Investing in stocks today is easier than ever. Platforms such as Robinhood have empowered generations of young investors looking to put their disposable income into something that can lead to additional income and long-term financial stability.
This is where dividend stocks come in. While the idea of investing in collecting dividends is not particularly appealing to everyone because of the somewhat low payout ratio, there are quite a few dividend stocks out there that will offer a decent return percentage.
A good investor knows that you cannot bank on dividends in the short term, and if you want to see your earnings grow, you will have to rely on a long-term strategy. High yield options are also one path to pursue, but generally, your dividend yield is not so important as long as there is consistency.
Best Performing High Dividend Options
We have provided you with a list of dividend stocks that, to the best of our knowledge, are currently some of the best options to pick if you are looking to generate decent dividend income.
#1 Coca-Cola (NYSE:KO)
Coca-Cola’s branding lives on, and the company has shown no sign of slowing down financially and in terms of product variety. Since the mid 2015s, the company has been exploring new and healthier options for its portfolio, which has impacted its stocks and dividends positively. The company’s stock has been bullish since early 2021, increasing its value exponentially. In terms of average dividend payout, a Coca-Cola stock pays around 3.11%.
The company is another frontrunner when it comes to consecutive years of dividend payouts. Coca-Cola has delivered without fail for 60 years, and it’s likely to remain solid on the dividend end. With a focus on health drinks, Coca-Cola owns some ambitious new brands such as Dasani, Smartwater, and others. The stock is also quite affordable at around $53, so definitely one of the easiest to get into, although a consumer focus away from plastic and towards healthier products may post some challenges that could potentially hinder dividend growth.
#2 Verizon (NYSE: VZ)
Verizon is in the business of technology, and as such, you can expect resilience. But while many tech giants have taken a dim view of dividends and sharing their wealth, Verizon remains a company that rewards loyal shareholders. The company has been able to slash its debt and focus on strategic growth as well as leverage powerful technologies with a high entry bar. Remember when we talked about the competitive advantage of a stock? That is what we meant. To buy Verizon stock you would need to pay $56.44 and expect a fairly high dividend yield of 4.45%.
#3 Microsoft (NASDAQ: MSFT)
In the tech world, two companies will always stand out: Microsoft and Apple. They are both trying to attract investors, and offer better yields while not ceasing too much clout. Well, Microsoft bolstered its dividend yields in September 2020, announcing a 10% increase, supported by global demand for its services that have generated the company a significant cash flow.
While the immediate dividend yield is not the strongest on the market, Microsoft has surely shown one of the strongest dividend growth trends. Over the past three or so years, the stock has posted an annual dividend growth rate of 9%, making it one of the most significant dividend stocks recently, at least on paper.
The issue here is that Microsoft is a very high-barrier stock, with the cost per share reaching $277.65 in 2021 and posting its lowest as $272.66. According to NASDAQ, the average dividend payout is 0.83%, which places the company as a viable but long-term investment.
#4 Apple (NASDAQ: AAPL)
Apple is usually more conservative than Microsoft when it comes to dividends. The company has opted out of big dividend payments but has chosen a path of consistency. That is to say that if you own shares in Apple, you are likely to see a modest payout but one that will come in like clockwork. Once again, Apple is a high-barrier entry, but the stock is significantly cheaper than Microsoft.
In 2019, the stock changed from $137.98 to $139.96, meaning it was significantly easier to buy and invest in. The downside is that Apple, as mentioned before, offers fairly small dividends to the tune of 0.63%, but this conservatism need not necessarily signal anything bad. Rather, it may be a signal that the stock has more room to grow in the future.
#5 Procter & Gamble (NYSE:PG)
Suppose there is one company that doesn’t mess with dividends: that is Procter & Gamble. A producer of consumer goods, the company has paid dividends for decades without failure. Stockholders can expect Procter & Gamble to pay around $0.79 in terms of dividends per share. The payout happens four times a year, and it’s an increase from the 2010s.
There hasn’t been a strong annual dividend growth recently, but Procter & Gamble does make sure to honor payments and has done so for many years now. The dividend here is not the highest on the market, yes, and the stock price is $135.90 this year. However, Procter & Gamble has marked a strong upward trend over the past decade.
The company is stable, so while you won’t get the highest dividend yield, you will still enjoy a consistent and reliable payout. The annual dividend is listed at $3.479, according to NASDAQ.
#6 AT&T (NYSE:T)
AT&T is one of the largest telecoms companies in the world and the second-largest in the United States. It has its hands in many pies, and it owns a network of familiar media and entertainment brands, name HBO, CNN, TBS, Warner Bros., Cinemax, DC Comics, TBS, and many others. As you can imagine, AT&T is a well-established name in the US market, and not least the dividend stocks market.
