Choosing the best dividend stocks is all about options. You should look at high-yield, mid-level, and stable areas for investments. Each one has something to offer, but it all depends on the risk you agree to take. They will give a big boost to your retirement and income portfolios if done well. Few of them outperform the stock market or offer a high-yield in the long run.
1. What Are the Best Dividend Stocks?
Dividends are how companies reward their shareholders for buying and owning their stock. It is usually in the form of a cash amount. Often they are paid quarterly, but sometimes they will opt for a onetime dividend. Investors who are looking for the best dividend stocks will need to track their record of steady payouts. If a company shows consistent increases, this is a sign that they are a high-quality company to invest in. This also means they make the effort to make their stock more attractive to existing and new income investors. This shows they have sound financial health.
2. How Do the Best Dividend Stocks Work?
Passive income is desirable in times of risk aversion and uncertainty. Skittish traders become concerned which causes an equities sell-off in the fourth quarter. The best dividend stocks offer a way to a nearly guaranteed return on your investment. A company’s earnings stability is something you should evaluate when looking for the best dividend stocks. Companies who pay steady or increasing dividends are more likely consistently profitable. The best dividend stocks will send you a dividend either quarterly or annually.
A cash dividend will be paid to those who hold stock in a company. The amount will be based on the number of shares you own. If you own 100 shares of stock and they pay a dividend of $10, you will receive a check for $1,000.
If a company finds that they are low on cash but still want to reward their investors they may opt to pay them in stock dividends. Another reason could be that it offers investors more flexibility as the stock isn’t taxed until it’s sold, whereas cash dividends are taxed immediately. Each shareholder receives additional shares based on the number they already own. If you hold 100 shares of stock in a company and they decide to issue a 5% stock dividend, you would receive an extra 5 shares of stock.
3. Why Do Companies Pay Dividends?
If a company has a lot of net profit, they may opt to reinvest in their business and have money left over. When this is the case, they may choose to pay dividends to their shareholders. The distribution of dividends makes a company more appealing to other investors who see this as a sign of their prosperity and continued earnings. Investors appreciate receiving the extra income that a dividend pays. Increased interest from investors can lead to an increase in demand which can cause the company’s stock to increase in price.
4. Why Don’t Companies Pay Dividends?
There can be a number of reasons why a company wouldn’t pay dividends such as a young company in the process of growing. They may need to reinvest their profits back into the company to make sure they continue to grow. Established companies may find other needs for profits such as investing for future profitability or acquiring new assets.
There are tax implications when dividends are paid since they are taxed as ordinary income. For those in the 30% bracket dividends will be taxed at this rate. If a company reinvests in itself, it will increase its value and the price of the stock will increase. An investor can sell the stock for a profit and if it was held for over a year, it will be taxed as a long-term capital gain which is 15% for most of us.
Once a company begins to pay dividends, it is difficult to stop. This could be seen as a sign of financial instability. When this happens the stock price can fall. This is why some companies opt not to pay dividends to begin with.
What We Reviewed
- Maxim Integrated
- Johnson & Johnson (JNJ)
- Automatic Data Processing (ADP)
- Target Corp. (NYSE: TGT)
- Analog Devices
- Wells Fargo & Co (WFC)
- Altria Group (MO)
- Exxon Mobil Corporation (XOM)
- Waste Management
- Duke Energy Corp (DUK)
- CVS (CVS)
- AT&T Inc. (T)
- Occidental Petroleum Corp. (OXY)
- Welltower Inc (WELL)
Current Dividend Yield: 3.5%
Maxim Integrated has consistently paid quarterly dividends since 2002 and has increased them annually since 2010. Their annual dividend is $1.84 paid quarterly. Their compounded stock market return over the past five years has been 86%, which doesn’t include reinvested dividends, versus S&P 500’s 38%. Over the past three to five years their dividend growth has been 11%.
Over the past five years, they’ve rated a 4 on the dividend stability scale, zero being most stable to 99 the most volatile. The dividend payout ratio is 59.4%. On average over the past five years, their earnings per share increased by 12%.
Johnson & Johnson (JNJ)
Current Dividend Yield: 2.7%
Johnson & Johnson is one of the best dividend stocks because of its stability. This powerhouse brand is levered toward the ultimate secular industry: healthcare. JNJ is one of the most respected firms worldwide. They’re separated among medical devices, pharmaceuticals, and consumer-level products. Their current yield is 2.4%, and that dividend is solid based on the strength of their global business. Year-to-date their shares are up 21%. This is something that people may not acknowledge in capital markets. Benchmark SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is under 18%.
JNJ rarely loses. Between 1970 and 2016 returns averaged 15%. It hit red ink only 13 times—72% of the time it’s a winner.
Automatic Data Processing (ADP)
Current Dividend Yield 2.4%
This software and HR provider has paid dividends regularly since 1974. This is one of the best dividend stocks that pay a $3.16 annual dividend paid quarterly. Their five-year return is 83% and their dividend growth is at 8%. Their divided stability factor is a 3 and their payout ratio is 61.1%. Their five-year average EPS growth rate is 12% giving them an earnings stability factor of 5.
