Which stocks should you buy and hold when you start building your retirement portfolio? In this search, you should find companies that generate income through regular payouts, and are less likely to cut or suspend dividend payments during market volatility.
One way to identify the best dividend stocks is to look for the industry leaders with a defensible & # 39; economic moat & # 39; term coined by renowned investor and Berkshire Hathaway (NYSE 🙂 CEO Warren Buffett to identify quality stocks with a huge competitive advantage.
In view of these factors, we have shortlisted below two top quality stocks that income investors could buy now:
1. Nike
When the economy is booming and consumers are more have money to spend on discretionary items, consumer stocks perform better. The post-pandemic economy offers us a similar set-up, where consumers have a lot of money to spend with huge pent-up demand. In this group, we especially like Nike (NYSE :).
The Oregon-based sportswear giant's vigorous comeback since its pandemic plunge last March shows that the company has not lost its appeal to income investors. Nike's strong global brand offers solid protection against a slowdown in a particular region. But so far, the company has not seen any sign that consumers, no matter where they are, will be slowing down their spending.
In addition, the company's successful e-commerce strategy has helped weather the disruption caused by COVID-19. Digital sales of the Nike brand were up 59% last, the company said, citing strong growth in each region.
Nike Weekly Chart.
Chief Financial Officer Matt Friend said in a statement in March:
"We continue to see the value of a more direct, digitally supported strategy, which will fuel even greater potential for Nike in the long run."
This positive momentum bodes well for Nike's loyal investors. They have relied on the company's dividend payments and understand the cyclical nature of its business. The stock of Nike currently pays $ 0.275 per share on a quarterly basis, which translates to an annual dividend yield of 1%.
That yield clearly does not look attractive when compared to higher yielding stocks in the market. But analyzing stocks based on their returns alone is not a good approach. The best dividend stocks are those whose payouts are regularly increased.
This is where Nike has done a great job. It has increased its payout for 19 consecutive years, meaning Nike has the financial strength to successfully ride through downturns and recessions, such as during the pandemic that forced many other cyclical consumers to suspend their payouts.
2. Apple
Many investors view Apple (NASDAQ 🙂 as a technology stock with little attractive income. But the maker of iPhones is one of the most cash-rich companies in the world, which will allow the company to satisfy income-seeking investors for years to come.
Don't be disappointed by Apple's current small 0.70% dividend yield. The Cupertino, California-based tech giant offers a powerful combination of efforts to increase overall returns for its investors through rising dividends and a large-scale share buyback plan.
Share buybacks are another way of rewarding long-term investors. As a company repurchases its shares, there will be fewer shares outstanding and a greater portion of the profits will be distributed to a smaller number of shareholders.
While Apple announced it planned to increase its dividend by 7% last month, Apple also increased its share buyback program by an additional $ 90 billion.
Apple Weekly Chart.
Luca Maestri, Apple's chief financial officer, said on a recent conference call:
“These results enabled us to generate operating cash flow of $ 24 billion and return nearly $ 23 billion to shareholders during the quarter. We are confident in our future and continue to make significant investments to support our long-term plans and enrich our customers' lives. "
Apple $ 3.28 in earnings per share for fiscal 2020. With its current annual payout of $ 0.88, this is only 27% of its revenue, showing there is plenty of room to increase its dividend each year .
With more than $ 204 billion in cash on hand, Apple is also in an enviable position to further expand its share buyback program to support its stock.
