The Smartest Dividend Stocks You Can Buy Right Now With $400

By | March 16, 2024

This week’s inflation figures were somewhat positive, but that does not mean that rates on traditional fixed income investments will remain high for much longer. When the environment starts to become more favorable – and money market funds and newly issued bonds start offering lower interest rates – yield-seeking investors will turn to dividend-paying stocks whose payouts should grow over time.

You don’t need a lot of money to build a diversified portfolio of income-producing stocks. I believe that AT&T (NYSE:T), Sirius XM (NASDAQ: SIRI)And Disney (NYSE: DIS) should be strong considerations for the next $400 you put to work in the market.

1. AT&T

After years of losing in the market and struggling with the aftermath of bad acquisitions, AT&T is looking pretty good. The telecom giant has seen its shares rise 16% in the past six months, and its hefty 6.5% yield will look even better as short-term rates fall later this year.

AT&T is no longer a stodgy media conglomerate or a satellite TV company. It keeps people connected as the leader in wireless telephone services and online connectivity. It’s also more than happy to supply businesses and homes with more old-school offerings. And it’s a lot cheaper than most stocks you already own, trading at just seven times adjusted earnings.

Someone was elated while holding a cordless phone.

Image source: Getty Images.

Growth at AT&T won’t be impressive. Revenue rose just 2% in AT&T’s latest quarter, with a 10% decline for its business fixed-line segment more than offset by a 4% increase for its flagship mobile services and gains elsewhere. The adjusted earnings results delivered a rare miss after beating analysts’ quarterly profit targets for more than a year.

AT&T’s guidelines also disappointed investors, but this money machine is still working. After generating $16.8 billion in free cash flow in 2023, AT&T expects free cash flow of $17 to $18 billion in 2024. In other words, the playing field is set for a dividend increase this year.

AT&T sees its already strong wireless presence growing this year as more customers embrace the benefits of faster 5G service. The telecom giant sees its fiber broadband service – which has grown by at least 1 million net subscribers six years in a row – growing even faster.

2. SiriusXM

Our next turn on the radio dial of promising dividend payers is Sirius XM. The country’s only satellite radio provider is also posting unimpressive revenue growth. Sales fell by 0.6% last year, the first year of negative growth in more than twenty years. However, Sirius XM continues to consistently generate 10-figure free cash flow every year.

Sirius XM uses its premium subscriptions and advertising sales to build content programming that terrestrial radio cannot match. It’s using its free cash flow to pay down debt, aggressively buy back stock and – yes – pay a growing dividend. The current yield of 2.6% is a lot less than AT&T’s, but also has a strong catalyst for a return to growth. Sirius XM lives and dies in the time people spend in their cars where they primarily consume satellite radio. Commuters are hitting the road again as companies recall employees to office posts. Leisure travel is also increasing as prices continue to fall from their peak two summers ago. Sirius XM is ready to put the pedal to the metal.

3.Disney

Disney’s semi-annual cash distributions won’t make you rich. Even after announcing it will increase its payout by 50% this summer, the entertainment giant will return less than 0.7% over the next year. It does not mean that the House of Mouse cannot make dividend investors happy in terms of capital growth.

Disney stock is rising in 2024 after losing heavily to the market for three straight years. The stock is up 24% year to date. Suddenly that paltry payout doesn’t seem so bad, as long as the increases keep coming.

There’s a lot going on at Disney. You know the bad things. It has had recent problems at the box office. Cord cutters are damaging Disney’s linear media networks. The flagship streaming company has suffered billions in losses in recent years. Even the theme parks – the most stable of the operating segments – have been in flux lately, especially at Florida’s largest resort.

Enough looking back. The short-term outlook is surprisingly bright. Disney has a potential blockbuster on the big screen every month from May until the end of the year. Disney+ should be profitable by the end of September, and revenue growth there is already offsetting the revenue boost for its traditional TV business. You don’t have to worry about the theme parks either. Disney is investing aggressively in capacity-expanding attractions for its enclosed attractions and cruise ships over the next decade.

Disney shares are trading at just over half of their all-time high from three years ago. Disney is expected to post a profit of $2 billion on $67.4 billion in fiscal 2021. Analysts expect reported net income of $7.3 billion, with nearly $92 billion on the top line. It’s a great, big, bright future for Disney right now.

Should You Invest $1,000 in AT&T Now?

Consider the following before buying stock in AT&T:

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Rick Munarriz has positions at AT&T and Walt Disney. The Motley Fool holds and recommends positions in Walt Disney. The Motley Fool has a disclosure policy.

The Smartest Dividend Stocks to Buy Right Now with $400 was originally published by The Motley Fool

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