3 Reliable Dividend Stocks to Buy for Both Income and Growth

John Smith

Dividend stocks can provide investors with a reliable stream of passive income along with capital appreciation over time. While some high-yielding stocks may seem attractive, the best dividend payers combine steady payouts with strong business fundamentals, earnings growth, and share price gains.

Microsoft, Emerson Electric, and Hubbell are three dividend-paying stocks that offer investors an ideal mix of moderate current income and significant upside potential, making them compelling buys right now.

Microsoft: A Tech Juggernaut With 20 Years of Dividend Growth

Microsoft (NASDAQ: MSFT) has transformed into a cloud computing and services leader, evolving far beyond its Windows and Office software roots. The company now provides essential software and technology solutions to businesses and organizations globally.

Over the past five years, Microsoft stock has soared nearly 400%, vastly outperforming the broader market. However, its dividend yield currently sits at just 0.8% due to its surging share price.

Don’t let that tiny yield fool you though. Microsoft has increased its dividend for 20 consecutive years, even through recessions and market downturns. Just five years ago, Microsoft traded around $100 per share, which would equal a 3% yield at today’s $0.75 quarterly dividend rate.

The company generates prodigious free cash flow, reporting $17.8 billion in its latest quarter. This allows Microsoft to support large R&D budgets, make acquisitions, buy back stock, and pay a safe, growing dividend.

Given Microsoft’s dominant position in enterprise software and cloud, along with emerging opportunities in areas like artificial intelligence, it seems likely the company can continue hiking payouts at a strong pace for years to come. Investors buying now get a proven dividend grower plus substantial capital appreciation potential as Microsoft dominates the future of tech.

Related: Dividend Stocks on Sale: 8 Picks from Morningstar with Recent Payout Hikes

Emerson Electric: 66 Years of Rising Payouts

Industrial electrical systems manufacturer Emerson Electric (NYSE: EMR) has increased its dividend annually for over six decades straight. This incredible track record has earned it coveted Dividend King status.

Unlike Microsoft, Emerson offers a more substantial 2.4% forward dividend yield. Its payout ratio sits at a conservative 58% based on this year’s expected earnings per share, indicating the dividend remains very reliable and still has room to expand.

Emerson generates steady free cash flow, taking in an average of $2.6 billion annually over the past three years. Meanwhile, it has only returned about $1.2 billion to shareholders through dividends over that period, further demonstrating the payout’s sustainability.

The company is benefiting from strong demand for upgraded power infrastructure and efficiency solutions. Emerson’s backlog grew 12% year-over-year excluding acquisitions, showing continued business momentum.

Acquisitions also play a key role in Emerson’s growth. The 2022 purchase of industrial software maker AspenTech for $11 billion bolsters Emerson’s offerings and financials. In fiscal 2023, AspenTech chipped in $0.27 to Emerson’s total EPS of $3.72, a meaningful contribution.

Investors looking for both reliability and growth get the best of both worlds with Emerson stock. Its modest but safe yield provides steady payouts to investors, while the shares offer upside as Emerson capitalizes on long-term infrastructure modernization tailwinds.

Hubbell: Electrifying Dividend Growth Ahead

Hubbell’s (NYSE: HUBB) business focuses directly on the backbone enabling the electrification of everything – electrical transmission and distribution infrastructure. The company manufactures vital equipment like power lines, substations, connectors, switches, and control systems used by utilities and within commercial and industrial facilities.

Demand for updating and expanding strained electricity infrastructure continues rising to meet growing power needs from electric vehicles, renewable energy, data centers, smart buildings/cities, and more. Hubbell is strategically positioned to capture this mega-trend in coming decades.

The company recently raised its dividend 9% to a record-high $1.22 per share quarterly. While Hubbell’s yield sits at just 1.6% today, its single-digit payout ratio leaves ample room for more strong dividend hikes down the road.

Hubbell expects to deliver 7% organic revenue growth in 2023, exceeding initial guidance for 4-6% growth. Strength across its transmission, renewables, and data center markets are fueling this outperformance. Analysts see high-single digit revenue expansion continuing next year as well.

Riding long-term electrical infrastructure tailwinds, Hubbell offers investors a steadily rising income stream. Meanwhile, the company’s leverage to a massively important global trend provides excellent capital appreciation potential over a long-term investment horizon.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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