The 9 Best Stocks to Own Right Now

January 2023 Edition

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.

We’ve also used the investing tools, Dividend Safety Scores, and research provided by Simply Safe Dividends to analyze each stock that made our final cut on the merits of its:

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

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.

At Daily Trade Alert, we believe you will do well if you:

Without further ado, we’re pleased to introduce you to the January 2023 edition of what we think are The 9 Best Stocks to Own Right Now.

Data as of 12/6/22 Ticker Company Name Div. Yield Dividend Growth Streak 5-year Annual Div. Growth
Stock #1 AAPL Apple 0.6% 9 years 8%
Stock #2 HSY Hershey 1.8% 12 years 7%
Stock #3 KMB Kimberly-Clark 3.4% 49 years 4%
Stock #4 HRL Hormel Foods 2.4% 57 years 9%
Stock #5 PG Procter & Gamble 2.5% 65 years 4%
Stock #6 LOW Lowe’s 2.1% 59 years 17%
Stock #7 PEP PepsiCo 2.5% 49 years 8%
Stock #8 JNJ Johnson & Johnson 2.6% 59 years 6%
Stock #9 SBUX Starbucks 2.1% 11 years 17%
Bonus Stock MDT Medtronic 3.5% 44 years 9%

Stock #1: Apple (AAPL)

Dividend Yield: 0.6% (12/6/22)
Sector: Technology ­– Computer Hardware
Dividend Growth Streak: 9 Years

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 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.

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 Maintains Large Stake in Apple

According to the latest SEC filings, as of the end of September 2022 investing legend Warren Buffett’s Berkshire Hathaway owned about 895 million shares of Apple, or around 5% of the company.

And those shares will almost immediately pay off: Berkshire Hathaway stands to collect approximately $205 million in Apple dividends within the next three months alone.

With this in mind, we’ve used 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…

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Apple’s Dividend Safety Score is 99, 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 stands at 15%, which is low and gives the company a large cushion to continue paying dividends.

Apple’s balance sheet provides even more assurance with more cash and marketable securities than book debt, earning the iconic company a strong investment-grade credit rating.

The firm generates predictable free cash flow for a technology company as well. Apple’s massive installed base of hardware users results in a steady flow of customers replacing their old devices and purchasing more high-margin software and services.

As long as Apple maintains its excellent iPhone margins, protects its brand, and grows the service revenue it gets from each device, the firm’s dividend profile will remain strong.

Dividend Growth Analysis
Apple initiated a quarterly dividend in 2012 and has since increased its dividend by over 100%. The last increase was a 7.3% boost announced in April 2021.

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 over time (driven by high-margin services) can fuel strong dividend growth for many years to come.

In reality, Apple is likely to keep up at least mid-single-digit 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 around 50% 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 if hardware sales continue to slow, especially if a weaker pace of new device sales were to impact the growth rate of its lucrative services business.

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.

Valuation
What’s a reasonable price to pay for a share of Apple today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Apple appears 26% overvalued at recent prices. Investors may want to wait for a pullback before purchasing.

Valuation estimated by DTA

Recent articles on Apple (AAPL):
This Stock Has Plenty Of Upside Ahead by Michael Robinson, Strategic Tech Investor
I Just Bought Apple (AAPL) For My Grand-Twins College Fund by Mike Nadel, Daily Trade Alert
High Quality Dividend Growth Stock for October: Apple (AAPL) by Dave Van Knapp, Daily Trade Alert
These 3 Stocks Are the Safest Dividend Plays Today by Michael A. Robinson, Strategic Tech Investor
These Four Stocks Can Put Your Grandchildren Through College by Keith Fitz-Gerald, Money Morning

Stock #2: Hershey (HSY)

Dividend Yield: 1.8% (12/6/22)
Sector: Consumer Staples – Food Processing
Dividend Growth Streak: 12 Years

Thanks to Hershey’s high level of “capital-efficiency” and iconic brands, the company has been able to reward shareholders with consistent dividends for a long time.

In fact, Hershey has paid uninterrupted dividends since 1930 while compounding its payout by 9% annually over the last 20 years.

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

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Hershey’s Dividend Safety Score clocks in at 93, 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 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 has paid uninterrupted dividends for more than 80 consecutive years and rewarded shareholders with 9% annual dividend growth over the last 20 years. Recent dividend growth has remained solid as well, including a 15% dividend increase announced in July 2022.

With mid to high single-digit annual earnings growth forecasted over the coming years and a reasonable payout ratio near 50%, 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.

