The stock market’s decline in 2022 hasn’t been a walk in the park for investors, but the good news is that there are plenty of dividend stocks on sale that you can now add to your portfolio at a discounted price to build income and wealth over the long term.
Dividend investing is a time-tested strategy that has proven to be one of the best ways to create long-term wealth. Because returns are generated both from dividend payments as well as stock price appreciation, dividend investing offers you multiple ways to win, and this strategy has outperformed the S&P 500 over time. By reinvesting the dividends you receive, you can generate even better returns.
Here are three top dividend stocks that investors can buy now and “set it and forget it” to build a steady stream of dividend payments for years to come.
1. Philip Morris International
Global tobacco giant Philip Morris International (NYSE: PM) has been paying a steadily growing dividend since 2008. While this may not give it the same lengthy track record of the Dividend Kings, note that Philip Morris was spun off from Altria in 2008, so it has been paying a dividend throughout its entire existence as a stand-alone company.
Philip Morris has grown the dividend at an 8% annualized rate since that time, and the dividend payout of $1.25 per quarter now yields an impressive 5%. The company is reasonably valued at 17 times earnings, and it has some potentially interesting growth drivers up its sleeve.
For example, Philip Morris’ IQOS heated tobacco and electronic cigarette products have been a hit internationally with 18 million users worldwide . Philip Morris is also in the process of acquiring Swedish Match, whose ZYN smoke-free nicotine pouch product has quickly gained traction in the U.S. and abroad.
Completing the merger would help to take Philip Morris to the next level as a global powerhouse in both traditional and smokeless tobacco products and one that is also paying a 5.1% dividend yield for holding it. Investing $1,000 in Philip Morris (from the $3,000 we started with) would pay you about $51 over the course of the year in dividends.
2. Franchise Group
It’s an old investing adage that the safest dividend is the one that was just raised, and Franchise Group (NASDAQ: FRG) has raised its payout substantially over the last three years. The Ohio-based owner of brands like Vitamin Shoppe and American Freight raised its dividend from $1.00 in 2020 to $1.50 in 2021, and from $1.50 to $2.50 this year.
The company came into the public market by taking over Liberty Tax in 2019 and merging it with its Buddy’s Home Furnishings business, so it doesn’t have a long dividend track record, but so far the early results are very promising. Even better, at its current share price, Franchise Group yields about 6.5%, which is a substantial payout.
This dividend payment should prove to be resilient over time, as Franchise Group’s portfolio of businesses is relatively recession-resistant. People will keep buying vitamins during a downturn, and the same can be said for its Pet Supplies Plus business. Its various furniture companies tend to be at the more affordable end of the market, so they should also be relatively resilient.
In addition to the generous dividend, Franchise Group is also returning capital to shareholders with a $500 million share repurchase authorization, which is equal to almost one-third of the market cap. These buybacks will reduce the number of shares outstanding, which will increase earnings per share and shrink the number of shares to divide future dividend payments between.
Investing the next $1,000 in Franchise Group would pay about $65 annually. Add that to our Philip Morris income, and we have added about $116 in annual income to our portfolio.
3. Camping World Holdings
Philip Morris and Franchise Group are paying dividend yields that are far higher than those of the broader market, but for our last choice, let’s boost our income even more with an even higher yielder. Camping World Holdings (NYSE: CWH), the Marcus Lemonis-led retailer of recreational vehicles (RVs), currently yields a whopping 9.8% payout.
Like Franchise Group, the company has been aggressive about raising its dividend over the last several quarters. The company recently raised its quarterly dividend from $0.25 to $0.50 in the second half of 2021. In March, Camping World increased the payout yet again, to $0.625, which adds up to a $2.50 payout annually. Like Franchise Group, Camping World is also buying back shares.
Investing our final $1,000 in Camping World would pay out $98 annually. Add that to our previous choices paying out $116, and we now have built a total annual payout of $214.
Rinse and repeat
This $214 is about a 7% yield on our hypothetical $3,000 portfolio. These are all high-quality companies that have been growing their dividends and which should have plenty of ability to continue paying them over time. Taking this $214 and reinvesting it into more shares of these stocks will also build our positions and lead to more dividend payments.
This strategy will slowly but steadily compound our portfolio as the dividends increase and the number of shares in it grows. Investors can also put more money into the portfolio periodically and add to each position on an incremental basis. Rinse and repeat every few months, and before you know it, you will have a resilient portfolio of blue chip business generating a substantial amount of income.
Michael Byrne has positions in Franchise Group, Inc. The Motley Fool recommends Camping World Holdings and Philip Morris International and recommends the following options: short June 2022 $29 puts on Camping World Holdings. The Motley Fool has a disclosure policy.