With the calendar flipping to the last month of 2024, thoughts naturally turn to 2025. From an investor's perspective, it's a good time to review your holdings and investment outlook as you plan for the long haul.
Those seeking dividend stocks to supply income should look at the dividend yield. However, it's important to dig deeper beyond the stock's yield. After all, a company's ability to sustain, or even better, increase, dividends matters more.
Fortunately, these two stocks have higher yields than the S&P 500's 1.2%. You can also rest easy because the payments are secure and not in danger of getting cut.
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1. Target
Target (TGT 3.01%) had a challenging quarter with same-store sales (comps) increasing a tepid 0.3% for the period that ended on Nov. 2. Positively, people still shopped in stores and online with traffic contributing about 2.4 percentage points, although the transaction amount subtracted 2 percentage points.
Sluggish sales seem likely to prove temporary as stretched consumers have cut back on nonessential purchases. The retailer, while offering everyday items, has become a popular destination for its exclusive, higher-priced offerings.
Undoubtedly, as price increases on basic items like food continue abating, shoppers will increase their spending dollars at Target. There are positive signs on the inflation front with food prices consumed at home increasing 1.1% over the last year through October. After all, people continued visiting Target, but they just spent less.
Meanwhile, the retailer's ability to pay dividends isn't in doubt. Target has a 47% payout ratio, a metric that compares dividends to earnings.
Target has also made a strong commitment to paying dividends. It's made payouts since initiating a dividend in 1967, and the board of directors has raised them for 53 straight years. That includes a 1.8% increase to $1.12 that started with September's payout.
This Dividend King has a 3.4% dividend yield.
2. ExxonMobil
ExxonMobil (XOM 0.09%) has been in existence for more than 140 years. The well-known company explores and transports crude oil and natural gas.
Third-quarter earnings under U.S. generally accepted accounting principles (GAAP) fell 5.1% year over year to $8.6 billion. Management stated that was partly due to industrywide factors affecting refining margins.
The company's results also remain tied to oil and gas prices. But Exxon's other businesses, such as chemicals, help mitigate this to some extent.
Meanwhile, management has reined in expenses. That's important since it can't do much about commodity prices cyclicality, but it can control costs. Its cumulative cost reduction totals $11.3 billion since 2019.
The cyclicality hasn't prevented Exxon from raising dividends throughout the years. While Exxon has a few more years to go before becoming a Dividend King, the board of directors has increased payouts for 42 consecutive years. This includes a more than 4% increase in the most recent quarterly dividend paid to $0.99.
At the new rate, the stock has a 3.5% dividend yield.
While Exxon needs to make large capital expenditures to operate and grow its business, it has more than enough free cash flow (FCF) to support dividends, even at the new level. During the first nine months of the year, the company generated $22.8 billion in FCF (operating cash flow less capital and exploration expenditures), and it paid $12.3 billion in dividends.