Valuation
What’s a reasonable price to pay for a share of Hershey today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Hershey appears 27% overvalued at recent prices. Investors may want to wait for a pullback before purchasing.

Valuation estimated by DTA

Recent articles on Hershey (HSY):

Undervalued Dividend Growth Stock of the Week: The Hershey Co. (HSY) by Jason Fieber, Mr. Free at 33
This Stock Has Paid Uninterrupted Dividends Since 1930 by Brian Bollinger, Simply Safe Dividends
Now’s The Time to Buy This Iconic Dividend Stock by Stephen Mack, Money Morning
Why I Lost Interest in Deep Value Investing by Porter Stansberry, Daily Wealth
This Stock is a Must-Have in Your Portfolio by Austin Root, Daily Wealth

Stock #3: Kimberly-Clark (KMB)

Dividend Yield: 3.4% (12/7/22)
Sector: Consumer Staples – Sanitary Products
Dividend Growth Streak: 49 Years

Kimberly-Clark has been in business since 1928 and owns well-known brands such as Huggies, Kleenex, Pull-Ups, and Cottonelle. From disposable diapers to tissues, toilet paper, and baby wipes, Kimberly-Clark’s products enjoy steady demand trends and generally move higher with population growth.

As a result of the company’s size, strong brands, global distribution, and product innovation, Kimberly-Clark has paid higher dividends for 49 consecutive years and should remain a reliable income stock for years to come.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Kimberly-Clark’s Dividend Safety Score clocks in at 88, suggesting that the company’s dividend payment appears to be very secure.

Kimberly-Clark appears to pay one of the safest dividends in the market, supported by the company’s payout ratio near 75%, excellent cash flow generation, stable profitability, and investment-grade rated debt.

The company’s dividend is further secured by the essential nature of Kimberly-Clark’s products. During the financial crisis, the company’s sales fell just 2% in fiscal year 2009.

With so many of its products considered necessities, Kimberly-Clark’s strong performance during the recession comes as no surprise. Longer-term, Kimberly-Clark’s sales will primarily be impacted by population growth, birth rates, and gradually evolving consumer trends.

Dividend Growth Analysis
Kimberly-Clark is a dividend aristocrat (see them all here) that has raised its dividend for 49 consecutive years. The company recorded approximately 7% compound annual dividend growth over the last 20 years.

Kimberly-Clark last raised its dividend by 1.8% in January 2022. Investors probably should not expect more than low single-digit increases from this defensive stock.

Key Risks
Kimberly-Clark’s markets are very competitive, and the strong U.S. dollar only adds to challenges faced by domestic manufacturers who export some of their products.

Kimberly-Clark has been shifting more of its production outside of the U.S. to help reduce this risk and be better positioned to serve higher-growth emerging markets.

However, the company still generates over half of its income in North America, where low-cost Chinese imports and private label products pose a risk to future growth and profitability. These factors are all weighing on the business today and pushed management to initiate another major restructuring plan.

Competitive developments in emerging markets such as China are another risk factor to monitor.

The bulk of future sales and earnings growth is expected to come from these regions (they have higher birth rates than developed markets and rising consumer wealth), so it’s important for Kimberly-Clark to establish a large and profitable market share. Today, these regions are much less profitable for the company than its North American operations.

Valuation
What’s a reasonable price to pay for a share of Kimberly-Clark today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Kimberly-Clark appears 9% overvalued here. Investors may want to wait for a pullback before considering a purchase.

Valuation estimated by DTA

Recent articles on Kimberly-Clark (KMB):

Dividend Growth Stock of the Month – Special Edition: Blue Chips in a Pandemic Bear Market by Dave Van Knapp, Daily Trade Alert
3 Dividend Aristocrats to Buy (and 3 to Avoid) by Brett Owens, Contrarian Outlook
Top 10 Recession-Proof Dividend Aristocrats by Brian Bollinger, Simply Safe Dividends
10 Consumer Stocks to Buy for Income by James Brumley, Investor Place

Stock #4: Hormel Foods (HRL)

Dividend Yield: 2.4% (12/6/22)
Sector: Consumer Staples – Meat Products
Dividend Growth Streak: 57 Years

With roots dating back to 1891 and a portfolio of household brands such as Skippy peanut butter and SPAM meat, 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.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Hormel’s Dividend Safety Score is 99, which indicates that the company appears to have one of the safest payouts in the market.

