolios).

Source: Simply Safe Dividends

Starbucks (SBUX) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Starbucks’ Dividend Safety Score is 96, which indicates that the company’s dividend is arguably one of the safest in the market.

Starbucks has only paid dividends for seven years, but the company’s strong fundamentals more than make up for its lack of dividend longevity when it comes to safety.

The company’s dividend has consumed just 49% of free cash flow generated over the trailing 12 months, providing plenty of room to continue paying dividends even if cash flow temporarily dipped without warning. The business is relatively stable, too (sales dropped just 6% in 2009).

Starbucks’ growth has also been tremendous, providing plenty of money to fund and grow the dividend. Revenue and free cash flow per share have compounded by 12.3% and 14.3% per year, respectively, over the last five years. The company also holds $2.4 billion in cash on its balance sheet, which more than doubles the amount of dividends paid last year.

Dividend Growth Analysis
Starbucks’ Dividend Growth Score is 93, which indicates that the company’s dividend growth potential is excellent.

Starbucks began paying dividends in 2010 and has increased its payout every year since. The company’s dividend growth has been tremendous. For example, over the last three years, Starbucks’ dividend has grown by 23.6% per year. Most recently, Starbucks lifted its dividend by 25% in late 2016.

Starbucks can continue growing its dividend at a rapid pace going forward, but a dividend growth rate closer to 13-17% seems more likely. The company is still in investment mode, and management likely wants to keep the payout ratio not much higher than 40%, which is about where it sits today. Therefore, future dividend growth will be driven by underlying earnings growth, which is expected to average about 15% annually over the next few years.

Key Risks
Starbucks’ business can be impacted from time to time by volatile coffee prices and shifts in consumer spending. However, neither of these issues is likely to impact the company’s long-term earnings. Instead, as a high growth stock, Starbucks needs to execute on its growth plans to justify its valuation. If the company is unable to open as many new stores as it expects around the world for any number of reasons, investors will be left disappointed.

Bonus Stock: Disney (DIS)

With the exception of Apple (Stock #1) and Starbucks (Stock #9), Disney is like no other stock we’re featuring in today’s report for this simple reason: Its yield is relatively low and its dividend growth track record is relatively short. Yet the stock offers investors a nice mix of both income AND growth.

While shares yield just 1.5% today, the company is growing its dividend like crazy.

Source: Simply Safe Dividends

Looking forward, the dividend appears extremely safe with excellent growth potential…

Disney (DIS) – Dividend Analysis and Key Risks
Simply Safe Dividends rates a company’s dividend safety and growth potential by reviewing its key financial statements and ratios. Dividend scores range from 0 to 100, with scores below 20 considered weak, 50 considered average, and 80 or higher considered excellent.

Dividend Safety Analysis
Disney’s Dividend Safety Score is 95, which indicates that the company’s current dividend payment is extremely safe.

Disney’s strong dividend safety is driven by several factors. First, the company’s payout ratio sits near 25%, which means that for every $1 Disney generated in earnings over the last year, it only paid out about $0.25 in dividends. This is a conservative figure that provides Disney with plenty of wiggle room to continue making dividend payments even if earnings declined.

The company’s strong brands, timeless content, pricing power, and massive distribution have also enabled it to generate positive free cash flow each year over the last decade. Free cash flow is a sign of a healthy business and is needed to fund sustainable dividends. Disney’s balance sheet is in good shape as well, and the company maintains investment-grade credit ratings on its debt. Debt gets paid before dividends, so healthy credit metrics are a must.

Dividend Growth Analysis
Disney’s Dividend Growth Score is 87, suggesting that the company has excellent dividend growth prospects going forward.

Disney has paid uninterrupted dividends since the 1980s and has rewarded shareholders with annual dividend growth of 17.6% over the last decade.

The company has the ability to continue rewarding shareholders with double-digit dividend increases for years to come because of its low payout ratios, healthy balance sheet, solid earnings growth potential, great cash flow generation, and proven commitment to the dividend.

Key Risks
Despite being one of the most iconic companies in the world, Disney’s business has several risks that investors should remain aware of. Consumer preferences are constantly changing, and Disney must continuously produce relevant content. However, given the company’s track record for producing timeless brands, this doesn’t seem like a major concern.

The bigger long-term issue is ESPN, which generates close to 25% of Disney’s total operating profits. ESPN’s total subscribers are down about 10% since 2011, driven by the rise of cord-cutting and adoption of streaming services. If Disney is unable to stop the bleeding and adapt to the changing media world, ESPN could slow down the company’s overall earnings growth.

Conclusion
Here at Daily Trade Alert, we’ve put a lot of effort into educating our readers on the wonderful world of dividend growth investing… and it’s our hope that you’ll benefit from today’s special report.

A very special thanks goes to Brian Bollinger of Simply Safe Dividends for analyzing the dividend safety, dividend growth potential and potential risks of each of the stocks we featured in today’s report. (By the way, if you’re curious why we have so much confidence in Brian’s dividend scoring system, simply look at how well it performed in 2016.)

The reason we put this report together is because we truly believe that the best way to generate wealth in the stock market over the long-haul is to buy a select group of high-quality dividend growth stocks while they’re trading at reasonable prices… hold them for the long-term… and reinvest their dividends along the way.

We think any long-term investor will do well with that strategy.

That said, thanks to the market’s multi-year bull run, it’s getting harder and harder to find high-quality dividend growth stocks trading at reasonable prices right now.

With this in mind, each and every Sunday — as a part of your free subscription to Daily Trade Alert — you’ll receive the name, ticker and full analysis of what we call our Undervalued Dividend Growth Stock of the Week.

As its name implies, the featured company will likely offer sound fundamentals, a reasonable level of debt, a strong balance sheet, a rock-solid history of increasing its dividend, and of course, an attractive share price.

Don’t miss this Sunday’s issue. To help make sure you receive it, be sure to add DTA@DailyTradeAlert.com to your address book or contact list today.

As always, if you ever have any questions or suggestions, please feel free to send us a note at the email address above.

Good investing!

Greg Patrick, Co-Founder
DailyTradeAlert.com

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