Investment fads come and go. But strong companies that are capable of producing steady earnings and cash flow over time tend to reward their shareholders with dividends.
Dividend-paying companies tend to be less volatile than the overall stock market. They produce high levels of free cash flow, which tends to make its way to shareholders.
And they can provide investors with dividend income throughout the year that can be reinvested in the same stock, other stocks, or even spent elsewhere. It’s part of a successful company’s reward for shareholders.
While not all dividend companies are alike, there are a number of indvidiual stocks that look attractive now based on several factors. Those factors include their current yield, their potential dividend growth, and the share price appreciation they can also offer.
Dividend Stock #1: Apple (AAPL)
Although it’s the world’s largest company by market cap, $1.5 trillion, Apple (AAPL) is big for a reason.
That’s because the company has made a powerful niche providing consumers with easy-to-use hardware—and the software to back it up. The company’s products, from iPhones to iPods, garner higher prices over the competition because of the better user experience it provides. It’s no wonder that everyone from analysts to customers love it.
But the company is also a dividend play. It has a payout ratio of about 24 percent, meaning one of every four dollars in earnings goes back to the company’s shareholders. That’s led to a current dividend yield just under 1 percent.
While that’s not huge, the company’s position ensures that it can dominate consumer tech for decades to come. And the company has a history of growing its payout over time as well.
The sub-niche of dividend growth investments mean that today’s buyers get higher dividends over time simply for owning shares.
In the past five years, Apple has more than doubled its dividend, from $1.58 annually to $3.28 today. Its yield has gone down as shares have continued to grow faster than the dividend payout. That makes this company ideal for dividend income investors.
Dividend Stock #2: Clorox (CLX)
A manufacturer and producer of household products, Clorox (CLX) is best known for its various cleaning products. Its brand is so strong that the company name is often synonymous with bleach.
But it also has household goods such as charcoal briquettes, cat litter, and even food products such as sauces and dietary supplements.
In short, it’s more than just a play on cleaning supplies. And that makes it a great play both now, and going forward. No matter how the economy performs, the company’s products will always be in demand.
Shares pay out a dividend yield of 2.1 percent. On the whole, that’s just barely above the market average, just under 2 percent. But that doesn’t tell the whole story.
The company has been growing its dividends every year for the past 42 years. It most recently raised its annual payout from $4.24 annually to $4.44—an increase of 4.7 percent.
Because inflation in recent years has been closer to 3 percent, the company’s payouts are actually increasing in real terms. That means shareholders are getting more and more money in their pockets each year just for owning shares.
So while the current yield is low, today’s investors are likely to see their dividends grow handily over time.
Dividend Stock #3: J.M. Smucker Corp (SJM)
Known as a manufacturer of preservatives, the J.M. Smucker Corp (SJM) has grown tremendously over the past few decades. It has made strategic acquisitions in coffee, buying up the Folgers brand, the most popular coffee brand in America.
And in the past few years, it’s branched out into pet food as well. Overall, the company has over a dozen brands that it sells to food retailers nationwide. It’s a perfect one-stop “stay-at-home” food play.
Of course, we like the company for its steady dividend history as well. Currently, the company is paying out 51 percent of its operating income in the form of dividends, a healthy ratio. And at $3.52 annually, shares currently yield about 3.4 percent.
The company has a history of growing its dividend over time, but it has been known to do so a bit unevenly. That keeps dividend aristocrat investors away from this particular name. But with a reasonable dividend likely to grow at some point, shares look like a solid play here.
That’s also true relative to the rest of the packaged food space, where other companies that have made big acquisitions have had to acknowledge that they’ve overpaid. So far, that seems far from the case with J.M. Smucker.
And dividend investors can do even better here. Why? Because over the past few years, shares have tended to drop under $100 briefly before surging higher to the $130 area.
This range-bound trading means investors buying today can likely see 25-30 percent capital gains within a year or two, then they can sell shares and wait to buy back at the lower end of the range.
Dividend Stock #4: ViacomCBS (VIAC)
The media is increasingly concentrated into a number of big-name companies.
In 2019, Viacom and CBS merged into their current form. The company has local media programming, a publishing division, and cable networks as well as an entertainment and a sports division.
This offers a variety of entertainment content, which can often be a high-margin product. The company’s foray into streaming is showing signs of solid growth.