Hormel’s earnings payout ratio has remained largely stable over the last decade and sits close to 50%, representing a safe level, especially considering Hormel’s stability. The company’s sales dipped by just 3% during the financial crisis, and Hormel’s stock only lost 15% between October 2007 and March 2009 while the S&P 500 returned -55%. 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 routinely spends over $100 million on advertising each year.

With many of its brands dating back over 50 years (e.g. SPAM and Dinty Moore were introduced in the 1930’s) and supported by billions of advertising dollars over the years, consumers know and trust Hormel’s products. As a result, more than 40 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 its brands into new product categories.

Dividend Growth Analysis

Hormel has raised its dividend for a remarkable 56 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 13% annually over the past 20 years. Hormel last raised its dividend by 5.8% in November 2022.

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 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, Columbus, and Applegate, some of its mix is still in relatively commoditized meats. That means it’s harder for Hormel to maintain stronger pricing power, especially as consumers buy less pre-packaged foods in favor of fresher options.

Hormel is also exposed to unpredictable fluctuations in commodity prices (especially pork and turkey), which can impact its costs and. While these issues seem unlikely to affect Hormel’s long-term earnings potential, they can cause headwinds any given quarter.

Valuation
What’s a reasonable price to pay for a share of Hormel today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Hormel appears 3% overvalued at current prices. Investors may want to wait for a pullback before purchasing.

Valuation estimated by DTA

Recent articles on Hormel Foods (HRL):
Two Profitable Plays on COVID-19 Eating Habits by D.R. Barton Jr., Straight Up Profits
Profit Opportunity: This Stock Has Been Strong Throughout the Coronavirus Market Crash by D.R. Barton Jr., Straight Up Profits
7 Dividend Stocks to Buy as the Trade War Reignites by Louis Navellier, Investor Place
How You Can Crush the Market’s 130% 10-Year Return by Tim Melvin, Money Morning
10 Dividend Growth Stocks to Consider for 2018 by Jeff Reeves, Investor Place

Stock #5: Procter & Gamble (PG)

Dividend Yield: 2.5% (12/6/22)
Sector: Consumer Staples – Household Products
Dividend Growth Streak: 65 Years

Companies like Procter & Gamble can 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 65 consecutive years, and it may be one of the best places to find steady, reliable income today.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Procter & Gamble’s Dividend Safety Score is 99, suggesting that the company has one of the safest dividends.

Procter & Gamble is arguably 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 near 60%, 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 supports its strong Dividend Safety Score.

Dividend Growth Analysis
P&G is a dividend king that has rewarded shareholders with 65 consecutive years of dividend increases. However, the pace of growth has slowed from 8% per year over the last 20 years to just 4% annually over the last five years.

However, management raised the dividend by 10% in April 2021 as P&G’s profits boomed from the pandemic. In the long term, though, investors should probably expect low to mid-single-digit 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 and online shopping have only intensified the pressure.

In recent years, P&G completed a major transformation plan that shed 100 non-core brands (60% of current brands), or roughly 15% of P&G’s total sales, reduced its costs by 15%, and emphasized returning more capital to shareholders.

Focusing on growing P&G’s strongest, most profitable businesses rejuvenated the company’s growth, and the firm will need to demonstrate it can continue executing.

Valuation
What’s a reasonable price to pay for a share of P&G today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, P&G appears 14% overvalued at its current price. Investors may want to wait before considering a purchase here.

Valuation estimated by DTA

Recent articles on Procter & Gamble (PG):

Dividend Growth Stock of the Month – Special Edition: Blue Chips in a Pandemic Bear Market by Dave Van Knapp, Daily Trade Alert
7 ‘A’-Rated Dividend Stocks That Provide Reliable, Inflation-Beating Income by Louis Navellier, Investor Place
High-Yield Trade of the Week: Procter & Gamble (PG) by Greg Patrick, Daily Trade Alert
10 Stocks Owned by the World’s Richest and Most Powerful by Will Ashworth, Investor Place
These 3 Popular Dividend Growth Stocks Appear Way Overvalued Right Now by Dave Van Knapp, Daily Trade Alert

Stock #6: Lowe’s (LOW)

Dividend Yield: 2.1% (12/6/22)
Sector: Consumer Discretionary – Home Retail
Dividend Growth Streak: 59 Years

Fewer than 40 stocks have managed to raise their dividends for at least 50 consecutive years. Lowe’s is one of them.

The company has been in business for more than 70 years and is the second largest home improvement retailer, behind only Home Depot (HD).

