The widely followed S&P 500 index includes some of the strongest companies in the world, and many of these industry leaders regularly distribute dividends to shareholders. Let’s look at two elite S&P 500 companies that have seen their share prices stumble this year but that now sport yields that are more than double the average yield of the index.
1. Starbucks
The world’s most popular coffee chain has received a lot of investor attention this year after the stock’s recent nosedive. With around 39,000 stores worldwide, Starbucks (NASDAQ: SBUX) is not immune to softness in consumer discretionary spending. It managed to skate through the inflationary environment over the last few years with double-digit percentage sales growth, but the macro headwinds might be catching up to the company.
Starbucks reported an unusual decline in revenue last quarter, mostly driven by an 11% decrease in comparable-store sales in China. That shortfall in sales sent the stock tumbling — it’s now 41% off its 2021 peak.
Investors should expect the stock to bounce back eventually. Starbucks is a dominant brand with room to grow. Management has set a goal of having 55,000 stores open worldwide by 2030, which provides long-term visibility into its sales growth plans.
One indicator that its recent sales decline is not indicative of its true strength can be found in its loyalty program. The number of loyalty members in the U.S. market grew 6% year over year last quarter to 32.8 million. While competition in the Chinese market may weigh on its overall growth in the near term, Starbucks can use new product offerings and rewards to maintain its premium brand position in a growing coffee market.
Despite its recent struggles, analysts still expect Starbucks to post annualized earnings growth of roughly 12% over the next several years. This should allow the company to maintain its impressive pace of dividend growth — a 20% annualized rate over the last 14 years. At recent share prices, its current quarterly payout of $0.57 per share gives the stock a dividend yield of 3.13%, which is more than double the S&P 500’s 1.32% yield.
2. Johnson & Johnson
Another quality business with a long track record of regularly hiking its dividends is healthcare staple Johnson & Johnson (NYSE: JNJ).
J&J’s stock price is down 19% from its early 2022 high. Part of that dip can be attributed to concerns regarding legal liabilities related to lawsuits involving its talc products. J&J is making efforts to resolve this (hopefully) short-term headwind. The dip can also partly be attributed to concerns about J&J’s growth outlook for the next few years, when it will lose patent exclusivity on some of its pharmaceutical products, opening the door for other companies to make generic versions, which will put a drag on sales. But Wall Street is undervaluing the company’s track record for developing new pharmaceuticals that can pick up the slack and drive further growth.
Johnson & Johnson has a long history of innovation. It has steadily increased its research and development budget for years, spending over $15 billion on it last year alone. The company is constantly investing in its pipeline of new treatments and technologies that will keep the company growing, as it has for over a century. In fact, products that were introduced within the last five years made up a quarter of J&J’s total revenue last year.
It’s a quality business in large part due to management’s history of achieving high returns on capital. In addition to its product pipeline, management is always looking for opportunities to make strategic acquisitions that expand its capabilities in high-growth areas of healthcare, including its medical technology segment. It just completed its acquisition of Shockwave Medical, extending its presence in the high-growth market for cardiovascular intervention devices.
Johnson & Johnson’s profitable business has funded a growing dividend for over 60 years. It recently raised the quarterly payment by $0.05 per share, bringing its forward dividend yield at the current share price to 3.32%.
Should you invest $1,000 in Starbucks right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and Starbucks. The Motley Fool has a disclosure policy.
2 Magnificent S&P 500 Dividend Stocks Down 19% and 41% to Buy and Hold Forever was originally published by The Motley Fool