Dividend stocks refer to stocks of companies that distribute regular dividends to shareholders. These distributions are usually made in cash. Although dividend stocks may be an income source, the best dividend stock can be a great way for you to increase your wealth in the long-term.
But not all dividend stock investments are good investments. Many investors don’t know where to start. Below is a list that will help you identify the best dividend-paying stocks and what to look out for when choosing top dividend stocks.
Five dividend stocks that you should buy
Dividend Aristocrats List is a great resource for discovering top dividend stocks. Dividend Aristocrats refer to companies that both belong to the S&P 500 and who have paid or raised their base income for at least 25 consecutive year.
Here are five top dividend stocks you might want to buy right now:
Lowe’s – The stock of the home improvement giant may not look very exciting. If you aren’t a fan of dividend growth, this is true. Since its inception, the company has increased its dividend every year. In fact, it has increased the payout by a huge 556% in just the past decade. Don’t worry if investors are worried about the housing market downturn that started in 2022. Investors are more inclined than ever to invest in the home that they own when there is less housing available and it is harder to buy. Lowe’s also has another important fact: The average U.S. house is between 31- 60 years old depending upon the state. Lowe’s will see the next generation spend a lot on their DIY projects.
Walgreens Boots Alliance, NASDAQ:WBA: Walgreens is one the largest international retail pharmacy operators. The turnaround plans of this company are paying off. The company has reduced expenses by billions and is working to integrate healthcare companies. The company’s profits are set to rise as a result. Management recently raised its long term target for the U.S. healthcare sector. Walgreens shares have a dividend yield above 4.5% and 47 consecutive years with annual payout growth. There are many things to love about Walgreens stock for value investors and dividend-seekers.
Real Estate Income (NYSE.O:) This stock might be the right choice for you if your goal is to simply invest in high-quality property for growth and income. The company is a strong cash flow generator from tenants of long-term leases, and has an extensive portfolio of properties that can be used e-commerce-resistant. Realty Income is a Dividend Aristocrat with 27 consecutive years worth of dividend increases, that’s every single year since 1994 when the company went public. It also has 53 consecutive years in which it pays a dividend every .
Johnson & Johnson NYSE:JNJ: Johnson & Johnson’s portfolio includes a variety of outstanding brands that create products that people actually use, mainly healthcare products. Johnson & Johnson also has large, profitable operations in pharmaceuticals as well as medical devices. This has allowed the company’s dividend to rise for 60 consecutive years. This unique mix of pharmaceuticals, consumer health brands, and medical devices has been a tremendous profit generator. Management feels that this “conglomerate”, structure has hindered the company’s ability for focus and announced plans to split the consumer product business into a separate company in late 2021. The split is set to take place in 2023 and existing shareholders will be able to receive shares of both companies.
Target: Target’s operating and gross margins have been the best in retailing for many years. The company’s continued focus on growing its e-commerce business as well as expanding in-store options has maintained steady sales growth. Target investors were hit hard by 2022. Their high expectations clashed with the difficult realities of retailing. Target’s shares dropped more than 36% in December. Target, despite the difficult year, is one of most well-run retailers around and remains a solidly profitable company. Target shares are trading at a steep discount to all its highs and dividend growth of 50 years. Dividend investors should consider Target.
The best dividend stocks are available in four additional categories.
Dividend Aristocrats don’t have to be your only option. Many great companies don’t pay dividends, or aren’t publicly traded for long enough to warrant inclusion on the list. But they still offer excellent long-term dividend investment opportunities.
Here are four additional dividend-paying shares that offer excellent brands and loyal customer bases. These stocks are also well worth keeping in mind for favorable demographic trends.
