Dividend Dynamos: 3 High-Potential Stocks for Compounding Success

Stocks to buy

High-yield dividend stocks offer good returns with lower risk compared to growth stocks, providing a less stressful financial journey into retirement. While no dividend stock is risk-free, investors can seek established companies or those with competitive advantages for consistent dividend payments.

Beyond providing a steady income stream, they showcase the potential of compounding returns, shielding portfolios from market volatility. These stocks, with consistent dividends, signify a company’s financial health and commitment to shareholder wealth. This strategy balances caution with potential gains, establishing a resilient financial foundation. 

That said, it’s important to focus on enduring dividend-paying options that emphasize stability over short-lived spikes while also aligning with long-term financial goals. Here are three dividend stocks to buy for compounding success.

Exxon Mobil (XOM)

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Exxon Mobil (NYSE:XOM) stands out among dividend-paying energy stocks, featuring a lengthy track record of dividends, increasing distributions and robust share buybacks. Overlooked as a mega-cap stock, Exxon expanded its buyback program to $50 billion in late 2022, extending it through 2024. The $59.5 billion all-stock acquisition of Pioneer Natural Resources adds further value for shareholders.

Electrification poses a challenge for oil and gas producers, but Exxon’s strategic move to diversify into renewable energy aligns with this trend. Leveraging mining expertise, Exxon aims to offset oil demand declines, notably in lithium production. Domestic production adds geopolitical safety, but untested technology presents execution risks. 

Despite uncertainties, investors acknowledge the potential, justifying the recent surge in XOM stock.

PepsiCo (PEP)

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PepsiCo (NASDAQ:PEP), a dividend king, remains a noteworthy stock in the dividend stocks landscape. Despite a 8.47% year-to-date (YTD) dip, currently at $166, its diversified portfolio ensures consistent revenue. With an 8% annual dividend growth since 2010, PepsiCo stands as a stable option, offering a 3.03% yield and a quarterly dividend of $1.27.

As a traditional consumer staple, it faced a slight 7% dip this year. However, recent signs of a potential turnaround emerged with a 3% value gain and bullish wagers from institutional block trades. Last month, the company beat earnings expectations with $2.25 per share. Despite economic uncertainties, the shift towards social normalization may favor PepsiCo as consumers opt for affordable grocery store alternatives over costly coffee shop options.

Additionally, PEP appears a secure investment. Boasting a 3% forward dividend yield and 51 consecutive years of dividend increases, analysts rated it a moderate buy with a $188.88 price target.

Restaurant Brands International (QSR)

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Restaurant Brands International (NYSE:QSR), known for the best fast food chains in the world, recently added Firehouse Subs to its portfolio for diversified quick-service offerings. Despite concerns about inflation, the company strategically expands internationally, positioning itself well for growth.

Loop Capital upgraded Restaurant Brands International’s Burger King, noting the brand’s appeal to working and middle-class families. Surveys indicated a robust same-store sales increase of 8.5% to 9%. Loop raised the price target to $81 from $77, emphasizing the stock’s low forward price-earnings ratio of 13. In the previous quarter, the company behind Burger King and Popeyes revealed a 6.4% increase in Q3 revenue compared to the previous year. Systemwide sales also rose by 11%, and EBITDA, excluding certain items, saw a 9.3% year-over-year (YOY) jump. Burger King’s international segment excelled with a 13% increase in system-wide sales to over $14.5 billion.

On the date of publication, Chris MacDonald held a LONG position in QSR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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