The company’s stock has faced some difficulties, but nothing too bad at all. In fact, because of its size and reputation, AT&T is a company known to be one of the best dividend stocks, offering consistently good payouts. At the time of writing, the company affirmed that its dividend due on August 2, 2021, would be $0.52 or 7.2% of the price stock.
#7 Johnson & Johnson (JNJ)
Pharmaceutical and healthcare giant Johnson & Johnson (JNJ) has been one of the most successful companies in its industries. Not just that, but JNJ has a proven track record for paying dividends, which makes it one of the best stocks to buy if you are growing your dividends portfolio. The company has an extensive coverage area, focusing on consumers, medical devices, and pharmaceuticals that give it diversified access to various markets. The pandemic has also led to earnings growth which translated into better overall financial performance for JNJ.
The JNJ stock is currently priced at $165.90, and the lowest it has been this year is $156.22. More importantly, though. The average dividend yield stands at 2.55% of the stock price, which makes Johnson & Johnson a worthwhile addition to the Aristocrats. The company’s dividends have historically hovered around $0.90 with small fluctuations up and down.
#8 Iron Mountain (NYSE: IRM)
Iron Mountain is a company to reckon with. The public enterprise information management services company is one of the oldest on the market and one of the most important out there. It’s currently responsible for the IT services of 95% of all Fortune 1000 companies, making it the most significant informational player on the market.
The company’s dividend yield is significant, and you can expect good annual earnings. The listed dividend yield stands at 5.78%, which is well above average, and the price is accessible, ranging from $28.88 to $42.77. Iron Mountain usually pays four dividends per year, making it an appealing choice in looking for the best dividend stocks.
#9 PepsiCo (NASDAQ: PEP)
PepsiCo has had a series of unfortunate marketing events, but yet the food, snacks, and soft beverages giant is still churning an impressive dividend yield. Frito-Lay continues to be the main driver for the company as sales globally continue to grow, and it’s one reason why PepsiCo has done so well against its “tastier” rival Coca-Cola. Coca-Cola, for example, is still struggling to establish itself with a dominant food and snacks division. Put this way, when people watch sports, they probably eat and drink PepsiCo products. How does this impact PepsiCo’s dividend yield and potential? It seems to be doing well enough.
In the first quarterly update in 2021, the board of directors agreed to pay out a quarterly dividend equal to $1.075 per share, one of the biggest yields and one of the more consistent ways to keep your dividend money coming in. Then again, the price of a single share is hovering above $142 at the time of writing, so there is a good reason why this is the case.
Dividend Investing: What You Need to Know
Warren Buffet believes that there is a mindset that makes you a good investor. Whether this is dividends or buying and selling stocks, you ought to understand that you should stick with what you have picked once you buy. Re-arranging your portfolio too frequently will not allow you to really gauge your investment. If you sell in a hurry, this means that you have not done your due diligence, to begin with, and this is just a bad way to invest, Buffet argues.
Well, the same rule applies to dividend stocks. You always ought to know why you are buying one stock over another. Is it its growth rate or payout ratio, the potential for high yield, or long-term prospects? There is much that goes into deciding which dividend stocks are worth it. We will now list several factors that we believe will help you make better-informed decisions when it comes to what dividend stocks to buy.
#1 High Yield: Is It Important
Yield is an often-cited factor when picking what dividend stock to buy. While a high yield surely has its appeal, it’s important to buy a stock that shows strength, growth trajectory, and competitive advantages. A promise of a strong dividend payout this year may not be what gets you through next year. You want to check and see that the business behind the stock is healthy, posts continuous growth, and, yes, pays dividends.
#2 Revenue and Earnings Growth Like Clockwerk
One of the best ways to tell if dividend stocks are worth buying is to look at the overall health of the stock in terms of revenue and earnings growth. You want to see an upward trend to make sure that your purchase will have immediate value. The company’s earnings may not be too important in terms of net results as long as they continue going up.
Dividends are always paid at the issuers’ discretion, but if a company is consistently improving its revenue and earnings, there is a good indication that your stocks dividend will be coming shortly and, more importantly, consistently.
#3 Stock Competitive Advantage
Now, when you buy stocks, you should buy stocks in companies that have some distinct advantage. A simple example would be Apple. Not many companies can really rival Apple, can they, and therein lies Apple’s competitive advantage.
Sure, as a dividend stock with an impeccable track record, it’s not too easy to buy it now, but if you do, you will enjoy consistent dividend yield over time, thanks to that competitive advantage. You can still extrapolate and look for similar companies that offer stocks based on proprietary technology, making them difficult to catch up to.
#4 Consistent Upward Trend
As an investor, you will be interested in dividend stocks that keep posting growth. Essentially, you are looking into the dividends themselves. If a company consistently increases them, even subtly, you have a good reason to believe that this is likely to continue. Of course, earnings per share will not necessarily be great when taken on their own. Collectively, though, picking the rights stocks will result in a better overall yield.
