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What Are the Best Dividend Stocks?

Dividend stocks are stocks that make regular dividend payments to shareholders. These stocks are often used in portfolios to hedge against inflation and to help diversify one’s portfolio, but you may wonder; what are the best dividend stocks to invest in?

This article will cover how dividend stocks work as well as what to look for when trying to find the best dividend stocks. Lastly we will provide a list of our top 10 dividend stocks to invest in right now.

Table of Contents:

How Do Dividend Stocks Work?

To understand how dividend stocks work you first need to grasp the meaning of dividend stocks. Dividend stocks simply means investments in shares that pay you dividends in return.

Basically, you’ll have to buy a certain percentage of a company’s shares to be entitled to a dividend stock. The company reinvests the money and pays shareholders for the profit made either in cash or extra shares of stock. 

The company’s board of directors make decisions on the percentage increase of their stock dividends or price per share. You can acquire a dividend stock through a brokerage or directly from the company, but you need thorough information before taking this step.

What Makes a Good Dividend Stock?

A good dividend stock must possess basic elements to attract investors. The ROI must be clearly stated and the stock should be reputable. 

Aside from these elements though, there are some other factors an investor should consider when deciding whether or not to invest in a dividend stock, they include:

Growth Rates

The ability of a company to retain its growth rates over time is a crucial factor to consider for investment. With a company’s growth rate, you get to track the company’s history of increasing profit and paying investors. 

This will help you know what dividend stocks are best for you and can help you forecast that stock’s long term profitability. It also helps you as an investor to check out the dividend aristocrats.

Strong Financial Statements 

The financial statements of stocks are another key consideration. Strong financial statements indicate whether or not a dividend stock is going to be profitable. Consider:

  • Company’s debt-load and investment-grade credit rating 
  • The capital base of the company. This can be a tool to ride out economic uncertainties or decline in the industry. 

Yields

A dividend yield is a ratio that shows the percentage a company pays in dividends in comparison to the price per share. This is a good indicator of whether or not a dividend stock is a good buy as this ratio will tell you on average how much the dividend will pay in respects to the share price.

The ratio is calculated by dividing the annual dividend’s payment per share, by the price per share of the same security. Typically, you will find investors recommending that a “good yield” will be anywhere from 2% to 6%.

It is important to note that high-yield stocks do not necessarily boost dividend yield. On the flip side, high-yield stocks are riskier and can be detrimental to inexperienced investors.

Although some factors can cut down the yields of companies, firms that are proven to be stable over time can in reverse benefit from the downturns.

How to Invest in Dividend Stocks

Here is a step-by-step approach to investing in dividend stocks:

Find Quality Stocks

Firstly, you have to find a quality stock that will suit your investment plans. This will involve calculated research; browse some broker sites and study their systems – get sufficient details to make an informed decision. While at it, you’ll want to check for high dividend stocks.

You will also need to decide on how many stocks you want to buy and consider the security of the stock dividend – whether it has a trap yield or payable yield. Generally, stocks with lower market volatility have higher dividend payouts.

Some stocks with low volatility include:

Purchase Through a Broker or Directly

Purchasing stock is not rocket science. You will have to get in touch with the company directly or find a broker who acts as an intermediary between you and the company.

Some prominent stockbrokers in the US include:

  • Charles Schwab
  • Fidelity
  • TD Ameritrade 
  • Interactive Broker LLC 

Collect Dividends 

There are two ways to collect dividends; either by cash payment or an investment program called “DRIP”. A company will normally send a check or make payments to their shareholders’ brokerage account.

Otherwise, the company will pay through a dividend reinvestment program “DRIP”. This program enables you to reinvest the payment into the company’s stock, and sometimes at a discount. 

Taxes

The majority of dividend stocks pay “qualified” dividends whose taxes are usually lower than the normal income tax rate. The rate for this tax ranges from 0-20%.

