Five Financial Freedom Fighting, Dividend-Paying Stocks to Retire On

Shah Gilani|July 2, 2020

To celebrate your financial freedom this Fourth of July I’ve got five dividend paying stocks you can retire on.

You’ll know they’re great recommendations if you read my last two Total Wealth articles.

In the first article of this three-part series I showed you how to look through a few simple, easily found metrics to determine if a company’s dividend is safe, and by how much.

But you won’t have to do any calculations today, I’ll give you the safety-stretch numbers.

In the second article in this series I told you how trillions of dollars of buybacks are going to be converted to dividends in the future. Because the public’s outraged at companies manipulating their stock prices higher to compensate executives while workers’ wages stagnate. Because politicians are going on the warpath over the same issues and how the last tax cut juiced up buybacks by another trillion dollars. And because dividend payments are good for shareholders and the economy.

Here in the third and final installment in the series are five dividend paying stocks you can retire on.

Financial Freedom Fighter #1: AAPL

First up is Apple Inc. (AAPL).

At a first glance Apple’s .90% dividend yield doesn’t look sexy. One reason it looks like its shrinking is because Apple’ stock has been on a rocket-ride. That’s what happens to a company’s dividend yield when its stock flies to the moon and beyond.

Apple’s stock rose an insane 43.5% in the second quarter that just ended. Year to date the stock’s up an astounding 24.2%. And it’s still going. If you don’t think the dividend is sexy you have to admit the stock’s appreciation gives new meaning to the word.

Apple spent over $330 billion in buybacks over the past decade. If SEC rules change on buybacks, Apple’s going to have to pay out its massive hoards of cash to shareholders in the form of dividends instead of buying back its shares.

It doesn’t matter if they pay “special dividends” from time to time, or up their regular dividend a little at a time, there’s more money coming to Apple shareholders one way or another. And precisely because of that, Apple’s stock is going to keep on keeping on.

Financial Freedom Fighter #2: MSFT

Next up is another Slim-Jim dividend yielding company, Microsoft Corp. (MSFT). But, like Apple, it’s got a fat stock.

Microsoft’s stock appreciated 29% in Q2. It’s up that much year-to-date. And, like Apple the company’s valued at $1.5 trillion. They’re the only two in that exclusive club, in the world!

Also, like Apple, Microsoft’s dividend yield is tiny drop under 1%. But, also like Apple, Microsoft’s a cash generating machine and has spent almost $100 billion on buybacks. If it turns shareholders onto that cash in the form of dividends, the stock’s yield will increase.

Investors should understand that Apple and Microsoft paying a dividend, as paltry as they look, sets the table for dividend increases in the future, and more importantly, sets their stock prices on fire.

When looking for yield in a stock you shouldn’t care if yield comes in the form of regular and special dividends or almost guaranteed stock price appreciation.

In the case of Apple and Microsoft, you can take the appreciation to the bank!

Financial Freedom Fighter #3: SNA

Next up is a more traditional dividend yielding company. It’s Snap-On Inc. (SNA), the tool company.

Snap-On’s stock at $134 sports a dividend yield of 3.23%. That’s a solid yield by any measure, especially in light of the stock being relatively cheap with a price earnings multiple of 11.39, less than half the market’s PE.

And, as far as the all-important “payout ratio” you read about in last week’s article, which tells investors how much out of net profits a company spends on its dividend, Snap-On is All World. Its payout ratio is only 34.56%. That’s small and of course leaves a ton of remaining profits to plow back into the business, or for us, to raise our dividend in the future.

A kicker that comes along with Snap-On is there’s sizable “short” position in the stock, collectively amounting to more than 14% of the company’s floating shares. I like that because it’s buying ammunition lying in wait. If SNA’s earnings are good, or the company has any good news that moves the stock higher, all those shorts are going to have to cover and boost SNA’s price even higher.

Financial Freedom Fighter #5: NTAP

Up next is NetApp Inc. (NTAP), the software systems and services company famous for managing and sharing customers data in private and public clouds. At $43.50 NetApp’s dividend yield is a juicy 4.4%.

With a PE of only 12.3 the stock doesn’t only throw off cash, it’s cheap. And NetApp’s payout ratio is 54.55%, which leaves room for reinvestment and future dividend increases, for sure.

Another metric that needs to be highlighted with NTAP is while it’s got debt amounting to more than $1.81 billion, it’s sitting on a cash pile of almost $2.9 billion. That’s fantastic and augmented by the company’s annual operating cash flow coming in north of a billion dollars a year.

And for good measure, there’s a 10% short position in the stock, which is buying ammunition we’re going to see boost NTAP’s stock higher.

Financial Freedom Fighter #5: PRU

Last, but certainly not least, in fact the highest dividend yielding company we’re eyeballing today, is Prudential Financial Inc. (PRU).

This legendary insurance company, at $59 per share, throws off a dividend yield of, are you ready, 7.47%!

Not to worry, not only is the stock cheap in terms of its 8.17 PE, the payout ratio on the dividend as a percent of Pru’s net profit is only 57%. And we know at that low level there’s plenty of money still in the till and plenty of room to increase the dividend payout.

For those of you who know insurance companies carry debt on their balance sheets, don’t worry. Pru has a little less than $37.9 billion on its books but is sitting on a $44.3 billion pile of cash.

And, so you can sleep well at night, Pru generates almost $32 billion in operating cash flow annually.

There you have it, your Five for Friday. Take them to the bank before you enjoy your Fourth of July.

Happy Independence Day!

Shah