Dividend stocks are stocks belonging to publicly listed companies which pay out regular dividends to people who own their stock. The best dividend stocks are a great and predictable source of income for investors. They also usually have a long term growth potential. However, just because some dividend stocks are great sources of income, it doesn’t mean all of them are. Before investing money in a dividend stock, you must research the stock very thoroughly. We are going to help you with doing just that. In this post, we will take a look at the best dividend stocks that you can choose from. We will also go over some basic points that will help you choose the right dividend stocks for yourself. You will learn about the important things to keep in mind while selecting the right dividend stock for yourself. Let’s get started.
Best Dividend Stocks to Buy: All You Need to Know
S&P Indices maintain the Dividend Aristocrats Index, and that index is a great tool for selecting the best index stocks to invest in. This index consists of several firms that have paid out successively increasing dividends over the last 25 years. Every single firm on this index has provided good dividends to its investors. And not just when the market was performing well. These firms paid out good dividends even when the market was struggling as a whole. The best dividend stocks continued paying good dividends during the dot-com crash of the early 2000s, the financial crisis of 2008-2009, and the COVID-19 pandemic as well. The best dividend stocks are a lot safer option to invest in, especially when compared to the average dividend paying stocks.
Here are the best dividend stocks for you to buy:
Procter & Gamble (NYSE:PG)
Kicking off our list of the best dividend stocks to buy, is Procter & Gamble. Consumer products manufacturer Procter & Gamble has increased its dividend for an astonishing 63 consecutive years. It owns an impressive portfolio of consumer product brands, including Pampers, Downy, Tide, Charmin, Gillette, Head & Shoulders, and Crest, just to name a few. Not only do these brands give Procter & Gamble pricing power over rivals, but most of their products are items people need no matter what the economy is doing. So the demand and sales of P&G products are always going to be high.
Johnson & Johnson (NYSE:JNJ)
Next on our list of the best dividend stocks to buy, is Johnson & Johnson. Like Procter & Gamble, Johnson & Johnson owns a portfolio of excellent brands that make products people need — specifically healthcare items. In addition to its Band-Aid, Neutrogena, Tylenol, Zyrtec, Benadryl, and Johnson’s brands (among others), Johnson & Johnson has massive and steadily profitable operations in pharmaceuticals and medical devices, the combination of which has allowed the company to increase its dividend for nearly 60 years in a row. Just like P&G, Johnson & Johnson will always have products which will be needed by people, regardless of the state of the economy.
Next on our list of the best dividend stocks to buy, is AT&T. Telecom giant AT&T has increased its dividend every year for almost four decades, and receives utility-like steady income from its core wireless phone and high-speed internet customers. And the company’s aggressive moves into entertainment could provide long-tailed growth potential.
Next on our list of the best dividend stocks to buy, is Verizon. Like AT&T, Verizon enjoys utility-like income from its wireless communications and high-speed internet customers, and the fact that Verizon has significantly less debt is appealing to many investors. Unlike AT&T, Verizon is more focused on its core business and is poised to become one of the biggest beneficiaries of the upcoming transition to 5G mobile technology.
Realty Income (NYSE:O)
Next on our list of the best dividend stocks to buy, is Realty Income. This is a real estate investment trust, or REIT, that primarily invests in single-tenant retail properties. Most of the tenants operate recession-resistant businesses like drugstores, dollar stores, and convenience stores, and they all sign long-term leases with gradual rent increases built in. Realty Income is one of the newest members of the Dividend Aristocrats, having joined the index in January 2020 after reaching 25 consecutive years of dividend increases. Realty Income hasn’t missed a single monthly dividend payout to its investors in the span of 50 years.
Next on our list of the best dividend stocks to buy, is Welltower. A real estate investment trust (REIT) focused on healthcare properties (particularly senior housing), Welltower should benefit from a long-tailed demographic trend as the older age groups of the American population gradually get much larger over the next few decades.
Next on our list of the best dividend stocks to buy, is Target. You may be noticing a common theme here — Target sells products people need. It has done an excellent job of growing its online and omnichannel sales (such as by offering curbside pickup), and while sales in some of its departments — such as electronics — may suffer in recessions, it is generally a well-insulated business in tough times, which is why it has given investors 52 years of consecutive dividend raises.
Next on our list of the best dividend stocks to buy, is Microsoft. As one of the largest companies in the world, Microsoft has steadily increased its sales, and an especially attractive feature for dividend investors is its focus on recurring, or subscription-based, revenue sources. The company has a solid balance sheet with more cash than debt and a very low payout ratio that leaves tons of room to grow the dividend. Given its 18-year streak of dividend increases, Microsoft looks all set to be considered a part of the Dividend Aristocrats club very soon.
Rounding off our list of the best dividend stocks to buy, is Apple. The tech giant has been paying dividends for only a few years now, which is understandable given the rapid growth it experienced in the early years of the iPhone and iPad. Companies tend to choose to reinvest profits into the business while in “growth mode.” Even so, Apple has an incredibly loyal customer base, and since its devices are designed to work well with each other, the company has a nice tech ecosystem that should keep its revenue strong. And Apple’s rapidly growing subscription services business is providing a growing source of recurring revenue.
How to select the best dividend stocks?
Now that we have listed out the best dividend stocks for you, you have a great place to start. However, that doesn’t mean you should invest in these particular stocks only. You can do your own research as well and these are the things you should keep in mind while choosing the best dividend stocks for yourself:
A stock’s payout ratio is the amount of money it pays per share in dividends, divided by its earnings per share. In other words, this tells you what percentage of earnings a stock pays to shareholders. A reasonably low payout ratio (say 60% or less) is a good sign that the dividend is sustainable.
This is last on the list for a reason. A high yield is obviously preferable to a lower one, but only if the other four criteria are met. HaaA high dividend is only as strong as the business that supports it, so compare dividend yields after you make sure the business is healthy and the payout is stable.
Steady revenue and earnings
When looking for the best dividend stocks to own for the long term, prioritize stability in the companies you consider. Erratic revenue (up one year, down the next) and all-over-the-board earnings can be signs of trouble.
Historically improving dividends
When a company raises its dividend year after year, it’s an excellent sign, especially when it can continue to do so during recessions and other tough economic times like the COVID-19 pandemic.
Durable competitive advantages
This is perhaps the most important feature to look for. A durable competitive advantage appears in multiple forms. Some of those are proprietary technology, high barriers to entry, high customer switching costs, and a powerful brand name, among others.
Are the dividend stocks good for long term investment?
One thing is certain, even the most formidable dividend stocks can experience a lot of volatility in the short term. The number of market forces that can impact them are far too many. A lot of those reasons don’t necessarily are directly related to the nature of the business itself.
So while the companies listed above should make great long-term dividend investments, you shouldn’t pay too much attention to the daily price movements. Instead of that, you should focus on finding companies with excellent businesses, stable income streams, and (preferably) strong dividend track records. Your effort will help you find the best dividend stocks to buy. Here’s what investment guru Warren Buffet said about dividend stocks, “Above all, dividend policy should always be clear, consistent and rational. A capricious policy will confuse owners and drive away would-be investors.”