Dividend Stocks

Top 7 Dividend Stocks for a Tax-Efficient Portfolio in 2024

In the intricate tapestry of the stock market, savvy investors often latch on to the golden threads of tax-efficient dividend stocks, effectively weaving through the fabric of the January effect. While the January effect offers a glimpse into the short-term ebbs and flows of the market, the pursuit of tax-efficient dividend stocks stands as a beacon for those looking to maximize their returns. Investors set their sights on bolstering net returns by capitalizing on favorable tax treatment, similar to harnessing market inefficiencies.

Embracing key metrics such as yield, consistency, and growth, the goal is to navigate the realm of tax-efficient dividend stocks with meticulousness. A robust yield maximizes income per dollar invested and shines under the spotlight of lower tax rates on dividends. Moreover, the consistency of dividends mirrors a company’s financial prowess, providing a stream of tax-efficient income. Meanwhile, the growth in dividends paints a picture of a company’s flourishing trajectory, promising to amplify long-term, after-tax income. With that said, here are seven tax-efficient dividend stocks offering robust upside.

I utilized the GuruFocus screener to select seven stocks that offer a dividend yield between 3% and 5%, have a dividend growth rate below 15%, and have achieved over 10 years of consecutive dividend increases.

United Parcel Service (UPS)

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United Parcel Service (NYSE:UPS) navigated a topsy-turvy 2023 with the finesse of a seasoned pilot. UPS felt the blow as consumers and businesses tightened their belts, cutting discretionary spending. The labor dispute added to the woes, nudging sales and earnings back to pre-pandemic levels, with its stock price following suit.  

However, the turbulence has created a runway for a potential lift-off this year. The third quarter of 2023 likely marked the cycle’s trough, evidenced by a notable top and bottom-line decline. Additionally, with savvy cost-cutting and a focus on efficiency, the company projects a robust earnings growth of over 6.8% this year. This optimistic scenario suggests a rejuvenated UPS ready to harness the moderate growth expected in the global economy while elevating domestic and international parcel volumes. Furthermore, its dividend profile is mighty attractive, with 15 consecutive years of dividend increase, an incredible 4% yield, and a 5-year dividend growth rate of 10.3%.

Corning (GLW)

the corning (GLW) logo and homepage displayed on a mobile phone

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The need for more fiber-optics is paramount in the high-speed world of mobile data and the expanding universe of 5G. Consequently, Corning (NYSE:GLW), a juggernaut in the realm of specialty glass and ceramics, is poised to harvest a wealth of benefits from this burgeoning demand. Moreover, its journey isn’t just about its legacy prowess in glassmaking; it’s a story of strategic positioning at the forefront of the tech evolution.

This narrative gains momentum with the resurgence in 5G capital expenditures and a rebound in smartphone demand. Analysts are placing bets on Corning, projecting a notable earnings rebound in 2024, with an anticipated growth of approximately 12.43% from $1.77 to $1.99. Furthermore, the firm flaunts a dividend profile that’s nothing short of impressive, with 14 consecutive years of dividend increases, a robust 3.7% yield, and a 5-year dividend growth rate of 10.4%.

Haverty Furniture Companies (HVT)

A staged room with a blue chair in focus.

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In the vibrant world of home furnishing, Haverty Furniture Companies (NYSE:HVT) stands tall as a distinguished retailer, offering a variety of residential furniture and accessories. However, like many consumer-discretionary companies, the stock performance over the past year hasn’t exactly been the stuff of legend.

Yet, there remains a silver lining that savvy investors shouldn’t overlook. If the U.S. economy effectively dodges a hard-landing scenario, which is a likely bet, Haverty is well-positioned to bounce back to positive top-line growth. The company’s financial health is robust, highlighted by a strong free cash flow per share of $2.43 and a debt-free balance sheet. Moreover, it boasts a solid 59% gross margin, a commendable 7% net income margin, and an impressive return on common equity of 21.7%. Additionally, its dividend characteristics are highly appealing, marked by a persistent dividend increase over a decade and a dividend growth rate of 10.4% over the past five years.

Cogent (CCOI)

a stock image of a person working on data charts using a futuristic computer.

