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2 Top Dividend Stocks for Savvy Investors

Daniel Miller, The Motley Fool

It's easy for many investors to brush aside companies like Ford Motor Company (NYSE: F), which is struggling to convince investors it has upside as the U.S. new vehicle market slows, and The Hershey Company (NYSE: HSY) as snacking trends seem to be tilting toward healthier options. But savvy investors recognize both companies are already adapting to change, and that makes them top dividend stocks right now. 

Driving toward the future

Wall Street has made it fairly clear it isn't buying into Detroit automakers as the world's most lucrative new-vehicle market, the United States, is plateauing this cycle. That means growth will be more difficult, competition will increase, and margins could suffer -- that pessimism has driven Ford to a paltry price-to-earnings ratio of 6. That gives savvy investors an opportunity to pick up shares of Ford with an eye on the future.

While Ford's smart mobility and innovative transportation solutions haven't made headlines as large as General Motors', the automaker is focused on transforming its business. A few examples include Ford Smart Mobility LLC and Zotye signing a memorandum of understanding (MOU) to create a joint venture for customized all-electric-vehicle solutions for fleet operators in China's accelerating ride-hailing market. Ford previously acquired Autonomic, a technology company focused on architecture and scale for a broad range of transportation solutions, and TransLoc, which is a provider of demand-response technology for city-owned micro-transit solutions. Detroit's second-largest automaker even launched GoRide, a non-emergency medical transportation service to help solve missed appointments and scheduling inefficiencies that cost the healthcare industry $150 billion annually, per SCI Solutions.  

Ford's commercial van with GoRide labeled on the window.

Image source: Ford Motor Company.

Ford's upside is long-term as the industry drives toward smart mobility projects, as well as driverless vehicles, but that doesn't mean its business is worthless now. Ford's F-Series posted an 11% gain in sales last month, and sales are up 6% year-to-date, putting it on pace to deliver its ninth consecutive annual gain. Sales of highly profitable trucks have pushed Ford's average transaction price $3,400 higher than the industry, up to $35,800 per unit. The F-Series is Ford's most valuable product by a long shot, and drives the company's bottom line. Even with the overall market slowing, sales for Ford's most profitable vehicle are moving higher. 

Ford's business is currently healthy with surging SUV and truck demand, it trades at a cheap price-to-earnings ratio of 6, and boasts a dividend yield topping 5%. Further, the dividend is stable as management noted it can sustain this level during down cycles, and the automaker rewards investors with a supplemental dividend annually when profits are strong. Smart mobility solutions have the potential to disrupt industries much like Uber did, and that's going to be lucrative for companies that figure out how to generate new revenue streams from these ideas. Ford has plenty of initiatives in progress but hasn't yet gained serious traction with any one project or business. That said, it could be a great time to scoop up shares of Ford on the cheap if you believe it can deliver on its smart mobility ambitions in the decades ahead. 

A sweet deal

With a list of iconic snack brands such as Hershey's Kisses, Reese's, and KitKat, among others, the chocolate maker is a sweet deal for investors. The graph below shows that Hershey's is well positioned with its core business but is also recognizing the future is changing toward better-for-you snacks.

Graphic showing consumer growth trending to better for you and indulgent snacks, rather than center of the plate.

Graphic source: Hershey's February 21, 2018 CAGNY Conference. Data source: IRI MULO + C, 2015-2017.

Hershey's chocolate snacks will continue to power its core business, but management was wise to notice the growth on the opposite side of the above graphic as well. Better-for-you snack growth was the driving force behind the company's late 2017 agreement to acquire all outstanding shares of Amplify Snack Brands -- makers of SkinnyPop -- for $12 per share in cash. Amplify is expected to be accretive to adjusted earnings per share in the first year post-closing, in part thanks to $20 million in run-rate synergies over the next two years. The move further solidifies Hershey's grip on the snacking aisle and gives its portfolio a list of innovative savory snacking brands, such as SkinnyPop -- now Hershey's sixth-largest brand.

Investors could be in store for improving financial results, too, after CEO Michele Buck refocused the company during her first year. The company has shifted gears to focus on higher-return opportunities and markets, including pulling back international spending in favor of beefing up investments in its core domestic brands. In other words, Hershey is focusing on fewer, bigger, better, and faster innovations with a stronger pipeline of innovative snacks, such as Hershey's Gold (peanuts and pretzels).

As the company bulks up its marketing attack in the U.S. and spends more wisely internationally, the real treat for investors is Hershey's crazy consistent dividend. Hear me out: In February, Hershey announced the 354th consecutive regular dividend increase on its common stock and its 134th consecutive regular dividend increase on its Class B common stock -- that's incredible. With a fair price-to-earnings multiple of 18, a refocused attack on its core business, expansion into better-for-you snacks, and an incredibly consistent dividend yielding nearly 3%, Hershey's is a sweet stock for savvy investors.

The future is changing, and it will require both Ford and Hershey to adapt if they are to thrive. Both appear to be prepared to do just that; between innovative transportation solutions and acquiring companies with or developing new snack trends, don't be surprised if the two juggernaut companies continue offering solid dividends to investors savvy enough to believe in them long-term.

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Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford. The Motley Fool has a disclosure policy.