We all want to earn income passively, that is the ultimate dream. The easiest way to earn passive income is through dividends. If you are looking for some US stocks to boost you dividend income then I have three great companies for you to look at below.
Cisco is a technology company with a market cap of $219bn that specializes in communications hardware and systems. They are also involved in high-technology services and products such as internet domain security and energy management. In 2020 they were Fortune magazine rated Cisco at number 4 of the best 100 companies to work for based off of employee satisfaction.
Like many other companies that sell software, Cisco has transformed from a purchase structure to that of subscriptions. In Q2 of FY2021 they sold 76% of software on a subscription basis meaning they will have great recurring revenues. In the last quarter their revenue was $12bn, which is flat year on year, but expects to see earnings growth for the current quarter to be between 3.5% and 5.5%. With a P/E ratio of 21.86 currently the company is rated at fair value given the current stock market, but with a forward ratio of 18.13, it has room for steady growth.
Cisco recently increased their dividend by 3% to $1.48 per share. This gives a good yield of 2.77% based off a healthy payout ratio of 62%. I expect this company to continue growing the dividend at a steady pace into the future. Additionally in the six months to January 2021 the company bought back $1.569bn worth of its own shares showing a commitment to give back to share holders long-term.
AT&T is the company that everyone either loves or hates when it comes to investing. While over the last 15 years the management have made some very bad decisions – DirecTV, they brought in a new CEO in 2020 who is very quickly changing the direction of the company. AT&T has a long history that goes all the way back to the company founded by Alexander Graham Bell. Over the years it grew through acquiring smaller companies until it was broken up by Congress in the 1980s. Now it is the company behind Warner Media, HBO Max and a new drive towards 5G adoption.
In the last couple of decades the company’s management made a range of acquisitions that not only where questionable but created a huge debt burden. It is this debt burden that continues to polarize investors, however AT&T have committed to tackling the debt which currently stands at $157bn which is down 11% from 2018. Also, in the current low interest rate environment they have been able to refinance long term debt with some matures now due as late as 2097.
What really sells AT&T is its ability to generate free cash flow, $27.5bn of it in 2020. This more than covers the great dividend of $2.08 per share (6.83% yield) which has a great payout ratio of 54.5% compared to free cash flow. Not only is it a relatively safe dividend, the company is still growing its cash generation with a huge investment in 5G networks and HBO Max which is expected to have 120-150 million subscribers by 2025. With a P/E ratio of 9.83 I would consider this company to be undervalued.
3M is that company you know nothing about but will have seen the logo of, especially nowadays. If you watch the news you will have probably noticed the 3M face masks worn by reporters. This is a huge company with over 60,000 different brands such as Post-It notes and Littmann stethoscopes. It spends over 6% of its income on R&D in order to provide new products.
3M reported free cash flow of $6.6bn in 2020 which more than covers their dividend which pays of $5.92 per share (3.07% yield). With a 65% payout ratio, the dividend is considered relatively safe. The company is considered at fair value with a forward P/E of 20.4. The share price graph isn’t the best with it hitting an all time high of $258 in 2018 before falling to where it is now. An explanation for this could be its high debt to equity ratio of 1.54 which will lower investor apatite. That said, 3M isn’t in any danger with an interest coverage ratio of over 10 and a quick ratio of 1.24 it can more than afford interest repayments.
This is a company that makes everyday boring things that will always be in demand as a result it will continue to see steady growth. In terms of the share price and dividends, you should see steady mature growth over time if they continue with the share buyback program.
None of the content in this article should be considered financial advice, I am not a financial adviser and you should always do your own research prior to investing. These are my opinions only.