Lowe’s operates more than 2,000 stores across North America and is well-known for being a one-stop shop for both do-it-yourself (DIY) customers, as well as professional contractors.

With over 30,000 products, including both well-known national and exclusive brands, conveniently located stores, and price-competitive products, consumers have few reasons not to head to Lowe’s stores.

This is a simple business with numerous competitive advantages, not unlike many of the holdings owned by billionaire investor Warren Buffett (see his entire dividend portfolio here), and its best days could still be ahead of it.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

 Lowe’s Dividend Safety Score is 93, which suggest that the firm’s dividend is on very solid ground.

Lowe’s dividend looks secure for several reasons, including the fact that it’s been able to raise its payout each year since the early 1960s.

First, management has wisely been highly conservative in how fast it grows the dividend, making sure to maintain a low to moderate payout ratio. In fact, management’s target payout of 35% is much lower than Home Depot’s policy of paying out around half of its earnings in the form of dividends.

In other words, Lowe’s dividend is well covered by the company’s earnings, providing a nice safety buffer in case an unexpected economic or industry downturn results in a short-term decrease in growth and profitability.

The other big safety factor protecting Lowe’s dividend is the fact that, despite taking on a lot of debt in recent years to finance acquisitions and a faster pace of buybacks, Lowe’s continues to have a strong balance sheet. In fact, the company maintains a BBB+ credit rating from S&P, giving it access to low-cost debt.

Dividend Growth Analysis
Lowe’s has increased its dividend for 59 consecutive years, recording 23% compound annual payout growth over the last two decades. Management last boosted the company’s dividend by 31% in May 2022.

Given the company’s plans for margin expansion, its low payout ratio, and moderating store expansion spending in the future, Lowe’s dividend could continue growing at a double-digit rate for many years to come.

Key Risks
Lowe’s business depends heavily on the health of the overall economy, and specifically the construction industry. Strong consumer spending, rising home prices, and low interest rates provide a tailwind for the business, but they are also cyclical factors that can go the other way.

Besides macro factors, Amazon is a risk that should be touched on with any retailer. Fortunately, Lowe’s has been improving its competitive positioning by investing more in technology, product presentation, and its online sales platform. Through the use of technology and helpful in-store displays and service, customers have even fewer reasons to try out competitors’ stores, and the home improvement niche has proven to be fairly Amazon-proof thus far.

Valuation
What’s a reasonable price to pay for a share of Lowe’s today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Lowe’s appears about 17% undervalued at current prices. Investors may want to consider a purchase here.

Valuation estimated by DTA

Recent articles on Lowe’s (LOW):

Undervalued Dividend Growth Stock of the Week: Lowe’s Companies (LOW) by Jason Fieber, Mr. Free at 33
High-Yield Trade of the Week: Lowe’s (LOW) by Greg Patrick, Daily Trade Alert
I Just Bought Lowe’s (LOW) for My Dividend Growth Portfolio by Dave Van Knapp, Daily Trade Alert

Stock #7: PepsiCo (PEP)

Dividend Yield: 2.5% (12/6/22)
Sector: Consumer Staples – Soft Drinks
Dividend Growth Streak: 49 Years

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

It’s one of the most defensive 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.

Going forward, the dividend appears rock-solid too, boding well for investors living off dividends in retirement…

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Pepsi pays one of the safest dividends in the market as evidenced by the company’s outstanding Dividend Safety Score of 93.

Pepsi’s excellent dividend safety rating begins with the company’s payout ratio near 65%. For a business as stable as Pepsi’s (sales were roughly flat during the last recession), this payout ratio 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.

Pepsi’s free cash flow, which is needed for a company to sustainably pay dividends over the long run, has steadily increased over time, too. This is a sign of a quality, cash-rich business. The company’s balance sheet is also pristine with an A+ investment-grade credit rating from Standard & Poor’s. Pepsi should have no trouble paying its dividend for many years to come.

Dividend Growth Analysis
Pepsi has increased its dividend for more than 45 consecutive years while rewarding shareholders with 10% annual payout growth over the last 20 years. Pepsi last boosted its dividend by 7% in February 2022.

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. Snacks comprise over half of Pepsi’s revenue while carbonated beverages drive nearly 70% of Coca-Cola’s total volume. However, Pepsi still faces challenges from consumers shifting to healthier, more natural products, which impacts both its snack and beverage categories.

Valuation
What’s a reasonable price to pay for a share of Pepsi today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Pepsi appears 11% overvalued here. Investors may want to wait before considering a purchase.

