Dividend growth investing is a fantastic investment strategy. And plenty of our articles/videos have given you many reasons for why that is.
One more great thing about dividend growth investing? How flexible it is. It can be molded in a way that best suits any individual investor. Age is a great example of that. It’s dividend… growth… investing.
If you’re young, you can tilt toward that growth part and let the compounding process exponentially increase your wealth and aggregate dividend income over the long term.
But what if you’re in your 50s? What if you don’t have decades ahead to let that process play out? What if you want significant investment income in the near term?
Well, you can tilt toward the dividend part by buying stocks with higher yields.
But that tilt has to come with a focus on quality businesses that have reliable dividends that you can count on.
And you want to make sure these dividends are also growing, which protects your purchasing power.
This can ensure that your impending retirement is a well-funded and long-lasting one.
Today, I want to tell you about three dividend growth stocks to consider buying if you’re in your 50s. Ready? Let’s dig in.
The first dividend growth stock I want to highlight today is Gilead Sciences (GILD).
Gilead is a multinational biopharmaceutical company.
Gilead gives an investor in their 50s the best of both worlds. First, you actually get some pretty decent business growth here. That’s because healthcare is in secular growth mode. There’s no future in which our global population – which is growing bigger, older, and wealthier – will demand less quality healthcare. It’s just the opposite. Demand for quality healthcare is growing.
And Gilead is riding this secular growth wave.
They’ve had some weird peaks and valleys over the last decade. That’s largely been a result of Gilead developing a cure rather than a treatment for hepatitis c. A cure is great for humanity. Less so for recurring revenue and profit. Nonetheless, Gilead is still a money machine. Their HIV drug Biktarvy, for instance, is one of the best-selling drugs in the world.
Gilead flies under the radar, but the fundamentals are actually great.
Revenue and EPS are both up threefold over the last decade. The balance sheet is solid. And net margin is well into the double digits. It was a rough go after the hep c cure caused a temporary collapse in sales between 2015 and 2018, but this is a stock that’s still had a CAGR of nearly 12% over the last decade. But it seems like nobody wants this stock. And guess what that downward pressure has done?
The yield has gone way up, making it perfect for investors in the market for income.
The stock now yields 5%, which is almost unheard of for Gilead. For perspective, the five-year average yield for this stock is 3.8%. We’re way over that now. And this isn’t a scary dividend in need of a cut. They produced nearly $11 billion in free cash flow last fiscal year. The dividend only costs the company less than $4 billion per year. That’s a healthy payout. And it’s not just yield here. Gilead has increased its dividend for eight consecutive years with a five-year dividend growth rate of 9.1%.
The stock is down 20% YTD, and I think the valuation is very appealing.
Every basic valuation metric is well below its respective recent historical average. The P/E ratio is only 11.8. That’s very, very low in this market, for a company growing at a very good clip. We can also look at the P/CF ratio. It’s at 6.5. Super low. And that compares favorably to its own five-year average of 9.1. Gilead gives fiftysomething dividend growth investors plenty of income with enough growth to protect purchasing power, all in a cheap package.
Next up, let’s talk about Philip Morris International (PM).
Philip Morris International is a multinational cigarette and tobacco company.
Now, Philip Morris International is a tobacco company. Also known as a “sin stock”. Some investors have a problem with that. Some don’t. If you do have a problem with it, maybe it won’t work for your portfolio. But keep in mind, Philip Morris International is leading the charge and trying to disrupt its own business model by aggressively building healthier nicotine delivery services through technology.
And technology might just save the company’s future.
Absent technology solutions, if we’re being honest, this company would probably have a finite lifespan. Traditional smoking through cigarettes is in secular decline. But tech has given the company not just a lifeline but also a new growth vector, which is super exciting. This has occurred through their innovative IQOS system, which uses revolutionary heat-not-burn technology. Because of this, growth is here once again.
Tobacco company? Growth? Yep!