#5 What’s the Payout Ratio?
The payout ratio a dividend stock offers is usually another strong indicator that can tell you what you can expect – not just in terms of earnings per share but also whether the payout is sustainable. As noted before, you should focus on the long-term, and a payout ratio below 65% is usually considered sustainable. In other words, the company can pay dividends and still afford to operate normally. The payout ratios are important, and you should see how they have fluctuated over the years.
What’s the Dividend Aristocrats Index?
One popular piece of advice when looking for the right dividend stocks is to look at the Dividend Aristocrats Index. You will hear about this one a lot as it’s a collection of companies that offer consistently good dividend yields and are generally considered “safe bets” if you are not looking for immediate return and can wait.
But far more importantly, the Aristocrats Index is not just a place where companies can “brag.” It’s a list of businesses that actually paid dividends consistently over the decades in the market’s good and bad years, showing resilience and commitment to investors. Not many companies can say the same.
Dividend yields are often subject to change, and that applies to the Aristocrats Club, too, but the truth is that this collection of companies will consistently provide you with raises and serve as a reliable fallback solution if you want to diversity your dividend stocks portfolio.
The downside here is that these stocks are usually more expensive, and you will need to cough up more to buy in a given stock. So, what are your good bets here? Let’s take a look.
How to Choose a Dividend Stock Yourself
Alright, so you know quite a bit about dividend stocks now, and you have even been through the list of recommended stocks you may consider buying. But, what if you wanted to pick a stock for yourself and do a bit of research. After all, the Dividend Aristocrats Index usually works for already established stocks.
What if you are trying to get ahead of the game and find stocks to buy that hold along-term potential that not too many investors have spotted? A company’s dividend is usually paid at the company’s discretion, but you as an investor can spot those options that hold the potential of increasing your yield and earnings. So, here is what we suggest that you should do.
- Look for dividend stocks: The first thing to do is look for stocks that pay dividends. Many websites will provide you with a list of such stock options and the ability to compare them based on various factors such as price, payout ratio, one-year total return, market cap, and forward dividend yield.
- Check the stock yourself: Next comes the part where you get to assess what dividends and stocks you want to add to your portfolio. This is a complex process, and as mentioned before, it’s one that will rely on your understanding of the stock market and individual companies. There are some subtleties to consider, as mentioned before, including the payout ratio and historical performance of each stock. The key to a successful purchase here lies in successful research. A process that can take days, but it may as well take you months. Good stock dividends are the result of constantly accumulating new knowledge.
- Time to decide how much stock you need: Look, the key to a good portfolio of dividend stocks is actually quite easy to pinpoint- you need to focus on variety and not depend and rely too heavily on a single company, or a few companies. Market conditions change, and so does dividend payout. You ought to ask yourself what makes sense and curate each stock well so that you make informed decisions. Your capital should ultimately be spent in such a way that allows for variety.
- How much is the dividend-paying: As mentioned earlier in this article, high yields do offer some very tempting opportunities. However, you ought to know where to draw the line. The general consensus is that anything with over 4% in annual dividend return should be looked at closely. Basically, if a stock is paying a lot, it may be counting on more people buying it so that the company generates revenue.
Dividends Are Long-Term Investment
While you may think that dividends will help you get rich in five years, the fact is dividends are a fairly slow way of accumulating wealth. However, they are one of the surest ways if you have excess cash and don’t want to keep all your money in bonds or real estate, for example. Dividend yields are accessible to wealthy and ordinary investors looking to make their money work for them. However, you would need to calculate what the best dividend investing strategy is for you.
Do you buy a more stable stock that offers smaller payout rations, or do you go after conservative financial mechanisms that are less volatile and guarantee a steady stream of earnings, however modest? It’s usually a balance between the two.
No matter how you choose, though, even the higher yield dividends will not necessarily bring you much at first. It will depend on how much you invest into a company’s stocks, and then you need to account for inflation and any potential taxes, depending on the dividends’ type.
Dividends are small payments calculated on a company’s stock price and send to shareholders four times a year. The dividends are a way to incentivize shareholders into keeping stocks while the company gets more capital to work with.
Since many people are looking for a quick reference to the best dividend stocks, the Dividend Aristocrat Index has been created. In it, you will find S&P 500 companies that have paid dividends for at least 25 consecutive years, including the most recent one.
Dividends are exclusively a long-term investment. The best way to make your dividend yields pay off is to look at the long-term. Therefore, any investment you make in dividends is to guarantees that your money pays off after years. You may diversify your portfolio by choosing high and average-yield dividends to boost your earnings a bit with a few more ambitious stocks as well.