However, the structure of some stocks requires them to pay high dividend yields, and so they pay “non-qualified” dividends. The non-qualified dividends may attract higher taxes. REITs and MLPs are in this category.

Ultimately, your percentage of tax depends on the structure of your stock.

10 Best Dividend Stocks

Here are some of the best dividend stocks you can invest in:

AbbVie

AbbVie is a biotech pharmaceutical company that is working hard to maintain its position in the stock market. In recent years, they have maintained a steady payout on an average quarter yield rate of 5%.

In addition, they have a track record of 49 years of existence which is a viable advantage over other companies.

Growth Potential:

AbbVie has huge growth potential with $201.564 billion as its current market cap. Its strategic experimental developments on chronic autoimmune disease drugs are pushing it to the top of the pharmaceutical world.

Benefits

One of the notable advantages of AbbVie is their consecutive years of dividend increases, for the past 5 years. Again, their payout is quarterly, so their investors will not have to wait too long to reap their profits.

Disadvantages

  • The pharmaceutical industry is getting increasingly competitive which puts more pressure on the firm’s long term outlook.
  • The company recently got called out for unethical practices and is facing a lawsuit filed by the state of California.

Current Stock Price

They have a current stock price is $115.64.

Dividend

They have an annual dividend distribution of $5.20.

Dividend Yield

Their current dividend yield is $1.30/4.46%. 

Broadcom

Broadcom produces semiconductors and software products used in applications such as data and center networking with a market cap over $190 Billion.

Growth Potential

Since 2018, Broadcom has been promising, with an 18% rise in revenue. With a favorable shareholder return policy, it is believed that the stock price will rise higher.

Broadcom stock rose from $190 in March 2020 and is currently at $480, continuously outperforming the S&P 500. The stock further increased up to 1.5× from its stock prices before the pandemic. From the stock’s remarkable Q2 2021 result, Broadcom stock is forecast to rise to $550.

Benefits:

The rate of income growth makes it a prospect for higher dividend yields, and this means gains for both the investors and the company.

Disadvantages:

  • Broadcom, like many others in the industry, have been dealing with the effects of the nationwide semiconductor shortage.
  • Also, their earnings do not cover the dividend of 2.7%.

Current Stock Price

They have a current stock price of $484.26.

Dividend

Their annual dividend distribution is $14.40.

Dividend Yield

Their current dividend yield is $3.60/0.76%.

Oneok Inc.

Oneok is known for their natural gas gatherings, processing, storage, and transportation, in the US. The company deals in natural gas pipelines and offers an incredibly high dividend stock. Oneok stock is a favorite of many hedge funds and for good reason.

Growth Potential

Oneok’s dividend yield percentage is ranked higher than 82% of the 421 companies in the oil & gas industry. This makes it exceedingly more profitable than its competitors.

Benefits:

These dividends have massively increased over the last ten years with dividends (7.01%) on the top 25% of all US companies.

Disadvantages

  • Exposure to fluctuations in commodity prices and demand volumes.
  • Oneok’s dividend yield dropped from 15% to around 8% which is something to consider, however an 8% yield is still very attractive to investors.

Current Stock Price

The current stock price is $53.37.

Dividend

The annual dividend distribution is $3.74.

Dividend Yield

The annual annualized yield is $0.94/7.1%.

Altria Group Inc.

Altria Group Inc. earns its profits from wine-making and has successfully maintained a 12 year consecutive dividend increase. However, they are most well known as the parent company of Marlboro Cigarettes.

Growth Potential:

They have a rising growth potential as their sales increased 8.9% or $6.936 billion. Most of which is believed to fund more buybacks.

Benefits

It is easily affordable and currently has a dividend of about 8%. Dividend payments are expected to be increased again this August.

Disadvantages

  • Their share price has become more volatile due to the Covid-19 pandemic.
  • In efforts towards becoming a less traditional tobacco company, Altria has been trying to expand into smoke free tobacco products. However the firm recently confirmed “uncertainty” surrounding the patent of this product, slowing down production.

