Five Outstanding Dividend-Growth Stocks Dropped by 24% to 41%: Purchase Prior to 2025 for Enduring Passive Income Generation
If you're seeking to strengthen your long-term passive income potential, the five stocks in this piece could be valuable additions to your portfolio prior to 2025.
Regardless if you're drawn to high-dividend payers like American Tower (AMT -1.30%), The Hershey Company (HSY -0.33%), and Public Storage (PSA -0.95%) or swiftly expanding dividends from MTY Food Group (MTYF.F -3.38%) or Zoetis (ZTS -0.20%), these businesses offer the prospect of lucrative passive income throughout your life.
At present, these companies are experiencing a decline of between 24% and 41% from their peak values. Let's delve into the reasons why these companies are exceptional dividend stocks to acquire.
1. American Tower
American Tower is the most prominent real estate investment trust (REIT) in the United States with a portfolio exceeding 146,000 communications towers, 1,600 distributed antenna systems, and 28 data centers. The company generates revenue by leasing space on its towers to telecommunications companies such as AT&T, Verizon Communications, and T-Mobile in the U.S., and serves numerous global peers.
The reason American Tower merits your investment consideration is its significant role in assisting telco companies in their transition from 2G to 3G, 4G, and now 5G and beyond. Without American Tower's assistance, mobile data consumption would not have expanded by 54% annually since 2007, and several modern tech essentials would not function effectively.
According to an Ericcson Mobility Report, U.S. mobile monthly data traffic is expected to show an annual growth of 22% through 2029, making American Tower an indispensable component of its industry. The company could also benefit from further opportunities internationally, as many countries lag far behind the U.S. in data usage and are rapidly updating their mobile telecommunications networks.
Currently, the company is trading at 18 times cash flow from operations (CFO) and offers a dividend yield of 3.3%, both figures being at their most appealingly affordable levels since 2014. Following the sale of its volatile operations in India, American Tower is poised to restart its dividend growth and presents the possibility of a once-in-a-decade opportunity.
2. The Hershey Company
Hershey's stock is trading 35% below its 2023 peak, but I contend the company has excelled in navigating a surge in cocoa prices due to unfavorable weather conditions in west Africa.
Cocoa beans, an essential ingredient for Hershey's chocolate production, have nearly tripled in price from historical norms over the past three years. Despite this drastic price increase, Hershey has managed to boost its earnings per share by 28% during the same period.
This ability to weather challenging circumstances underscores the security and stability inherent in an investment with Hershey. This confidence in Hershey is one of the reasons that during challenging times, I was pleased to have my daughter include it as one of her nine core holdings. One of the reasons for the company's success during these difficult times is its popular Hershey's, KitKat, and Reese's brands, which consistently rank as the most recognized chocolate brands in the U.S., according to a study from Statista.
Currently, Hershey is trading at 21 times earnings and offers investors a 3% dividend that increased by 15% this year. Both these figures are approaching their most attractive levels since 2014. However, don't simply take my word for it. Snacking powerhouse **Mondelez has once again shown interest in acquiring Hershey's operations.
3. Public Storage
While American Tower is the most prominent U.S. REIT, Public Storage might be the highest-quality REIT. Along with boasting the largest market share of 9% in the storage space niche, Public Storage is the only U.S. REIT with A2 and A credit ratings from Moody's and S&P Global—an indication of its dominant positioning.
Additionally, Public Storage has a best-in-class cash return on invested capital (ROIC) of 14% and free-cash-flow (FCF) margin of 42%. These compelling reasons explain why it might be the highest-quality REIT. This high ROIC is essential for Public Storage as it demonstrates the continued success of its mergers and acquisitions (M&A) growth strategy.
The storage space market remains highly fragmented, with 80% of the industry dominated by local and regional providers—making it an ideal M&A playground for Public Storage.
Today, the company pays a 3.8% dividend yield and has increased its payouts by a substantial 17% annualized rate over the past decade. With Public Storage's stock still 24% below its 2022 peak, now is an optimal time to purchase the strongest brand in the storage space industry.
4. MTY Food Group
MTY Food Group may not be a widely recognized name, but most people will recognize at least one of its 90 franchised snacking and restaurant brands, including Cold Stone Creamery, Famous Dave's, Papa Murphy's, Village Inn, Thai Express, and Wetzel's Pretzels.
The advantageous aspect of MTY Food Group's operation lies in its use of a franchise system. This strategy shifts both financial and operational risks to its franchisees, ensuring that the company remains a lean, high-margin entity, capable of consistent growth through the incorporation of new brands via mergers and acquisitions (M&A).
MTY Food Group has demonstrated an impressive aptitude for growing its reach through its acquisitive strategy. Since 2014, it has maintained an average cash return on invested capital (ROIC) of 14%, indicating that it generates substantial cash flows from the financial resources it utilizes for purchasing assets. These cash flows can be channeled towards dividend growth or stored for future M&A opportunities.
Currently, MTY Food Group pays a dividend yield of 2.4%, yet the potential for this dividend to increase is significant. Given that the current payouts only utilize 14% of the company's free cash flow, it theoretically has the capacity to triple its yield to 7.2%, without approaching the 50% benchmark. Trading at 6 times its free cash flow, MTY Food Group presents investors with substantial growth prospects, provided it continues on its current path.
5. Zoetis
Zoetis stands out in the animal healthcare sector due to the powerful "pet humanization" trend. It estimates that 90% of its sales stem from categories where it holds the leading market position. Its offerings range from medicines and vaccines to genetic tests and precision health products.
The pet humanization trend is undeniably strong. A study conducted by Zoetis and The Human-Animal Bond Research Institute revealed that an astounding 86% of pet owners are ready to spend exorbitantly on their pets' medical care. This trend is largely driven by younger generations, Gen Z and millennials, paving the way for Zoetis's long-term growth.
Zoetis's line of pet pain medicines, particularly its osteoarthritis medication for dogs and cats, has witnessed spectacular growth. Sales for these products surged by 97% in the last quarter, marking only the beginning of its global market penetration.
Despite offering the lowest dividend yield among these five stocks (1%), Zoetis has seen a consistent annual dividend growth rate of 22% over the past decade. Additionally, it reduces its total outstanding shares by 1% annually, creating an attractive "X" pattern in its dividend payout chart.
Zoetis's stock price has decreased by 28% since its peak, positioning it at its most affordable valuation in over five years. Currently, it is trading at 35 times its free cash flow, making today an opportune moment to consider investing in this promising dividend growth stock.
- If you're interested in diversifying your portfolio beyond the tech sector, you might want to consider investing in Zoetis, a company that benefits from the "pet humanization" trend. With a 1% dividend yield and a consistent annual dividend growth rate of 22% over the past decade, Zoetis could be an attractive addition to your finance strategy for long-term income generation.
- Another company worth considering for its investment potential is The Hershey Company. Despite cocoa prices nearly tripling since 2020, Hershey has managed to boost its earnings per share by 28%, demonstrating its financial strength and resilience. With a dividend yield of 3% and a potential for further growth, Hershey could be a reliable source of passive income in your money management strategy.