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Cogent (NASDAQ:CCOI) stands out in the realm of internet service provision, popular for its high-speed, cost-effective internet access and powerful point-to-point network services. Moreover, its strategic post-acquisition maneuvers have been remarkably impressive, yielding substantial operational synergies and cost savings. In the third quarter alone, the company achieved a remarkable $180 million savings from Sprint’s North American network, showcasing its integration and cost management prowess.

Furthermore, Cogent has boosted its customer outreach capabilities, evidenced by a significant 9.5% increase in sales representatives. This expansion is not just a numbers game; it builds on Cogent’s presence in carrier-neutral data centers, bolstering its market position. The increasing demand for its high-capacity connections and VPN services paints a bright picture for Cogent’s corporate business future. Financially, the firm is on a trajectory of extraordinary growth. Forward revenue growth rates are estimated at 24%, and forward EBITDA growth rates at 23%. But the icing on the cake is Cogent’s dividend profile: a forward dividend yield of 5% with 11 years of consistent dividend growth.

Extra Space Storage (EXR)

Extra Space Storage (EXR) facility exterior and trademark logo.

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With its expansive real estate portfolio of over 2,000 self-storage properties, Extra Space Storage (NYSE:EXR) is a major force in the storage sphere. This portfolio, encompassing approximately 1.5 million units, positions the company as a powerful player. One of the key advantages of self-storage is the relatively low upkeep compared to traditional rental properties, which significantly bolsters EXR’s financial performance.

EXR’s operations are marked by impressive efficiency, as evidenced by its EBITDA margins exceeding 60%. This level of profitability is remarkable, especially when considering the dynamics of the self-storage industry. Additionally, the company’s return on equity stands at 9% dwarfs the sector’s median of 188%. This figure is indicative of the company’s effective management and operational excellence. Furthermore, a free cash flow margin of 32% underscores EXR’s exceptional financial positioning, highlighting its ability to generate substantial cash flows from its operations.

The company’s dividend profile adds another layer of attractiveness for investors with 13 consecutive years of dividend increases, a remarkable yield of 4.4%, and a 5-year dividend growth rate of 14%.

Magna International (MGA)

A Magna International (MGA) sign is on the front of a Magna building in Ontario, Canada.

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Magna International (NYSE:MGA) is a key player in the automotive world and a major supplier to top electric vehicle (EV) manufacturers, showcasing robust sales growth, which climbed 10% year-over-year in its latest report. Leveraging the surging demand in the EV market, MGA is optimistically revising its income forecasts for 2024. Despite grappling with slim margins, the company’s steady sales and performance metrics solidify its position as a top contender in the EV sector,

The company’s revised 2025 revenue guidance, with an encouraging midpoint of $48 billion, points to its massive growth potential, fueled by the strong performance of its Power & Vision unit in the vehicle electrification wave. Magna’s stability isn’t just about consistent performance; it’s also about shareholder value. Adding to its allure is an attractive dividend profile, marked by six consecutive years of dividend growth and an impressive 3.3% yield.

Mercantile Bank (MBWM)

bank stocks Hand inserting ATM card into bank machine to withdraw money

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Mercantile Bank (NASDAQ:MBWM) is a powerful Michigan-based banking powerhouse with more than $5 billion in total assets, which has emerged as a beacon of resilience and strength in the regional banking space. While many peers struggled after SVB’s bankruptcy, Mercantile Bank has recovered and flourished, with its stock rising nearly 20% in the past six months. This remarkable turnaround is a testament to the bank’s spectacular commercial loan growth and astute management of loan yields and deposit costs, resulting in a formidable net interest margin.

The fourth quarter of 2023 was particularly telling of Mercantile Bank’s prowess. The bank’s fourth-quarter GAAP EPS of $1.25 outpaced estimates by one cent, and revenue of $57 million beat expectations by $0.89 million, underscoring its operational excellence. As of December last year, its total deposits stood at an impressive $3.90 billion, up by 5.1% from the previous year. The net interest margin for the quarter was at a healthy 3.92%, a clear indicator of effective loan and deposit management.

Investors have more to cheer about with Mercantile Bank’s enticing dividend profile. Offering an incredible 3.4% yield and a 5-year dividend growth rate of 7.6%, the bank presents a compelling case for those seeking stability and growth, not just stability.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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