Right now, the company is going through its post-merger blues. Shares were heavily hit in the March selloff, and even with a partial recovery, the stock price is down by half over the past year.
Even while that was happening, however, the company did report a strong earnings beat in that quarter. The company also announced that it was redeeming some of its debt ahead of schedule, which will help clean up its balance sheet.
The March selloff helped push up the company’s dividend to 3.9 percent. That makes it one of the highest dividends in the media space.
As the new entity has a limited dividend history, we don’t yet know how it will change over time. But chances are the company will attract investors if it is able to steadily grow its dividend payout over time.
Dividend Stock #5: AT&T (T)
Although best known as a telecom company, AT&T (T) has spent the past few years building itself out into a content creation and delivery firm.
Its recent acquisitions include Time Warner, which provided the company with content to sent out on its telecom platform, as well as DirecTV, giving it a place beyond the telephone market.
Although these acquisitions have been a bit pricey, that hasn’t kept the company from reducing its dividend, or from making small increases to it nearly every year.
Currently, shares pay out $2.08 per year, giving us the highest dividend yield on our list with a nice 6.8 percent. While the growth in the dividend may be low, the high dividend yield helps make up for the slow growth in this dividend aristocrat. It’s always good to have some high yield stocks in your portfolio like AT&T.
Over the next few years, the company’s focus on repaying debt will likely keep that dividend growth low. But as the company doesn’t foresee any new, big acquisitions in the coming years, the balance sheet should get cleaned up.
Once that happens, higher dividend growth and share buybacks are likely to fuel a price move higher. Until then, shareholders will get paid pretty handsomely to wait.
Dividend Stock #6: McDonald’s (MCD)
Although the restaurant industry has been hard hit in 2020, fast food companies have seen traffic hold up relatively well thanks to drive-thru operations. One of the biggest players has also been a great dividend growth play.
McDonald’s (MCD), with its golden arches, hardly needs an introduction. The company has over 38,600 locations, largely owned by franchisees. The franchise model allows the company to be large while spreading the risk of ownership down to local owners.
That’s a great business model, as it means net income largely passes through to the corporate level.
Right now, shares are paying out $5 per year. That’s up from $4.82 in the past year. Overall, the company has done a great job of growing out its dividend payments.
Although the current dividend yield of 2.6 percent doesn’t look terribly large, the dividend growth behind the company and share price appreciation still makes this a great play.
Whether the economy is expanding or contracting, McDonald’s is a steady player, making it a top dividend play for today’s uncertain environment.
Dividend Stock #7: Intel (INTC)
The global semiconductor giant sells central processing units and chipsets to a global user base.
Chances are you’ve got several Intel products between all the various gadgets you own. The company is also working on hybrid cloud technology, as well as other Internet-of-Things (IoT) products and services.
That gives the company a great long-term growth story, and it will likely continue to find new ways to innovate in the years ahead.
But the company is also a solid dividend play. Shares currently yield 2.2 percent. And as we’ve seen with a number of other best dividend stocks, there’s been a history of increasing the payout over time. In the past year, the payout has increased from $1.27 to $1.32 per share.
That’s a trend that will continue. It may even accelerate. That’s because the company has a low payout ratio of just under 25 percent of earnings. Most dividend growth plays target 50 percent or higher on average. A low payout ratio ensures dividend safety, meaning there’s a low risk of a dividend cut for the foreseeable future.
But, with a lot of that capital being used to create new products all the time, chances are dividend investors will also continue to reap sizeable capital gains from shares over time.
Dividend Stock #8: Realty Income (O)
Realty Income (O) is a real estate investment trust (REIT). REITs are a bit different from common stocks in that they have to pay out 90 percent of their earnings to shareholders. By doing so, the company can avoid taxation at the corporate level. It also creates a high dividend stock for investors looking for current income.
Realty Income owns a number of commercial and retail properties and operates under triple-net leases. This means the tenants pay lower rent, but they’re also responsible for things like utilities and insurance. That means Realty Income is pretty close to a purely pass-through real estate play.
That allows the company to stay operationally lean, while also providing for sizeable dividend payouts as well. Shares currently pay out $2.80 annually, making for a 4.5 percent dividend yield right now.
While that isn’t a huge yield in the REIT space—some can be higher than 10 percent—the company is a dividend aristocrat with a history of increasing dividends every year.