Target Corp. (NYSE: TGT)
Current Dividend Yield: 3.6%
TGT’s payout ratio is at 41%. This is the percentage of its earnings that are paid as dividends. This gives them the ability to sustain their dividends and reinvest in their growth. Sales are continuing to grow despite Amazon’s expansion. They have a track record of growing their quarterly payments consecutively for 50 years. This makes them one of the best dividend stocks for the coming year and uniquely reliable.
Current Dividend Yield: 2.2%
Chip maker Analog Devices has paid dividends since 1975. They had breaks from 1986 to 1995 and again from 2000 to 2003. Their stock provides a $1.92 annual dividend paid quarterly. Their five-year return is 74% and dividend growth is 16%. The dividend stability factor is 7 with a dividend payout ratio of 32.6%. The five-year average EPS growth rate is 23% with an earnings stability factor of 8 makes this one of the best dividend stocks.
Wells Fargo & Co (WFC)
Current Dividend Yield: 3.69%
The opinion of this company isn’t very good after the controversy they created in the business and financial community. When they created two million in fake accounts to meet sales objectives it upset the investment community. People will recover from this based on the fact that WFC is an opportunity. If they stay the course they will end the year in the black. WFC offers the biggest dividend among the “big four” of nearly 2.7% making them one of the best dividend stocks.
Altria Group (MO)
Current Dividend Yield: 5.7%
This tobacco giant owns Skoal, Copenhagen, and Philip Morris USA who owns Virginia Slims, Parliament, Marlboro, and other brands. MO has low reinvestment requirements, customer loyalty, and strong margins so that they can funnel capital back to shareholders through buybacks and dividends. MO invested in a Canadian cannabis company, Cronos Group, to the tune of $1.8 billion and seeks investments in Juul (e-cigarettes). Their stability and insight to seize new growth opportunities make them one of the best dividend stocks for the coming year.
Current Dividend Yield: 1.76%
Stock exchange operator Nasdaq has paid dividends since 2012. Their stock offers $1.76 annually, paid quarterly. The five-year return is 110% with a dividend growth rate of 31%. Their dividend stability factor is 8 and their dividend payout ratio is 36.5%. The five-year average EPS growth rate is 11% with a stability factor of 2.
Exxon Mobil Corporation (XOM)
Current Dividend Yield: 4.35%
Since 2014 when the oil collapse occurred, XOM has been having a hard time against having a good return previously. They seem an unlikely candidate on this list as energy is hardly a stable sector. But you could also say that energy is consistent. There is always electricity when you flip the switch and gas when you go to fill your tank.
There is encouraging news in that XOM’s response to the turndown in the oil market is that they have gotten rid of unproductive assets and revamped operations. They are meaner, leaner, and prepared for the future showing their resilience. Conservative investors can confidently buy this 3.7% yield.
Current Dividend Yield: 2.1%
Waste handling and disposal Waste Management has paid a dividend since 1998 and has shown growth annually since 2004. Their stock offers $1.76 annually. Their five-year return is 98% and their dividend growth rate is 5%. The dividend stability factor is 1 and their dividend payout ratio is 45.6%. The five-year average EPS growth rate is 12% with an earnings stability factor of 3.
Duke Energy Corp (DUK)
Current Dividend Yield: 4.1%
Duke is one of the best dividend stocks to buy. This year they are set to return over 13%, and it looks like they will stay strong in the coming year. It is the seventh largest electric company in the US. They have retired many of their coal power plants and are focusing on cleaner energy sources and natural gas instead. Their stock is currently yielding over 4%. It is a slightly more risky dividend but they show a good balance between income and stability.
Current Dividend Yield: 2.5%
CVS was named in US News as one of the best health stocks to invest in for the coming year. This $80 billion retail pharmacy chain is a sound and low-risk company that is entering the new year strong. They just completed a merger with Aetna for $60 billion. They will most likely drive traffic to their low-cost MinuteClinic. This could boost profits, sales, and traffic for CVS and decrease Aetna expenses and demand from emergency rooms.
AT&T Inc. (T)
Current Dividend Yield: 6.64%
Usually, you know what to expect from T but this year their stock is down 14%. From 1984 through 2016 their average annual return was more than 13%. During this period they had only lost 8 out of 33 times. After this year it will be 9 out of 34. Even so, they are still winners 73.5% of the time. This stock is usually reliable. They offer a 5.36% dividend yield.
Occidental Petroleum Corp. (OXY)
Current Dividend Yield: 4.5%
Houston-based OXY faces pressuring oil prices from a supply glut and global growth fears. This is not ideal for the natural gas and oil producer, but their recent efficiency efforts insulated them from incredibly low gas prices. The company is breaking even after the upkeep of their new wells and paying dividends. Prices are $50 a barrel for oil and their dividends have increased since the 2014 energy sell-off. They are one of the best stock dividends to buy in the coming year.
Welltower Inc (WELL)
Current Dividend Yield: 4.83%
This real estate investment trust specializes in senior facilities and care. Revenues are pretty much guaranteed. They have been a steady investment, and in the past 10 years, their shares have gained close to 48%.
The best stock dividends will take some time for you to research to see what is best for your portfolio. Our list of the best stock dividends was created to help you find a few of the stocks we felt were worth taking a look at. Stock investments are something you need to monitor to make sure you are getting the return on your investment you are looking for.