Building a portfolio of income-producing stocks, with businesses that pay you to invest in them through dividends, is a proven winning strategy that puts both time and money on your side.
But not every dividend payer is worth investing in, as sometimes their businesses have become quite risky. The yields they offer may be juicy, but they could burn you as their opportunities deteriorate further, which was why their payout was so high to begin with.
That's why finding sturdy companies that make healthy payouts and even have the potential for capital appreciation is important. It's also why you may want to look more closely at Anheuser-Busch InBev (NYSE: BUD), Dick's Sporting Goods (NYSE: DKS), and Target (NYSE: TGT).
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Still the king of beer
It may sound odd including in this group a company that just last year slashed its dividend. Anheuser-Busch InBev cut its payout in half in October, in a bid to conserve cash and raise $4 billion to help pay off its massive $104 billion debt load from its 2016 purchase of SABMiller. While it had also tried an IPO with its Asian business to shave its obligations, investors were wary and unwilling to pay the price set, so it yanked the offering and opted instead to sell its Australian operations.
But Anheuser-Busch remains the leading global brewer with numerous other growth prospects that make it an intriguing investment still.
Its emerging markets are improving as their economies get healthier even if the U.S. is still soft, and brands like Corona and Stella Artois remain popular around the world. It is introducing new products that align with the trend away from beer, such as its Bon & Viv hard seltzer. While other brands dominate the market now, few have the marketing and distribution muscle of A-B, which should make its own version a contender.
There is also the cannabis market, which it's pursuing through a partnership with Tilray to develop nonalcoholic beverages infused with cannabidiol, the nonpsychoactive compound found in marijuana.
Anheuser-Busch's dividend yields 2%, and though investors might not see it right away, you can bet the brewer will once again begin raising the payout as its debt monster is tamed.
Better than a sporting chance
Dick's Sporting Goods looks like it's on the road to recovery, too. Having banned the sale of popular rifles at all its stores last year, the retailer suffered a backlash from gun enthusiasts who took their business for hunting gear and other goods elsewhere.
While 2018 was a disappointing time for the retailer, this year has looked as if it's a turnaround in progress. Sales and profits are up, though some of that has to do with going up against easy comparable numbers. But it has also found it can replace low-margin gun sales with more profitable gear from other sports like baseball. Comps at stores where it has completely removed the hunting category experienced their third consecutive quarter of growth and outperformed all its other stores. It is now mulling whether to remove the hunting department from all stores.
While hunters and gun owners held a lot of sway across many of Dick's departments, it's finding that it can make up sales by introducing its own lines of apparel, which are proving especially popular and carry better margins than those from Nike or Adidas. Name brands are also doing well, so it looks positioned to be a sturdy, steady grower, albeit slower than usual, with a dividend that yields 3.2%.
Hitting the bull's-eye
Target might have been tardy on the e-commerce front, but it has spent the years since making up for lost time, and could even be poised to teach Walmart a thing or two. Where Walmart is expected to lose as much as $1 billion on its digital offerings this year, Target is using its online presence to make the rest of its business profitable. In the second quarter, margins expanded for the first time in three years because it has struck the right balance between its physical and online presence.
Omnichannel retailing has almost become a cliche, but the advantage brick-and-mortar retailers like Target have over Amazon.com is that they can use their physical footprint to bring their online services closer to consumers and use their stores as distribution centers.
Target is using both in-store pickup of online orders as well as delivery options like Shipt for groceries to get orders to customers in one day or less. Even Amazon, which itself began one-day delivery, finds it difficult to match the near-instantaneous gratification from letting customers come into stores (or stop curbside) to retrieve their merchandise.
Same-day fulfillment now accounts for one-third of Target's digital sales, up from 20% last year, and digital comps grew 34% in the second quarter, on top of the 40% gain it achieved a year ago.
Target has broken out of the retail pack and is ready to tackle bigger goals. It has stores of various sizes to get even closer to its customer, and with a dividend that yields 2.5%, it should be a mass-merchandise leader that pleases investors for years to come.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Nike. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.
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