And, while most stocks pay quarterly dividends, Realty Income pays out its dividend monthly. That makes it an optimal play for investors seeking current income without the unevenness of a payment every 90 days. All in all, it’s a great company for getting started investing in the real estate space.
Dividend Stock #9: ExxonMobil (XOM)
Crude oil prices have been incredibly volatile in 2020. They started the year around $60 per barrel, but at one point trading at negative $40 per barrel. That’s never happened before… and may never again!
Amidst this volatility, there are ample opportunities. Investors interested in the energy space should start with one of the biggest names. It’s also a dividend dynamo. It’s ExxonMobil (XOM).
Exxon produces oil and natural gas around the world, including the manufacture and transport of various oil-based products as well. It also makes specialty chemicals such as isopropyl alcohol.
The past year’s volatility in the energy space hasn’t been kind to oil. Shares are off over 37 percent in the past year, even as revenue has declined by a mere 10 percent. Oil’s selloff in the first quarter didn’t help matters much either.
But that’s helped push the dividend up to mouth-watering levels.
At present, shares yield 7.4 percent, with a $3.48 annual payout. That’s a bit lower than what the company has paid in previous years, as market uncertainty led to a dividend cut. The cut dividend payment, as well as the reduced share price, still presents a high-yield opportunity today.
The company is currently paying out more in dividends than from its cash flow. That’s generally a concern, as a payout ratio over 100 percent isn’t sustainable. But with higher—and steadier—oil prices likely down the line, the company should be fine.
In its long operating history, it’s already seen every market under the sun for oil, and will no doubt pull through this time as well, thanks in part to its strong balance sheet relative to competitors. That makes this high-yielder look like an attractive buy today.
Dividend Stock #10: Home Depot (HD)
Home Depot (HD) is a home improvement retailer with over 2,200 locations in the United States and elsewhere. At a time when many traditional retailers have struggled, Home Depot has managed to maintain a long-term growth trend.
The company boasts a 9.8 percent profit margin, higher than other big-box retailers, particularly grocery stores.
Why? In addition to being a low-cost provider of home improvement supplies, Home Depot also offers tool rentals and installation services. Add-ons such as this are high-profit-margin areas and could help fuel the company’s growth even further.
That’s also been evident from the company’s dividend. In the past year, the company yet again raised its payout to a full $6 per share from a previous dividend of $5.72 per year. That’s a 4.8 percent increase in the dividend, a very attractive and reasonable growth rate.
At current prices, shares offer a 2.4 percent dividend yield. That yield may fluctuate, but chances are the total dividends per share will continue to increase in time.
That’s because the company has an excellent long-term history of growing its dividend. So while Home Depot will always likely be a low-yield play, it will offer some dividend growth and capital gains to match.
What’s more, the dividend payout ratio is a mere 55.6 percent of current earnings right now. So there’s clearly some room for the dividend to continue growing over the next few years, even in a sluggish economy.
Conclusion: Dividends Matter
Dividend payments come in all sizes and payouts. Investors who buy a mix of companies with a history of treating their shareholders right should end up with both large capital gains and large cash payments. In a world of low interest rates, dividends matter now more than ever.
And with the power of reinvesting those dividends, those who seek out companies paying out cash to their shareholders are making it incredibly difficult to lose the investment game over time. Make sure you’re investing in the best companies with a history of paying dividends in these uncertain times.
Frequently Asked Questions:
What is a good dividend yield?
That can depend greatly. But for most common stocks, a dividend yield over 3 percent is a good starting point. That’s higher than the market average near 2 percent, and it should be able to grow over time.
How can I choose a good dividend stock?
Besides using the stocks on this list, look for companies that have a similar operating history. Companies need strong earnings and cash flows to be able to sustain and grow a dividend. And there are a number of solid dividend ETFs if you want to immediately start with a basket of dividend companies.
Are dividend stocks worth it?
Absolutely! While they may not always be as exciting as a growth stock, a dividend-paying stock provides you with regular cash. Dividend investing takes a lot of uncertainty out of investing.
How do dividend stocks play into overall portfolio strategy?
Dividend stocks should be the core of a stock portfolio. That’s due to their regular cash payouts and lower average volatility. And, studies have shown that reinvested dividends can produce over half your portfolio’s total return.