Cash Flow Kings: 3 Dream Dividend Stocks for Steady Income

There are many paths to profit on Wall Street, but one that has paid off handsomely for investors is buying dividend stocks. Buying and holding top-quality dividend stocks for income has proven to be one of the most successful ways to accumulate wealth.

The wealth management unit of JPMorgan Chase (NYSE:JPM) compared the 40-year returns of stocks that initiated a dividend and then increased the payouts versus companies that didn’t pay dividends. It found the income stocks handily beat the non-payers.

Dividend stocks returned on average 9.5% annually compared to the paltry 1.6% returns of non-dividend stocks. The regular stream of income over time coupled with capital appreciation proved to be a winning formula. Think of dividend payers as the tortoise steadily plodding away to the manic moves of the non-paying hare.

What follows is a dream team trio of dividend stocks that all have extended histories of rewarding shareholders. And they are likely to keep making investors wealthy because they generate prodigious cash flows that support the business and readily support growing dividends for years to come.

Lowe’s (LOW)

Source: Helen89 / Shutterstock.com

Home improvement center Lowe’s (NYSE:LOW) is the first dream dividend stock to buy. While it starts off with a relatively low dividend yield of 2.1% as its stock fell 5% in the new year, it has a rather robust dividend growth history. In just the past three years Lowe’s hiked its payout by a 23% compounded annual growth rate (CAGR). Over the past decade, it’s risen at a scorching 20% rate.

Lowe’s is a Dividend King. It has been raising the dividend every year for almost 60 years. Few companies have as long of a track record of increases as the DIY center. And despite that healthy pace the dividend is quite safe.

The payout ratio, or the amount of profits Lowe’s uses to pay dividends, is just 33%. Yet I prefer to look at a stock’s cash flow payout ratio because that gives investors a better idea of the safety of the payout. Companies can only do so much with their cash profits after paying their bills and paying dividends is one of them. For Lowe’s, it is just 20%. That means the home center has plenty of money to reinvest in the business, buy back shares, and increase the payout further.

At current prices, LOW stock is a worthwhile buy. It goes for 16 times trailing and forward earnings estimates. Shares were hurt by the aggressive increase in interest rates last year but there is the promise of rate cuts to come in 2024. The housing market also doesn’t look as fragile as it once did and the home improvement center is increasing its exposure to the professional contractor community. Lowe’s is on a long, steady climb higher and its stock is worth buying. 

Accenture (ACN)

The outside view of an Accenture (ACN) office in Prague.

Source: josefkubes/Shutterstock.com

IT consulting specialist Accenture (NYSE:ACN) is the second dividend dream stock to consider. It initiated its payout in 2006 but paid it on an annual basis. Four years later it switched to a biannual payment system and then in 2020 switched again but this time to the more typical quarterly payout scheme. Over that time, though, the dividend grew from $0.30 per share to today’s $1.29 per share. Every year of its existence the payout increased. Maybe not as fast as Lowe’s but a 10% CAGR over 10 years is not too shabby.

Accenture’s dividend is also well covered. The payout ratio is 32% on both a profit and cash flow basis. With operating margins of 15%, the consulting firm generates plenty of earnings to keep the payments flowing.

Shares of Accenture are up 32% in the past year. Despite headwinds in the end markets it serves, business remains healthy. And that was when the macroeconomic outlook was more uncertain. Although we’re still navigating our way forward, most analysts think we’ve made it through the most difficult part. That promises more growth for the consulting outfit.

ACN stock isn’t cheap but tailwinds are still pushing it forward. With its strong history of paying and growing its dividend, a small position in the stock at least is warranted. Should any price weakness arise, there will be opportunities to add to the stake.

Visa (V)

Visa logo outside of an office building

Source: Tada Images / Shutterstock.com

Payments processor Visa (NYSE:V) also might not have the same record of dividend payments as Lowe’s but its shorter-term record is just as impressive. Visa’s CAGR for the past three years is over 15% and stands at nearly 19% over the last 10 years. That’s a healthy rate of increase for a company simply processing credit and debit card transactions.

Yet that’s precisely why Visa’s dividend history is so admirable. Gross profit margins are a whopping 98%, operating margins sit at 67%, and net margins clock in north of 50%. It’s a low overhead business that generates excess amounts of cash. Visa’s balance sheet shows $18.6 billion in cash, equivalents, and short-term investments. It also produced more than $19 billion in free cash flow over the trailing 12 months, a figure that is regularly increasing over time.

The cash flow payout ratio is just 19% so there is plenty of room for future growth. In fact, it’s been doing that already. A decade ago the dividend was $0.10 per share but four years later it more than doubled to $0.21 a share. After doubling again by 2022 it stands at $0.52 per share today.

Visa is the largest payments processor with 4.3 billion Visa cards in circulation. In comparison, rival Mastercard (NYSE:MA) has 3.2 billion cards. Visa also processed $14.5 trillion in total payments and cash volume for the full fiscal year. This is the premiere payments company, a solid growth stock, and one that will benefit as we move ever closer to a cashless society.

On the date of publication, Rich Duprey held a LONG position in LOW stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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