Investors looking for solid dividend plays may have come across MasterCard at some point in their stock research. The company has a trailing dividend yield of 0.58%, which is fairly low compared to many other dividend plays, and investors may be better off looking to dividend stocks that pay much more.
Continue Reading Below
To help investors find dividend plays that surpass MasterCard's yield, we asked three Motley Fool contributors for some ideas, and they came back with Cisco Systems (NASDAQ: CSCO), Hasbro (NASDAQ: HAS), and International Business Machines (NYSE: IBM). Let's take a closer look at each one.
Income and growth, a winning combination
Tim Brugger (Cisco): It's taken a while for investors to come around to Cisco. Investors can be impatient, but Cisco's transition away from old-school network routers and switches was never going to happen overnight. But as Cisco demonstrated last quarter, it's rounded second base and is heading for third.
Cisco's fiscal 2018 first quarter saw another decline in total revenue, down 2% $12.1 billion. On the revenue front, Cisco did share guidance of 1% to 3% year-over-year growth in the current period. But a return to top-line gains isn't what makes Cisco an outstanding growth opportunity to go along with its strong 3% dividend yield.
Cisco CEO Chuck Robbins is focused on driving cloud Infrastructure-as-a-Service (IaaS) and software sales. Robbins is also paring overhead and becoming a force in data security and the Internet of Things (IoT), particularly smart cities. While each of Cisco's target markets are expected to skyrocket, it's a process. A couple of signs that Cisco is making strides where it counts are its recurring revenue growth and per-share earnings gains.
Continue Reading Below
Last quarter, recurring revenue rose to 10% compared to a year ago and now sits at 32%. In other words, $3.87 billion of Cisco's total revenue is generated from reliable, ongoing sales. And despite the slight easing of Cisco's top line, per-share earnings actually rose 4% to $0.48 a share. How? Because Cisco once again cut expenses, this past quarter by 7% to $4.7 billion.
Not only is Cisco poised for growth in 2018, its payout makes it one of the top growth and income alternatives around.
All fun and games
Danny Vena (Hasbro): When investors think of Hasbro, it's the company's iconic board games that inevitably come to mind. Names like Life, Monopoly, Clue, and Battleship have been enjoyed by generations of kids. While those brands are still a part of the equation, this isn't your grandfather's Hasbro.
Movies tie-ins for My Little Pony and Transformers have reinvigorated some of the companies key franchise brands, while new games like Pie Face! and Speak Out have been a hit with consumers.
Investors have the opportunity to get Hasbro at a discount, brought on by a bankruptcy filing by Toys R Us. As a result, Hasbro took a 1% hit to operating profit, but it has since renegotiated with Toys R Us ahead of the all-important holiday shopping season.
Hasbro acquired a key licensing contract, securing the rights to the Disney Princess and Frozen lines, which joined existing agreements for the Star Wars and Marvel franchises. Hasbro stands to benefit from fan frenzy around Star Wars: The Last Jedi, which will hit theaters this week. The toymaker has a wide variety of Star Wars-themed merchandise on deck and has been the primary producer of toys based on Marvel's superheroes.
On top of all of that growth potential, Hasbro stock currently yields 2.5% while paying out only 45% of the company's profits, leaving plenty of room for future increases. That dividend has grown over 58% in the last five years, and the company has increased its payout in 13 of the last 14 years.
A lowly tech stock with a high-flying dividend
Chris Neiger (IBM): I know IBM isn't exactly at the top of every investor's list right now. The company's stock is down about 8% over the past 12 months, and the company has reported 22 consecutive quarters of falling revenue. But if you can stomach the turnaround, IBM fits the bill for investors looking for a very strong dividend.
The tech giant has a hearty 3.7% yield, easily surpassing MasterCard's, and with its share price trading at just 11 times the company's forward earnings, IBM's shares are near bargain levels compared to the shares of its peers.
IBM is certainly in the midst of big transitions right, and one the company's biggest opportunities lies in its expanding cloud business. The company managed to grow cloud revenue by 25% year over year in the third quarter 2017, and it has earned $15.8 billion from the segment over the past year.
IBM also believes its moves in artificial intelligence (AI), with its Watson technology, could help the company tap into the $2 trillion (by 2025) cognitive computing market. IBM has already ingegrated Watson into some of its cloud-computing services to bring advanced analytics for health and financial services, and there's plenty of additional opportunity here for the company.
There's also some hope that IBM is turning the tide on its falling sales as well. The company's management suggested on the earnings call that revenue could increase to about $2.8 billion in the fourth quarter, which would put IBM's revenue near $22 billion in the fourth quarter and surpass its fourth-quarter 2016 sales of $21.77 billion. If that happens, IBM could successfully break its five-year streak of falling quarterly revenue.
IBM's stock isn't for everyone, of course. But for investors looking for a dividend that easily outpaces Mastercard's -- and a value play that may be starting to turn around -- then IBM is certainly worth a look.
10 stocks we like better than IBM
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and IBM wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of December 4, 2017
Chris Neiger has no position in any of the stocks mentioned. Danny Vena owns shares of Hasbro and Walt Disney and has the following options: long January 2018 $80 calls on Walt Disney. Tim Brugger owns shares of Walt Disney. The Motley Fool owns shares of and recommends Hasbro, Mastercard, and Walt Disney. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy.