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Dividend stocks are a special type of stock. They pay you a part of the company’s profits. Imagine getting money back from the companies you believe in. This is a way to make your money grow over time. The average dividend yield of top dividend stocks is an impressive 12.69%. This is more than five times the normal stock market dividend yield, which is about 2.5%.
Investing in dividend stocks is like joining a solid team. These companies are usually very strong and give back to their investors. Having them in your investment mix can make tough market times easier to bear. You can either choose to get regular cash payments or let your profits grow by re-investing them.
Yet, keep an eye on dividends that are too high, over 4%. They might not last. It’s also good to remember that taxes play a role with these dividends. Unlike with certain other stocks, you pay tax as you get the dividend.
Key Takeaways
- Dividend stocks are shares of companies that regularly pay investors a portion of their earnings.
- The average dividend yield of top dividend stocks is 12.69%, much higher than the average market yield of about 2.5%.
- Having dividend-paying companies can make your investment more stable.
- You can choose to let your profits grow by re-investing them or take them out as regular cash payments.
- Be careful with very high dividend yields, over 4%. They might not be sustainable.
- Dividends in taxable accounts are taxed right away, unlike with other stocks where tax is delayed until sale.
Understanding Dividend Stocks
What are Dividend Stocks?
Dividend stocks are company shares that pay part of their earnings to investors regularly. The top ones have an average yield of 12.69%. They come from well-established companies, which can make your investment stable.
How Dividends Work
Dividends are a way for a company to share its profits with shareholders. Usually, this happens every quarter. It gives investors a regular income, or they can choose to grow this by reinvesting.
Benefits of Dividend Stocks
Dividend stocks offer a steady income and portfolio stability. By reinvesting the dividends, you might also see your investment grow over time. But, be careful with yields over 4% because they might not be sustainable. Also, consider the tax issues with dividends in taxable accounts.
20 High-Dividend Stocks to Consider
If you want stocks that pay high dividends, consider these 20 companies. They are based in the U.S. These stocks give a lot back to investors every year, making them a good choice for those looking for income. But, be sure to check the company’s basics before investing your money. Diversification is key, especially in a strategy focused on dividend investing.
| Company | Ticker | Dividend Yield |
|---|---|---|
| CVR Energy Inc | CVI | 14.79% |
| Civitas Resources Inc | CIVI | 13.36% |
| Eagle Bancorp Inc (MD) | EGBN | 13.15% |
| Altria Group Inc. | MO | 12.62% |
| Washington Trust Bancorp, Inc. | WASH | 11.85% |
| Franklin BSP Realty Trust Inc. | FBRT | 11.50% |
| Angel Oak Mortgage REIT Inc | AOMR | 10.71% |
| International Seaways Inc | INSW | 10.66% |
| First Of Long Island Corp. | FLIC | – |
| Evolution Petroleum Corporation | EPM | – |
| Alexander’s Inc. | ALX | – |
| Peoples Financial Services Corp | PFIS | – |
| Insteel Industries, Inc. | IIIN | – |
| Kearny Financial Corp. | KRNY | – |
| Northwest Bancshares Inc | NWBI | – |
Dividend stocks that offer lots of income can be attractive. But, don’t forget to do your homework first. It’s important to make sure the companies can keep up with their high dividends. Stocks offering more than 4% in dividends might not be the safest choice. This could mean the company is spending more than it makes.
Dividend Investing: Stocks vs Funds
When thinking about
dividend investing
, you have two main choices:
dividend ETFs or index funds
or
individual dividend stocks
. Both methods have their own good points and things to think about.
Dividend ETFs and Index Funds
Putting your money in dividend ETFs or index funds means you get diversification right away. Plus, you’ll get regular dividend payments. You can take these as cash or reinvest them to make your money grow more over time. For example, the Vanguard High Dividend Yield Index Fund Investor Shares (VHDYX) has a 3.02% yield and includes 384 stocks. This makes it easy to own a mix of high-dividend stocks.
Individual Dividend Stocks
On the other hand, picking individual dividend stocks lets you create your own unique collection. This could mean a higher dividend yield compared to a fund. But, it will need you to do more research and work. For those who are ready to look into each company’s dividend future and growth, this method might be right.
Reinvesting Dividends for Growth
Reinvesting dividends can really boost how much you make over time. Dividends often hike up a stock’s or fund’s returns by a few percent. This compounding effect can build up a lot of wealth over the years for investors who are patient and stick to their plan.
How to Invest in Dividend Stocks
Investing in dividend stocks gives you a regular income and can boost your long-term gains. First, look for these stocks on financial websites or your online broker. It’s key to compare a stock’s dividend yield with others and check the payout ratio to see if the dividend is safe.
Finding Dividend-Paying Stocks
To start with dividend stocks, find companies that often pay out dividends. You can do this with online stock screeners or research tools from your brokerage. Look at the past dividend payments, yield, payout ratio, and growth rate.
Evaluating a Stock’s Dividend
After making a list of potential stocks with dividends, you need to check them closely. Compare the dividend yield to what’s normal in the industry. Check the payout ratio. If it’s more than 100%, the dividend might be cut.
Determining Position Size
Adding dividend stocks to your portfolio should be done carefully. Usually, invest most of your money in index funds or diverse stocks. Dividend stocks should be a smaller part. Watch out for very high dividend yields (above 4%) as they could be risky.
What Are Dividend Stocks and Which Stocks Pay Dividends
Dividend stocks are shares of companies that give part of their earnings back to shareholders. On average, top dividend stocks offer a 12.69% yield. These are often companies that are well-established, which could bring more stability to your stock mix.
Investors can choose to reinvest these payments if they’re not looking for immediate income. But, be wary of dividend yields over 4%. This high number might not be sustainable. Also, keep in mind that dividends in normal brokerage accounts are taxed as you receive them. This differs from stocks without dividends.
Qualities of the Best Dividend Stocks
Investing in dividend stocks looks beyond high yields. The best picks are those with solid dividends and sound businesses now seen as cheap. They feature management that focuses on steady dividends. Plus, they have strong competitive edges to keep the dividends coming for years.
Durable Dividends
The top dividend stocks keep increasing their payouts, even during tough times. Take the examples of Exxon Mobil and Lowe’s. Both have a long history of raising dividends every year. This kind of consistency can give investors a dependable and increasing source of income.
Undervalued Quality Stocks
Great dividend stocks combine strong finances, competitive edges, and good prices. By picking solid companies at a low point, dividend investors can see benefit in both dividends and stock value over time. This approach offers a mix of income and portfolio growth.
Top 10 Best Dividend Stocks to Buy Now
Morningstar has picked 10 top dividend stocks to buy. They believe these are undervalued. They also think their dividends are likely to last.
| Stock | Dividend Yield | Discount to Fair Value |
|---|---|---|
| Verizon Communications (VZ) | 6.81% | 28% |
| Johnson & Johnson (JNJ) | 3.19% | 9% |
| Altria Group (MO) | 8.90% | 11% |
| Comcast (CMCSA) | 3.05% | 31% |
| Medtronic (MDT) | 3.38% | 27% |
| Duke Energy (DUK) | 4.07% | 10% |
| PNC Financial Services (PNC) | 3.97% | 11% |
| Kinder Morgan (KMI) | 6.11% | 16% |
| Dow (DOW) | 4.91% | 16% |
| Sempra (SRE) | 3.30% | 8% |
Morningstar chose these 10 stocks for a reason. They have high dividend yields, low share prices, and strong dividends. These are key things investors look for.
Investing in quality dividend stocks at great prices pays off. You can enjoy steady income. You could also see the value of your investments grow over time.
Risks of High-Dividend Stocks
High-dividend stocks may seem like a good deal. But, investors need to be careful. A dividend yield over 4% might mean the company doesn’t have enough cash. It could be using debt or reducing its growth to pay dividends. Also, if you own stocks that give dividends, you pay taxes in the same year you get the money. This makes high-dividend stocks not the best choice for people who pay a lot of taxes. Doing your homework on the company’s ability to keep paying dividends can save you trouble later. Make sure you also understand how the taxes work when you own dividend stocks in a taxable account.
Unsustainable Payouts
Before investing in a company, check if it can keep paying dividends. Look at how much free cash it has, its history of dividend payouts, and its financial health. Businesses in real estate, utilities, and consumer goods often have big dividends. But, this doesn’t always mean it’s a reliable income. Remember, a high dividend can be a warning sign too. If a stock price falls, a company might keep giving high dividends, but it could lower them later.
Tax Implications
Stocks that pay dividends can lose some appeal if interest rates go up. In 2020, the Federal Reserve kept rates very low. This was good for dividend stockholders. But, there are tax effects too. Unlike other stocks, you have to pay taxes on dividends right away. High-tax bracket investors should think about how this affects the money they make from high-dividend stocks.