Brookfield Infrastructure Corp. [NYSE:BIPC](NYSE:BIP]: Sometimes the best stocks can be found hidden away. Brookfield Infrastructure has a vast portfolio of assets that includes water, energy utilities, transportation and communications infrastructure around the world. Brookfield shareholders receive a substantial portion of the steady, inflation-resistant cash flow generated by its assets. Brookfield Infrastructure boasts a near-3.5% dividend yield at recent prices, and an aim to increase the payout from 5% to 9.9% each year. This hidden dividend gem has almost 900% total returns ever since it was listed in 2008.
Microsoft(NASDAQ:MSFT:) Microsoft is one the most successful companies in the globe. This has allowed it to steadily increase its sales. Additionally, its focus on subscription-based revenue sources (or recurring) is attractive for dividend investors. The company has a solid financial position with more cash than it owes and a low payout ratio, which allows for plenty of potential dividend increases. Microsoft is expected to achieve Dividend Aristocrat status due to its 12-year history of dividend increases. Although its low 1.1% yield isn’t exciting and 2022 has been a difficult year, the stock has a strong track record of producing market-beating total returns over the long-term.
American Express – Financial services like business lending and consumer loans are another way to find top dividend stocks. American Express is a great example. American Express is not a Dividend aristocrat, but it has a history of maintaining or raising its dividends in all economic environments for decades. The high-quality lending standards of American Express and the focus on higher-income customers who are less likely in weak economic times to default on debts, is a testament to their success. American Express is an attractive investment for those who enjoy owning top financial service companies but are concerned about economic conditions. This great Stock to Buy during Market Downturns and Hold for the Bull Market Recovery.
Clearway Energy. Renewable energy is not only a good place to invest in growth, but it can also offer great dividend potential. Clearway Energy owns and operates solar and utility-scale assets. This is an excellent example. Clearway Energy acquires, invests in and manages renewable energy assets. It then sells power on long-term, non-renewable contracts to utility companies. The dividend yield has been at or above 4.5% for many years. Since 2019, the payout has been an incredible 84%. Clearway Energy offers a safe and low-volatility option to earn from renewables.
Highest dividend stocks
The chances are that you are looking for big dividends. Here are some ideas to maximize the amount you receive in dividends.
The first thing to remember is not the dividend, but the dividend. The dividend yield (or the percentage of share price you purchased it for) paid in dividends annually is more important then the dollar amount.
Next, don’t make owning high-dividend-yielding stocks your No. 1 priority. The first priority should be business quality, and the ability of a company maintain — and even increase — its dividends. Only then can one determine if a high dividend payout is sustainable.
What should dividend stocks look like?
If you are just starting out in dividend investing, it can be helpful to become familiar with dividend stocks. You can find great dividend stocks once you have a good understanding of how dividends work.
Payment ratio: A stock’s dividend payout ratio is the total amount paid per share by the company in dividends multiplied by the earnings per share. In other words, it tells how much a stock pays shareholders in earnings. A high payout ratio (e.g., 70% or less), is a sign that the dividend will be sustainable.
History:Â It’s an excellent sign that a company is increasing its dividend year-after-year, especially if it can do this during economic downturns such as the COVID-19 Pandemic.
Maintain steady earnings growth and revenue growth: When you are looking for dividend stocks that will last, it is important to prioritize stability. Erratic revenue fluctuations (up or down one year) and fluctuating earnings are signs of trouble.
A durable competitive advantage: This is probably the most important characteristic. Durable competitive advantages can take many forms. They could include proprietary technology, high switching cost or strong brand names.
High yield The last item on this list has a reason. High yield is preferred to lower ones, but only if the four other criteria are met first. A high yield dividend is only as strong the business that supports them. So compare dividend yields after to make certain the business is healthy, and that the payouts are stable.
Dividend stocks are long-term investments
Even the most solid dividend stocks may experience volatility over short periods. There are many market forces that can shift them up or downward over days or even weeks. Many of which have nothing whatsoever to do with their underlying businesses.
These companies should be great long-term dividend investors. But don’t get too worried about daily price movements. Instead, look for companies that are able to provide stable income streams, solid dividend track records, and great businesses. The long-term is what will be taken care of.
