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By Marc Guberti, InvestorPlace.com
Buying dividend stocks can help you generate steady cash flow. You won’t have to sell shares to cover your living expenses if you continue to make frequent contributions to your portfolio.
While each dividend stock lets you earn cash flow, investors have to be watchful before getting started. Some dividend stocks have higher yields but offer lower potential returns. Other stocks start out with low yields but have higher dividend growth rates. Stocks in this category also tend to outperform dividend stocks that prioritize income over appreciation.
Investors looking for some growth opportunities may want to monitor these three dividend stocks.
FedEx (FDX)
Reasonably priced FedEx (NYSE:FDX) trades at only a 15 P/E ratio and offers a 1.89% dividend yield. The company has a large moat in the logistics industry. Although revenue dipped by 2% year-over-year (YOY) in the third quarter of 2024, net income jumped by 14% YOY.
Rising profit margins can support further dividend hikes, and the company has a healthy dividend program. FedEx boasts an annualized dividend growth rate of 24.69% over the past three years. The company raised its quarterly dividend from $1.15 per share to $1.26 per share last year. That’s a 9.6% YOY increase. And, FedEx is due to raise its dividend this summer.
Currently, FDX is rated as a moderate buy among 21 analysts and has a projected 16% upside. Most recent ratings suggest the company can gain more than 16%. FedEx’s leading position in the shipping industry combined with a reasonable valuation make the stock look enticing.
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Walmart (WMT)
Walmart (NYSE:WMT) offers more resistance during economic slowdowns since many people turn to the retailer for affordable products. The retailer has outperformed the S&P 500 year-to-date (YTD) and over the past five years.
Walmart offers a 1.38% dividend yield and currently has a 31 P/E ratio. Analysts believe more upside is ahead. It’s rated as a strong buy among 28 analysts and has an implied 10% upside.
Walmart grew its revenue by 5.7% YOY in Q4 of 2024, but that’s not the only reason analysts are bullish. The retail giant is making big strides in the advertising business. Its ad revenue grew by 33% YOY and a recent acquisition of Vizio will accelerate its growth. Ads have better profit margins than retail products which can lead to a higher dividend growth rate moving forward.
Walmart already tipped its hand in this regard by raising its dividend by 9% this year. That’s the highest dividend hike in more than a decade. Also, the company achieved an impressive 23% YOY growth rate in global e-commerce sales. If Walmart continues to gain market share in the e-commerce industry, it can deliver robust gains for shareholders.
Microsoft (MSFT)
Top dividend stock Microsoft (NASDAQ:MSFT) is for long-term investors who don’t need cash flow right now. The company only has a 0.73% dividend yield, but the yield can become more attractive if short-term market conditions push down the stock. Rising Treasury yields can make the stock available at a discount.
Azure Cloud revenue is a main segment of the company’s business model. It grew by 24% YOY in Q2 of 2024, generating $33.7 billion during that quarter. Overall revenue increased by 18% YOY while net income reached $21.9 billion. That’s a 33% YOY increase!
Analysts are bullish on the stock and believe it can gain an additional 15% from current levels. Currently, the stock rates as a strong buy among 35 analysts. The company is expanding in multiple industries. It’s winning ground in cloud computing, artificial intelligence, gaming, business software, advertising and other segments. Those successes have translated into a 218% gain over the past five years, and more gains are likely on the way for long-term investors.
On this date of publication, Marc Guberti held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.
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