Stock Market

Buying dividend stocks can be tricky. Oftentimes, stocks that pay exorbitantly high dividends have underlying financial problems, and their share price is languishing. The dividend is used as a carrot to keep shareholders hanging on in what is known as a “dividend trap.” This is a situation best avoided. That said, there are a number of well-run and profitable companies that provide strong and reliable dividend payouts.

The best among these stocks raise their dividend each year as their profits grow. These stable and rising dividends can help to grow a portfolio over time and form an important source of income for investors, especially when living on a fixed income in retirement. They key is to ferret out stocks of well managed companies that have strong balance sheets and can support their dividend payments over the long-term. These are the ONLY three dividend stocks to consider in August 2023.

Dick’s Sporting Goods (DKS)

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With its share price having cratered more than 20% immediately after its second-quarter financial results were made public, the stock of Dick’s Sporting Goods (NYSE:DKS) now offers investors a chunky dividend that yields 3.53%. In March of this year, Dick’s doubled its quarterly payout to stockholders, taking it up to $1 per share. The sporting goods retailer clearly sees the importance of providing investors with a consistent and beneficial dividend.

While Dick’s latest print and forward guidance fell short of Wall Street’s expectations, there are still reasons to be bullish on DKS stock. Trading at 10 times forward earnings, Dick’s stock looks undervalued compared to the wider market. Additionally, most of the slowdown at Dick’s has been in its outdoor category, namely camping equipment. Strong back to school sales in Q3 of this year should help to make-up that shortfall. Furthermore, the company is taking steps to reduce costs, cutting 250 corporate jobs just as it announced its latest numbers.

DKS stock has gained 215% over the last five years.

PepsiCo (PEP)

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Beverage and snack company PepsiCo (NASDAQ:PEP) pays a dividend of $1.26 a share each quarter, which is good for a yield of 2.85%. That’s better than the average dividend yield of about 1.54% found among stocks in the Standards and Practices 500 index. Furthermore, PepsiCo is a “dividend aristocrat.” Impressively, the company has increased its stock dividend for 50 consecutive years. Few companies can make that claim. PepsiCo’s dividend is among the most secure and reliable around, offering investors peace of mind.

PepsiCo also continues to outperform on the earnings front, recently reporting better-than-expected Q2 financial results and raising its full-year guidance. The company, which makes consumer products such as the Pepsi soft drink and Lay’s potato chips, said it earned $2.09 per share for the quarter ended June 30. That was ahead of Wall Street forecasts for earnings of $1.96 a share. Revenue totaled $22.32 billion versus $21.73 billion that had been expected, and was up 10% year-over-year.

Looking ahead, PepsiCo said it now expects full-year revenues to grow a further 10%, compared with previous forecast of 8% growth. The company also expects earnings per share of $7.47 for this year, up from an earlier forecast of $7.27. While PEP stock isn’t super cheap right now, trading at 31 times future earnings, it makes for a solid long-term holding, especially with the dividend. PepsiCo’s stock has increased 58% throughout the last five years.

American Express (AXP)

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The dividend is just one reason to own shares of the credit card company American Express (NYSE:AXP). The company is on an upswing coming out of the pandemic as travel and dining out rebound strongly. Owing to a surge in spending on its cards, American Express just reported a second quarter profit that beat Wall Street estimates and reaffirmed its full-year guidance. That the company pays a quarterly dividend of 60 cents a share, good for a yield of 1.51%, is just icing on the cake.

The credit card giant posted Q2 earnings per share (EPS) of $2.89, which topped the consensus forecast of $2.81. Revenue for the quarter ended June 30 came in at $15.05 billion, which was below estimates of $15.41 billion. However, looking ahead, American Express reaffirmed its full-year 2023 guidance for earnings of $11.00 to $11.40 per share. And, despite the Q2 revenue miss, American Express said that Q2 saw record levels of spending on its credit cards, notably through purchases related to travel and entertainment.

Like PepsiCo, American Express is a “dividend aristocrat.” The company has increased its payment to shareholders for 36 consecutive years. Trading at 16 times future earnings, AXP stock looks fairly valued. Over the last five years, the share price has increased 50%.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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