3 Dividend Stocks Perfect for Millennial Investors

Key Points

• The headwind that Merck is facing now is creating a long-term buying opportunity.

• Beverage giant PepsiCo has attracted the sort of attention that often inspires change for the better.

• Brookfield Asset Management may be the best long-term dividend investment you’ve never heard of.

• 10 stocks we like better than Merck ›

Are you currently between the ages of 29 and 44? In other words, are you a millennial? If so, hopefully you're an investor as well. You've got a fair amount of time left to grow a nice-sized retirement nest egg. But the clock is most definitely ticking. You might even want to make a point of shifting some of your portfolio away from growth and toward value and income holdings sooner than later.

Here's a rundown of three dividend stocks that are ideal for almost anyone in your age group. They not only offer solid income (and income growth), they also offer the prospect of capital appreciation.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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1. Merck

It's been a tough year for Merck (NYSE: MRK) shareholders. The stock's down nearly 40% from last April's peak, weighed down by the fact that its top-selling cancer drug Keytruda will start losing its patent protection in 2028. The market is pre-emptively pricing in the impending end to most of the nearly $30 billion worth of annual revenue it currently produces, which is almost half of Merck's total top line.

Presumptions that Merck won't be able to replace this blockbuster sales producer with something else are misguided. It can and very likely will. It's just going to do so in the aggregate, with several different drugs, like its recently approved pulmonary arterial hypertension treatment Winrevair and cholesterol-fighting enlicitide.

All told, the company says that its recently launched drugs and late-stage pipeline could be driving more than $50 billion worth of annual revenue roughly a decade from now. Given the efficacy seen from these therapies so far, there's no reason to doubt the optimism.

There's a bigger regulatory headwind that Merck and its pharmaceutical peers seem to be facing now. The Inflation Reduction Act passed in 2022, for instance, gives the U.S.'s Medicare program a great deal of ability to push back on rising drug prices.

The noisy headlines are concerning, but these challenges aren't exactly new or insurmountable. The industry has faced and survived them before. This time around isn't apt to be any different. (Right or wrong, drug companies' money still buys plenty of sway in Washington, D.C.)

Either way, there's an upside to all the worry investors are pricing into Merck shares at this time. That is, the stock's been dragged down to a valuation of less than 10 times this year's likely earnings, pumping its forward-looking dividend yield up to just under 4%. This ignores everything that will be working in Merck's favor in just a few years.

2. PepsiCo

There's the PepsiCo (NASDAQ: PEP) you know. That's the beverage company behind its namesake cola, as well as Mountain Dew, 7-Up, and Gatorade. Then there are the parts of PepsiCo you may have forgotten were part of this organization, like its Frito-Lay snack chip division, which makes Lay's potato chips, Fritos corn chips, Doritos, Rold Gold pretzels, and more. Then there's the arm you might be altogether surprised is part of this company. That's Quaker Oats, which are used in a range of branded snack and breakfast foods.

It's this food business that's proven such a problem since early last year. While people mostly digested price increases for beverages, they balked at higher snack prices. That's the chief reason PepsiCo shares have fallen more than 20% from last year's high --a major setback by consumer goods stock standards.

However, the sellers have arguably overshot their target.

Yes, revenue and profit margins have been under pressure. This isn't anything unusual for the cyclically sensitive industry, though. PepsiCo has seen it before, and worked its way out of each of those ruts. To the extent that this headwind is different, PepsiCo is tailor-making its answer. For example, in response to consumers' rekindled interest in healthier diets, it's leaning into protein snacks.

There is some drama unfolding here. Earlier this month, activist investor outfit -- and major PepsiCo shareholder -- Elliott Investment Management penned a public letter chiding PepsiCo's management for the company's and the stock's poor performance. Elliott went on to suggest measures such as reconsidering the significant ownership of its production facilities, contrasting this expensive structure with Coca-Cola (which outsources most of its bottling work to third-party bottlers).

It's not yet clear if Elliott's agitation will prove helpful or distracting. Such action often leads to improvement, even if only as a means of keeping active investors from imposing their ideas on a company's operation.

Elliott is right about one thing either way, though -- its statement that "PepsiCo is undoubtedly one of the world's great consumer franchises, whose leading scale and iconic brands have propelled it to over 100 years of exceptional performance." Given enough time, PepsiCo will thrive again. Its stock will follow suit.

You can plug into that stock while the forward-looking yield stands at a healthy 4%. That's a yield based on a dividend that's now been raised for 53 consecutive years. It's not likely that this streak will end anytime soon.

3. Brookfield Asset Management

Finally, millennials will want to add Brookfield Asset Management (NYSE: BAM) to their list of dividend stocks to buy while you can step into a forward-looking yield of just under 3%. That's certainly not a huge yield. It's not like a dirt cheap valuation offsets this ho-hum payout, either -- Brookfield shares are currently valued at nearly 40 times this year's expected per-share profit.

This may be one of those cases, however, where income-minded value investors muster the willingness to make such a relatively expensive purchase.

It's not a stock -- at least not in the traditional sense. Just as the name suggests, Brookfield is an investment manager. Namely, it manages a handful of companies that also carry the Brookfield name, including Brookfield Business Partners, Brookfield Infrastructure Partners, Brookfield Renewable Partners, and a few others. It's paid a recurring fee for this management work.

More important to current and would-be investors, however, are Brookfield's business model and business focuses. Each of the holding companies it manages is essentially a private credit/private equity outfit, offering you indirect ownership of for-profit corporations that there's no direct way to invest in. It's mostly interested in long-term growth opportunities like renewables, real estate, and the continued digitalization of, well, everything.

In its most recent investor presentation, Brookfield said that it believes it's capable of sustaining 20% growth of its annual recurring earnings, the vast majority of which will be passed along to shareholders in the form of dividends. That's why the seemingly steep valuation and just-average dividend yield aren't actually steep or merely average (respectively).

Perhaps the most compelling reason millennials might want to step into this stock at this time is flexibility. Without any rigid corporate structure or massive investment in a single product, service, or technology, the entire Brookfield organization can adapt to an ever-changing environment as needed without disrupting Brookfield Asset Management's fee-based management business. This could very easily turn into a lifetime dividend holding.

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James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Brookfield Asset Management, Brookfield Infrastructure Partners, and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.