Dividend Aristocrats: Kings of Dividend Growth
In the world of dividend investing, some companies really shine – the Dividend Aristocrats. This group includes 67 companies from the S&P 500. They have not just paid, but also increased their dividends every year for at least 25 years. These firms show they are strong financially and are always there for their shareholders, even when times are tough.
What are Dividend Aristocrats?
Dividend Aristocrats lead the way in paying dividends. They are known for their great work and focus on keeping their investors happy. These businesses have boosted their dividend payments each year for over 25 years. This makes them the top choice for people who want a steady and growing income from their investments.
Recent Changes to the Aristocrats
The group of Dividend Aristocrats is always changing to keep up with the S&P 500. Lately, Walgreens Boots Alliance was removed because they cut their dividend. This shows how vital it is to keep your payouts sustainable. On the other hand, Fastenal joined the index for hitting 25 years of continual dividend growth. It underlines how tough it is to become one of these top companies.
Investing in Dividend Aristocrats
For those looking for a proven investment in dividends, Dividend Aristocrats are a great choice. By investing in these companies, with single stocks or through the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), you can get companies that keep raising their dividends. This means a more steady income in your portfolio and possibly less change in value over time – a great move for long-term investing.
FAQ
What are dividend stocks?
Dividend stocks are shares of companies that pay part of their profits to investors regularly.
What is the average dividend yield of top dividend stocks?
The average dividend yield of leading dividend stocks is around 12.69%.
How do dividends work?
Companies give shareholders a part of their profits, usually four times a year.
What are the benefits of dividend stocks?
Dividend stocks offer a reliable income, make portfolios safer, and can grow long-term if dividends are used to buy more stocks.
What should investors be cautious of with high-dividend yields?
Be careful when a stock’s dividend is over 4%. It might not be sustainable.
What are the tax implications of dividends?
Dividends in taxable accounts are usually taxed the same year you get them. This is different from stocks that don’t pay dividends.
What are the 20 high-dividend stocks headquartered in the U.S.?
The top 20 high-dividend stocks based in the U.S. include FBRT at 11.50%, AOMR at 10.71%, and INSW at 10.66%.
How can investors gain exposure to dividend stocks?
You can invest in dividend stocks through ETFs, index funds, or by buying individual shares directly.
What are the benefits of reinvesting dividends?
Reinvesting dividends can boost your returns over time. This happens because dividends help to increase the value of your stock or fund.
How should investors evaluate a dividend stock?
To check a dividend stock, compare its yield and payout to similar stocks. Also, ensure the dividend is stable and adjust your investment size to spread risk.
What are some qualities of the best dividend stocks?
The best dividend stocks have steady dividends, strong businesses, and are priced below their real value. They also have a clear dividend strategy and a strong competitive position.
What are the top 10 best dividend stocks to buy now?
According to Morningstar, the top 10 dividend stocks now are companies like VZ, JNJ, and MO. They are considered undervalued and offer reliable dividends.
What are the risks of high-dividend stocks?
Stocks with high dividends might not be the best choice. A high yield could mean the dividend is not sustainable. Plus, there are tax risks.
What are Dividend Aristocrats?
These are the top 67 companies in the S&P 500. They have increased their dividends for 25 or more years. It shows they are strong and committed to their shareholders.
Source Links
- https://www.morningstar.com/stocks/10-best-dividend-stocks
- https://www.investopedia.com/terms/d/dividend.asp
- https://www.bankrate.com/investing/how-to-invest-in-dividend-stocks/
- https://www.cnn.com/cnn-underscored/money/what-are-dividend-stocks
- https://www.nerdwallet.com/article/investing/how-to-invest-dividend-stocks
- https://www.kiplinger.com/investing/stocks/dividend-stocks/604131/best-dividend-stocks-you-can-count-on-in-2022
- https://corporatefinanceinstitute.com/resources/equities/investing-in-stocks-with-dividends-vs-stocks-without-dividends/
- https://www.dividend.com/how-to-invest/dividend-funds-vs-dividend-stocks/
- https://www.investopedia.com/how-to-buy-dividend-stocks-7503745
- https://www.bankrate.com/investing/high-dividend-stocks/
- https://www.investopedia.com/articles/investing/071715/risks-chasing-high-dividend-stocks.asp
- https://www.ml.com/articles/what-dividend-stocks-can-offer.html
- https://www.nerdwallet.com/article/investing/top-dividend-aristocrats-list
