3 Underrated Dividend Stocks That Could Generate Reliable Cash Flow for Your Portfolio for Decades
Written by David Jagielski for The Motley Fool -> The stocks listed here offer low yields, but they have made generous increases to their payouts in recent years. They have low payout ratios and strong growth prospects, suggesting their payouts will likely continue to rise in t
The stocks listed here offer low yields, but they have made generous increases to their payouts in recent years.
They have low payout ratios and strong growth prospects, suggesting their payouts will likely continue to rise in the years ahead.
A common mistake many investors make when looking for dividend stocks is to focus mainly on the yield. A high yield can be enticing, but if it proves unsustainable, it could turn out to be a costly decision. Not only might the dividend get cut or suspended, but the stock may also crash if that happens.
Three dividend stocks that may be underrated due to their low yields but that could be incredibly reliable income investments to hang on to in the future are Microsoft (NASDAQ: MSFT) , Eli Lilly (NYSE: LLY) , and Mastercard (NYSE: MA) . Here's why you should consider buying these stocks for their payouts, even though their yields may look minimal.
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Most investors probably aren't buying Microsoft for its dividend; it yields just 0.9%, which is below the S&P 500 average of only 1.1%. But while the yield may look unimpressive, consider that Microsoft has actually been a top dividend growth stock for years.
Currently, it pays $0.91 per share per quarter. A decade ago, however, it was paying just $0.36 -- the dividend has risen by 153% since then, averaging a compounded annual growth rate (CAGR) of just under 10%. Meanwhile, the tech giant's payout ratio remains fairly low at around 21% of earnings. There's still considerable room for it to grow its dividend in the future.
The added bonus for investors is that they can also benefit from the tech company's future growth and possible gains from simply holding onto the stock. With many high-yielding stocks, dividends are the main reason to invest. With Microsoft, however, it's just one of the reasons it's a strong all-around investment .