Valuation estimated by DTA

Recent articles on PepsiCo (PEP):

Undervalued Dividend Growth Stock of the Week: PepsiCo Inc. (PEP) by Jason Fieber, Mr. Free at 33
We Just Put $1,000 Into This Stock For The Income Builder Portfolio by Mike Nadel, Daily Trade Alert
3 Dividend Aristocrats to Buy (and 3 to Avoid) by Brett Owens, Contrarian Outlook
We Just Bought Pepsi (PEP), Constellation Brands (STZ) and JPMorgan Chase (JPM) for DTA’s Income Builder Portfolio by Mike Nadel, Daily Trade Alert

Stock #8: Johnson & Johnson (JNJ)

Dividend Yield: 2.6% (12/6/22)
Sector: Healthcare – Pharmaceuticals
Dividend Growth Streak: 59 Years

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 12 bear markets since 1950… and J&J has increased its dividend through all of them.

Essentially, J&J has been a true “sleep-well-at-night” investment.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Johnson & Johnson has a Dividend Safety Score of 99, 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 only around 45% of its earnings over the last 12 months, providing a nice margin of safety.

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 increased for over 30 consecutive years prior to the pandemic. Investors will struggle to find a company with safer dividends than J&J.

Dividend Growth Analysis
J&J is another dividend king that has increased its payout for 59 consecutive years. The company’s dividend has grown by 10% 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 6.6% in April 2022.

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 around 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), as well as price pressure across several of the company’s segments, such as medical devices.

In recent years, Johnson & Johnson has been under pressure from opioid and talc powder lawsuits raised against the company. Fortunately, these legal risks seem unlikely to threaten the firm’s dividend safety or long-term outlook.

Valuation
What’s a reasonable price to pay for a share of J&J today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, J&J appears 3% overvalued today. Investors may want to wait before considering a purchase.

Valuation estimated by DTA

Recent articles on Johnson & Johnson (JNJ):

Dividend Growth Stock of the Month – Special Edition: Blue Chips in a Pandemic Bear Market by Dave Van Knapp, Daily Trade Alert
We Just Put $1,000 Into This Stock For The Income Builder Portfolio by Mike Nadel, Daily Trade Alert
High-Yield Trade of the Week: Johnson & Johnson (JNJ) by Greg Patrick, Daily Trade Alert
Dividend Growth Stock of the Month for June 2018 by Dave Van Knapp, Daily Trade Alert

Stock #9: Starbucks (SBUX)

Dividend Yield: 2.1% (12/6/22)
Sector: Consumer Discretionary – Restaurants
Dividend Growth Streak: 11 Years

Starbucks could be the perfect stock to offer investors a hearty combination of safety, growth AND income. On the growth front, thanks to a 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.

With shares yielding around 2% but the dividend rising quickly, investors building a portfolio with a bit of a longer time horizon could especially enjoy both current income and income growth.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Starbucks’ Dividend Safety Score is 67, which indicates that the company’s dividend appears unlikely to be cut even despite the coronavirus. Starbucks has only paid dividends since 2010, 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 is expected to consume roughly 65% of earnings in the year ahead, in line with historical levels as the pandemic’s impact continues to fade. And outside of pandemics, the business is relatively stable (sales dropped just 6% in 2009).

Starbucks’ growth has also been tremendous, providing plenty of money to fund and grow the dividend. Revenue and earnings per share have compounded at a double-digit clip over the last five years.

Dividend Growth Analysis
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 five years, Starbucks’ dividend has grown by 20% per year. Most recently, Starbucks most recently announced an 8.2% increase in September 2022.

In the long term, Starbucks has double-digit dividend growth potential. But raises could be less generous over the next few years as Starbucks prioritizes investments in its operations.

In 2022 the firm suspended share repurchases to improve the coffee chain’s stores and invest more in its baristas. Simply Safe Dividends expects the dividend to remain safe, but growth could be moderate to retain more cash flow for these investments.

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 growth stock, Starbucks needs to execute on its expansion 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 could be left disappointed.

That’s what happened in June 2018 when Starbucks’ stock price tumbled nearly 10% on a business update. Specifically, the company said it expected just 1% growth in global same-store sales in the current quarter, below expectations for 3% growth.

If the coffeehouse market becomes more saturated than people thought, management could have to reduce the firm’s long-term sales and earnings growth targets, just like it did in late 2017.

