Dividend stocks are stocks that companies make regular cash distributions to shareholders. While dividend stocks are a good source of income, the best dividend stocks are also a great way to increase your wealth over time.
Many investors don’t know where to begin their search for dividend stocks. Not all dividend stocks make great investments. Here are some top dividend stocks to consider.
Five dividend stocks you can buy
Dividend Aristocrats is a great way to find the best dividend stocks. Dividend Aristocrats include companies that are both part of the S&P 500 Index and have raised their base dividend at least 25 times in consecutive years.
These are the top five dividend stocks you should consider purchasing now:
Lowe’s: This stock may not be very exciting. This is true if you don’t like dividend growth. Since 1961, the company has increased its dividend each year and the payout has increased by a staggering 556% in the last decade. Don’t be alarmed if you are worried about the housing slump that started in the second quarter of 2022. When housing supply is limited and it’s more difficult to purchase, people are more inclined to invest in their home. Lowe’s is proud to announce another important statistic: The average American home is between 31-60 years old depending on where it’s located. Lowe’s will be a popular destination for DIYers in the future.
Walgreens Boots Alliance: Walgreens is one of the most important retail pharmacies in the world. Its turnaround plans have been a success. The company has reduced its expenses by billions of dollar and is making progress towards becoming a more integrated healthcare provider. This profitable company will continue to grow in profitability. Management has recently increased its long-term goal for the U.S. Healthcare segment. Walgreens stock has a high dividend yield of over 4.5% and 47 years of steady payout growth. This makes it a great choice for value and dividend investors.
Realty Income: This stock is a great way to invest in high quality real estate for growth and income. The company has a large number of properties that are e-commerce-resistant and earn strong cash flows from long-term tenants. Realty Income is also a Dividend King, with 27 consecutive dividend increases (that’s every year since 1994) and 53 consecutive years of paying a monthly dividend.
Johnson & Johnson: Johnson & Johnson has a great portfolio of brands that produce products people use, especially healthcare products. Johnson & Johnson is a well-known company that has a large and steady profit in the areas of pharmaceuticals and medical equipment. This combination has enabled the company to double its dividend over 60 years. The company’s unmatched diversity in consumer health brands, pharmaceuticals and medical devices has proved to be a huge profit engine. Management believes that this “conglomerate” structure limits the company’s ability focus its resources. In late 2021, they announced plans to separate the consumer products business from the main company. Current shareholders will receive shares in both companies and the split is expected to take place in 2023.
Target (NYSE.TGT) Target has been more profitable than any of its peers for years by posting the highest gross margins as well as operating margins in retailing. Target’s focus on e-commerce and expanding its in-store offerings has helped sales grow at a steady pace. Target shareholders were disappointed in 2022. They had high expectations, but they were crushed by the realities of retailing, sending their shares down 36% to December. Target is still one of the most profitable companies and retailers, despite a difficult year. Target is a great choice for dividend investors, with 50 years of dividend growth and shares trading at a steep discount from their all-time highs.
Here are four more dividend stocks you should consider buying
Dividend Aristocrats isn’t the only place you should look. While many excellent companies haven’t been paying dividends for long enough (or they haven’t been publicly traded), it is possible to still make great long-term dividend investments.
These are just four other dividend-paying stocks that have excellent brands, loyal customers, and are in line with demographic trends. They are worth keeping on your radar.
Brookfield Infrastructure Corp. NYSE:BIPC (NYSE:BIP). Sometimes, the best stocks are those that are hidden from plain sight. Brookfield Infrastructure is an international company that owns utilities, water, energy and transportation infrastructures. Brookfield’s assets provide steady cash flows that are inflation-resistant and recession-resistant. Brookfield also returns substantial amounts to shareholders. Brookfield Infrastructure, which has a dividend yield of 3.5% at current prices and a goal for a 5% to 10% increase in the payout every year, is a hidden dividend treasure that has delivered nearly 900% total returns since 2008.
Microsoft – As the largest company in the world, Microsoft has been steadily increasing its sales. Its focus on subscription-based revenue sources, which is a particularly attractive feature for dividend investors, is a key reason why Microsoft is one of the most popular companies. It has a strong balance sheet, with more cash than debt and a low payout ratio which leaves plenty of room for increasing the dividend. It wouldn’t surprise that Microsoft would be a Dividend Aristocrat, given its 12-year-long streak of dividend increases. Although the stock’s 1.1% yield is not exciting and 2022 was a difficult year for it, its long-term track record of beating total returns has proven to be very impressive.
American Express: You can also find top dividend stocks in financial services like consumer and business loans. American Express is one of the most trusted. American Express is not a Dividend Aristocrat but has a long track record of increasing or maintaining its dividend in every economic environment. This is due to American Express’ high-quality lending standards, and its focus upon higher-income consumers that are less likely than others to default on their loans during difficult economic times. American Express is a great choice for investors who want to own a high-quality financial services company, but also care about economic conditions. This is a great stock that you can buy in times of market declines and then hold on to during a bull market recovery.
Clearway Energy: While renewable energy is a great place to grow your portfolio, it also offers you great dividend opportunities. Clearway Energy is an example of this. It owns and manages utility-scale solar and wind assets. Clearway Energy invests in, acquires and operates renewables assets, then sells the power to utility companies on long-term contracts. Think decades instead of years. For many years, the dividend yield has been over 4.5% and the payout has increased by 84% since 2019. Clearway Energy is a great choice if you are looking for a more stable and less volatile way to make a profit from renewables.
Highest dividend stocks
You may be looking for large dividends to either generate income that you can use now or to reinvest capital to increase your wealth. Here are some tips to help you maximize your dividends.
First, don’t focus on the dividend size. Instead, concentrate on the dividend income. The dividend yield is the percentage of your share price that you receive in dividends each year. It is more important than the amount of dividends per dollar.
Next, don’t make owning high-dividend-yielding stocks your No. 1 priority. Prioritize business quality and the ability of a company to retain — or increase — its dividend payout. Only then will you be able to determine if a high yield dividend is sustainable.
What should you look for when buying dividend stocks
It’s a smart idea to learn about dividend stocks and how they can be great investments if you are new to dividend investing. A few key concepts will help you identify great dividend stocks to add to your portfolio once you understand how dividends work.
The payout ratio for a stock is the sum of the dividends paid per share and the earnings per share. This tells you how much earnings a stock pays its shareholders. A dividend that is sustainably paid is indicated by a low payout ratio, such as 70%.
History and trends in dividend increases: It is a good sign that a company continues to raise its dividends year after year, particularly when it is able to continue doing so during difficult economic times like the COVID-19 pandemic.
Stability in dividend stocks: Fluctuating earnings and unstable revenue can indicate trouble.
The most important feature is the Durable competitive advantage. You can have a durable competitive advantage in many ways, such as a proprietary technology or high switching costs for customers.
High yield This list is the last for a reason. While a higher yield is better than a lower one it can only be if all four criteria are met. High dividends are only as strong and stable as the business supporting them. Compare dividend yields to make sure that the business is healthy.
Dividend stocks can be long-term investment options
Even the most solid dividend stocks can be subject to significant volatility for short periods. There are too many market forces that can cause them to fluctuate over short periods of time, many of which have little to do with the business.
While the companies mentioned above are great investments in long-term dividends, you shouldn’t be too concerned about price fluctuations. Focus on companies that have excellent businesses, steady income streams and (preferably) strong dividend records. The long-term will take care.