Current Stock Price:

The current stock price is $48.12.

Dividend:

They do not have a current annual dividend distribution.

Dividend Yield

They have a quarterly dividend yield of $3.44/7.15%.

Annaly Capital Management Inc. 

This is one of the largest mortgage real estate investment trusts in the U.S.. They also offer capital management and investment strategies to help corporate middle market lenders.

Growth Potential:

With the double dividend yield of Annaly, the growth rate is likely to skyrocket compared to previous years.

Benefits

  • While high dividend yield stocks seem to pose a threat for investors, Annaly’s double-digit yield is a different story. At current levels, Annaly’s mortgage REIT, $0.22 quarterly dividend works out to be a 10.4% yield.
  • This firm has been paying dividends for over two decades making them a reputable and safe investment option.

Disadvantages

Shareholders will be expected to pay their normal income tax rate on all dividend payouts received by Annaly.

Current Stock Price:

They have a current stock price of $8.60.

Dividend

Annaly does not have a current annual dividend distribution.

Dividend Yield

However, their quarterly dividend yield is $0.88/10.20%.

Kimberly-Clark Corporation 

Kimberly-Clark Corporations are the leading American manufacturer for personal care products made of paper. Some brand name products you may recognize, under the Kimberly-Clark family include, Kleenex, Kotex, and Huggies.

Growth Potential

Due to the constant progression of Kimberly’s dividend and their stability, it is predicted to have favorable potential growth.

Benefits

Kimberly’s dividend has remained stable for the last 10 years and has been increasing ever since.

Disadvantages

The dividend payout ratio of Kimberly-Clark Corp is 58.91%, which appears higher than most investors are comfortable with. This indicates that more than half of the firms earnings are going to dividend payouts and less retained earnings.

Current Stock Price:

Their current stock price is $134.28.

Dividend

The annual dividend distribution is $4.56

Dividend Yield

The annual dividend yield is $0.97/3.2%.

Sempra Energy 

Sempra focuses on provided responsible energy solutions like electric and natural gas infrastructures.

Growth Potential:

The earnings growth of Sempra Energy is very promising and solid for this fiscal year. Their representation of year-over-year earnings also has a positive growth rate of 0.87%

Benefits

Sampra’s infrastructure development project has utility subsidiaries and a systematic investment structure. This makes for a stable income.

Disadvantages

  • They have not been considered stable for the past 10 years.
  • They have a low dividend yield.

Current Stock Price

The current stock price is $132.42.

Dividend

There’s no annual dividend distribution.

Dividend Yield

The quarterly dividend yield is $4.29/3.24%.

M&T Bank Corporation 

M&T is an American banking corporation.

Growth Potential:

M&T Bank Corporation’s earnings have been continuously growing and beating the industry averages for the past 5 years. It is forecasted to continue to grow and has excellent growth potential.

Benefits

  • While MTB stock has recently been seeing a falling trend in stock price, this has created a buying opportunity for investors looking to buy MTB stock.
  • MTB had a ROA of 1.16% in 2019 which is very attractive to investors. This shows that M&T Bank can efficiently use their assets to help generate profits.

Disadvantages:

Currently, there has been a discovery of an insider selling dividends in the bank and this will pose a security challenge.

Current Stock Price

The current stock price is $141.53.

Dividend

M&T does not have an annual dividend distribution.

Dividend Yield:

The quarterly dividend yield is $1.10/4.2%.

Should You Invest in Dividend Stocks?

Investing in dividend stocks is a safe investment vehicle and can often be used to help balance and diversify one’s portfolio. If you are interested in learning more about which dividends are best for you or have investment questions in general, consider reaching out to a financial advisor.

Dividends are a great way to hedge against inflation and can help protect you during a time of economic downturn. Financial advisors are a great tool to utilize when investing in stocks and can help you learn everything you need to know about investing in dividend stocks.