Valuation
What’s a reasonable price to pay for a share of Starbucks today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Starbucks appears 2% undervalued at recent prices. Investors may want to consider a purchase here.

Valuation estimated by DTA

Recent articles on Starbucks (SBUX):

Undervalued Dividend Growth Stock of the Week: Starbucks (SBUX) by Jason Fieber, Mr. Free at 33
High-Yield Trade of the Week: Starbucks (SBUX) by Greg Patrick, Daily Trade Alert
Starbucks’ Dividend Could Double in Just 5 Years by Daniel Sparks, The Motley Fool
We Just Put $1,000 Into This Stock For The Income Builder Portfolio by Mike Nadel, Daily Trade Alert
7 Top-Rated Stocks to Buy for March by Louis Navellier, Investor Place

Bonus Stock: Medtronic (MDT)

Dividend Yield: 3.5% (12/6/22)
Sector: Healthcare – Healthcare Equipment
Dividend Growth Streak: 43 Years

Medtronic has been in business since 1949 and is one of the largest medical device makers in the world. The company’s products, which include everything from pacemakers to insulin management pumps, helped treat over 40 medical conditions and 70 million patients in 2016.

While this isn’t the most exciting business in the world, its stability has made for excellent dividend growth. Medtronic has raised its payout for 44 straight years and has plenty of runway left.

Dividend Safety Analysis
Simply Safe Dividends rates a company’s dividend safety by reviewing its key financial metrics. Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score above 60. You can review how scores are calculated, see their real-time track record, and learn how to use them for your portfolio here.

Medtronic’s Dividend Safety Score is 99, indicating that the company’s current dividend payment looks very secure.

Medtronic’s strong dividend safety is driven by several factors. First, this dividend aristocrat maintains a payout ratio of about 50%. This is conservative since Medtronic’s business is usually stable – the company’s sales and free cash flow grew during the financial crisis since people continued to need medical products.

The coronavirus pandemic has resulted in many elective procedures being deferred, but Medtronic still produces many essential products such as ventilators and pacemakers.

With an unrelenting focus on continually improving medical products, a disciplined acquisition strategy, and increasing exposure to fast-growing emerging markets, Medtronic appears well positioned for the future.

Dividend Growth Analysis
Medtronic’s dividend has compounded by about 13% annually over the past two decades and has continued recording solid double-digit growth in recent years. Most recently, the firm raised its dividend by 7.9% in May 2022.

Looking ahead, Medtronic’s reasonable payout ratio, healthy balance sheet, and numerous opportunities for long-term earnings growth should allow it to continue raising its dividend at a double-digit clip.

Key Risks
Medtronic primarily faces risks from its acquisition strategy, international presence, and exposure to government healthcare regulation.

While Medtronic has a generally good history of acquisitions, both large and small, investors need to realize that every deal comes with a substantial amount of execution risk. Specifically that means potentially overpaying for a company and/or failing to achieve the expected synergistic cost savings.

Medtronic’s global operations also mean the company’s reported sales and earnings growth can be affected significantly by fluctuations in currency exchange rates.

Most significantly, healthcare policy could be subject to significant change in the U.S. as the government looks to take costs out of the system.

Medtronic could face a scenario in which its earnings growth slows (from higher medical taxes and/or greater pricing pressure) without being more than offset by the increased demand created by a growing number of customers.

Valuation
What’s a reasonable price to pay for a share of Medtronic today?

There are many ways to value a stock, but for this report we’re primarily using a method outlined in Dave Van Knapp’s lesson on valuation.

Based on our interpretation, Medtronic appears 35% undervalued at recent prices. Investors may want to consider a purchase here.

Valuation estimated by DTA

Recent articles on Medtronic (MDT):

Undervalued Dividend Growth Stock of the Week: Medtronic (MDT) by Jason Fieber, Mr. Free at 33
We Just Bought More Shares of Home Depot (HD) and Medtronic (MDT) by Mike Nadel, Daily Trade Alert
10 Great Stocks to Buy on Dips by James Brumley, Investor Place
Dividend Growth Stock of the Month for February 2018 by Dave Van Knapp, Daily Trade Alert

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.

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.

Good investing!

Greg Patrick, Co-Founder
DailyTradeAlert.com

Disclosure: Brian Bollinger is long KMB, HRL, PG, LOW, PEP, JNJ, and MDT.
Disclosure: Greg Patrick is long AAPL, HSY, KMB, HRL, PG, LOW, PEP, JNJ, SBUX and MDT.