These Dividend Stocks Are an Investor's Best Friend

Dividend stocks tend to struggle in high-interest-rate environments. The core reason is investors have an abundance of low-risk, high-yield income options when interest rates spike.

Conversely, fund managers have historically pivoted to top-tier dividend stocks when interest rates fall. The logic behind this trend is that dividend stocks ought to deliver superior returns to risk-free assets like U.S. T-bills in low-rate environments.

Which dividend stocks should investors load up on before the Federal Reserve starts to cut rates? Although there are scores of options, Abbott Laboratories (NYSE: ABT) and Medtronic (NYSE: MDT) have proven for decades to be an investor's best friend in terms of dependable dividend checks that keep increasing in size every year. Here's a rundown of the most crucial aspects of each company's value proposition, dividend mechanics, and risk factors.

A sticky pad that reads dividends.

Image source: Getty Images.

Abbott Laboratories: A proven value creator

Abbott Laboratories is a healthcare company with significant assets in high-growth markets like metabolic diseases and cardiac devices. Its shares trade at 22.3x forward earnings, which is in line with benchmark indexes like the S&P 500.

The company faces fierce competition in key segments like diabetes care, but its enormous scale and innovation-focused pipeline provide it with a significant economic moat.

Abbott scans as a top dividend play for three key reasons:

  • Dividend yield and sustainability: Abbott stock pays an annualized yield of 2.12%, which is significantly higher than the average of 1.35% among S&P 500 listed stocks. It also has a trailing-12-month payout ratio of 64.8%, indicating that its cash distributions are well covered by earnings.

  • Consecutive dividends: Abbott has declared 399 consecutive quarterly dividends since 1924, making it a reliable choice for income-seeking investors. Additionally, the company has increased its dividend payout for 51 consecutive years, showcasing management's commitment to paying a top-tier dividend.

  • Blistering dividend growth: Over the past five years, Abbott has boosted the size of its dividend checks by approximately 11.4% per year. Within its large-cap peer group of companies with no less than 15 years of consecutive raises, the average annual dividend increase stands at only 6%.

All told, Abbott has a proven track record as an elite dividend stock that investors can count on across economic cycles. This feature makes this blue chip medtech stock a worthwhile addition to almost any type of portfolio.

Medtronic: A dividend check you can count on

Medtronic, a global medical device company, has consistently rewarded its shareholders with dividends. Speaking to this point, the company has increased its dividend for the past 46 consecutive years. This remarkable streak underscores the company's commitment to creating value for shareholders.

Medtronic stock pays a sizable yield of 3.27% on an annualized basis. However, the medical device titan's payout ratio is 87.2%, meaning that future raises to the payout may be constrained by earnings growth.

Indeed, Medtronic's five-year dividend growth rate of about 5% falls below its peer average (see above). The good news is the medtech company's shares are trading in bargain territory at 15.4x forward earnings, and its top-line growth is poised to accelerate in the coming years, thanks to its strong cardiac device pipeline.

Bargain hunters may want to stock up on this blue chip dividend equity before interest rates start moving down. Thanks to its superb track record, this medical device titan is highly likely to garner significant interest from fund managers once the Fed begins to slash rates.

Should you invest $1,000 in Abbott Laboratories right now?

Before you buy stock in Abbott Laboratories, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Abbott Laboratories wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $559,743!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of May 13, 2024

George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.

These Dividend Stocks Are an Investor's Best Friend was originally published by The Motley Fool

newsid: i4iisqq9d6v8xgm

Related stories
3 minutes ago - (Bloomberg) -- Gold surged to an all-time high, boosted by increasing optimism the Federal Reserve will start easing monetary policy this year along with rising geopolitical tensions in the Middle East.Most Read from BloombergWreckage of Iran President’s Helicopter Seen, State Media SaysSpeedier Wall Street Trades Are Putting Global Finance On EdgeEven If Alito Is Right, the Upside-Down Flag Was WrongGantz Says He’ll Quit Unless Netanyahu Moves to New War PlanChina-Bound Oil Tanker Hit by Houthi
5 minutes ago - Eli Lilly (NYSE: LLY) sells a broad portfolio of products, but two in particular have helped revenue growth explode in recent times. I'm talking...
5 minutes ago - AI could be the "biggest technological shift" of our lifetimes. This company has decades of experience and is positioned to thrive.
26 minutes ago - Families in California pay more for groceries than those in any other state. Now, a single fruit is being sold at a SoCal retailer that costs more than the average of $297.72 per week that househol…
53 minutes ago - Berkshire Hathaway is the creation of Warren Buffett, so what will it be when Buffett steps aside?
Other stories
1 hour ago - GameStop (NYSE:GME) stock doesn’t seem to do anything in half measures. Following a long absence, a recent tweet by Roaring Kitty, the person largely responsible fo...
1 hour ago - Every restaurant investor is looking for the next Chipotle Mexican Grill (NYSE: CMG). The fast-casual restaurant chain has posted phenomenal returns...
1 hour ago - My bologna has a first name, it's O-S-C-A-R...We all recognize the famous Oscar Mayer jingle. But the brand has much more than bologna. It also has...
2 hours ago - The Dow Jones Industrial Average is coming off of a notable week, having reached an all-time high on Thursday and a close above 40,000 on Friday.
2 hours ago - Ripple saw substantial progress in numerous aspects during Q1. Will XRP see green as progress is made in Q2?