For FY 2021, the company reported heated tobacco unit shipment volume was up by 24.8% to 95 billion units. That’s billion with a “B”. Meanwhile, the secular decline in traditional products might not be as harsh as you’d expect. For FY 2021, the company reported cigarette shipment volume down by 0.6%. Not exactly the end of the world. And that can be counteracted with higher prices because of inelastic demand.
You know what else is growing? The company’s massive dividend.
I say massive for good reason. The stock yields 5.6%. That’ll help to get the bills paid. But it’s not just yield. It’s not just an income story. That dividend is also growing. Indeed, the company has increased its dividend for 14 consecutive years, which dates all the way back to its separation from its former parent company, Altria Group, Inc.
The 10-year DGR is 6.1%. Not double-digit growth, sure. But you don’t need it when you’re getting a near-6% yield. And with a payout ratio of 82.2%, based on adjusted EPS, the dividend is covered.
The stock has actually held up pretty well in the face of a market correction, but the valuation is still pretty attractive.
This is one of those stocks that is basically perpetually inexpensive. It’s never commanded a high valuation. I think that’s in part because of its “sin stock” designation, and in part because of the concern about secular decline in its core products. But that’s allowed willing investors to snag the shares at inexpensive levels and lock in a high yield for their trouble.
The below-market earnings multiple is proof of that. We’re talking about a P/E ratio of 15.4. The company isn’t blowing anyone away with growth. But the valuation accounts for that. And you get paid a massive dividend while you wait for the tech transition to play out. Investors in their 50s ought to take a good look at this name.
The third dividend growth stock I want to highlight today is W. P. Carey (WPC).
W. P. Carey is an international net lease real estate investment trust.
I love investing in real estate. I just don’t love all of the headaches it typically comes with. Enter REITs. They do the legwork that I don’t want to do. Buying stock in W. P. Carey allows you to instantly own a slice of commercial properties spread out globally.
I absolutely love this business.
If I were to build a real estate business myself, it’d look a lot like W. P. Carey. Except I’d call my real estate business J. M. Fieber. But that’s not the point. The point is that W. P. Carey has great diversification in terms of geography, tenants, industries, real estate types, etc. Their portfolio of 1,300 properties hits almost every note.
W. P. Carey is everywhere you want to be in real estate.
The US is their biggest market. But they also have quite a bit of exposure to Europe – on the order of 35% of annualized base rent. And their property type is diversified nicely. Major parts of their portfolio are spread out across industrial, warehouse, office, retail, and self-storage.
Whereas some other major REITs are concentrated around one area, like retail, W. P. Carey is not. And then you’ve got their eclectic mix of tenants where they’re not overly reliant on anyone or anything specifically. One of their major tenants is the State of Andalucia. On the other side of the spectrum, another major tenant is Advance Auto Parts, Inc. This diversification creates business durability.
And that has helped to build dividend durability.
W. P. Carey has increased its dividend for 25 consecutive years. If you’re in your 50s and trying to cruise into retirement, that kind of consistency and reliability is exactly what you want to see. Now, the dividend growth isn’t massive.
The five-year dividend growth rate is only 1.3%. But the real story here is the yield. At 5.3%, that blows away what the broader market offers. And based on FY 2022 midpoint guidance for adjusted funds from operations per share, the payout ratio is 80.7%. That’s suitable for a REIT. And it shows a well-covered dividend.
This stock has barely budged this year. It’s held up well. But it came into the year very reasonably valued.
While bubble stuff in the SPAC, crypto, and so-called innovation spaces are all getting hammered, W. P. Carey was never in a bubble to begin with. So it’s not a surprise to see it hold up well in the midst of a market correction. Based on that aforementioned guidance, the forward P/AFFO ratio is 15.1.
Seeing as how that’s somewhat analogous to a P/E ratio on a normal stock, we’re looking at a very undemanding valuation. In fact, this stock is still below its pre-pandemic pricing. W. P. Carey was a $90 stock in early 2020. It’s now below $80. That’s despite the business continuing to hum along all the same. If I were in my 50s, I’d definitely be strongly considering acquiring shares in W. P. Carey right now.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
We’re Putting $2,000 / Month into These StocksThe goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.
Source: DividendsAndIncome.com