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3 Top Dividend Stocks to Add to Your Watchlist

By Travis Hoium, Matthew DiLallo, and Todd Campbell – Updated Apr 16, 2019 at 9:36AM

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Not all payouts are created equal.

Dividend stocks come in all shapes and sizes, and if investors look carefully, they can build a portfolio of dividends from across industries. That way, if one industry falters, your stream of dividends doesn't start to dry up. 

We asked three Motley Fool contributors what their favorite dividend stocks are right now, and EOG Resources (EOG -1.10%), Verizon Communications (VZ -1.73%), and Gilead Sciences (GILD -2.19%) made the list. They're a diverse set of companies, and the only thing they may have in common is a great dividend. 

Piggy bank with coins.

Image source: Getty Images.

A high-octane dividend growth stock

Matt DiLallo (EOG Resources): U.S. oil giant EOG Resources might not seem like an appealing dividend stock at first glance since it currently yields around 1%, which is half the rate of the average stock in the S&P 500. However, what EOG Resources lacks in current yield it more than makes up for in growth prospects, which could enable investors to earn outsized total returns over the long term.

EOG Resources spent the past few years resetting its operations to thrive at lower oil prices. As a result, the company can now generate enough cash at $50-a-barrel oil to pay its dividend and fund the new wells needed to grow its oil production at a mid-teens annual rate, with room to spare. That positions the company to generate a gusher of free cash flow in the coming years, which it intends to use to further shore up its already top-notch balance sheet and increase its dividend at a more than 19% compound annual growth rate.

EOG made good on this promise last year as it raised its dividend twice by a total of 31%. Meanwhile, the company is on pace to grow its oil production 12% to 16% this year while generating free cash at less than $50 a barrel. That means EOG is set to produce a boatload of excess cash given that oil is currently in the mid-$50s, which should enable it to significantly increase its dividend again in 2019. As that trend continues, investors have the potential to collect a much larger income stream from EOG in a couple of years.

Check out the latest earnings call transcripts for EOG Resources, Verizon, and Gilead Sciences.

The telecommunications dividend to buy

Travis Hoium (Verizon Communications): The telecommunications industry is in an interesting position today, seemingly stagnant with few options for growth. But for long-term investors, Verizon can be a value, growth, and dividend stock. 

VZ Revenue (TTM) Chart

VZ Revenue (TTM) data by YCharts.

From a value perspective, Verizon's shares trade at just 16 times earnings, and the company has a strong position atop the U.S. cellular market. The dividend is also strong with a 4% yield right now. But what I am most excited about is the long-term potential for growth, which could drive the stock and dividend payments higher. 

Verizon is leading the charge into 5G and is already launching it in limited markets. These 5G networks will allow faster speeds for smartphones, and will also enable millions of new connections as cars, cities, watches, and other devices connect to superfast networks. One of the big markets 5G will enable is home wireless connections, which will actually be the first 5G devices launched. Instead of getting internet access from a cable or fiber line brought into the house, 5G will come in wirelessly, and a Verizon router will create a hot spot the home can use. That will greatly increase the company's market potential as it bundles home with wireless internet. 

Starting from a 16 P/E ratio and 4% dividend yield gives investors a lot of value in Verizon, and if 5G is as disruptive as many in technology think it will be, the stock could have a lot of room to run higher. 

A healthcare company with cash to spare

Todd Campbell (Gilead Sciences): Oh, how the mighty have fallen. Once a biotech darling because of its revolutionary functional cures for hepatitis C, Gilead Sciences has seen its shares suffer years of declines -- its drugs were so effective, that they shrank its addressable market, causing sales to slip.

This big-cap biotech stock could be an underappreciated dividend darling now, though. It's long been the market-share-leading maker of HIV drugs, and sales strength there ought to begin to be recognized as the hep C headwinds ease, making year-over-year comparisons easier.

The company's gene therapy pipeline may also be underestimated. It spent $11.9 billion for Kite Pharma to land one of the first cancer-busting gene therapies to reach the market, Yescarta, and it has a number of follow-up therapies in the works that may help move the needle someday.

It also has an opportunity to leap into the megablockbuster treatment market for autoimmune disorders. Data from phase 3 studies of filgotinib in rheumatoid arthritis could clear the way for a filing for approval with the Food and Drug Administration as early as this year.

Make no mistake, Gilead Sciences remains a biotech behemoth with $22 billion in sales and $5.5 billion in net income over the past 12 months. It has $31 billion in cash and marketable securities at its disposal, and with $7.5 billion in trailing-12-month free cash flow, plenty of room to support its healthy 3.95% dividend. Its dividend payout has increased by a double-digit rate in each of the past four years, and the chance for future double-digit increases could make adding this stock to income portfolios a smart decision.

Great dividends are everywhere

These three dividends come from excellent companies in a diverse set of industries. If you're building a dividend portfolio, it's important to have some diversity in the mix, and these stocks are a great place to start. 

Matthew DiLallo owns shares of Gilead Sciences and Verizon Communications. Todd Campbell owns shares of Gilead Sciences. Travis Hoium owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of EOG Resources. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$37.97 (-1.73%) $0.67
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$61.69 (-2.19%) $-1.38
EOG Resources, Inc. Stock Quote
EOG Resources, Inc.
$111.73 (-1.10%) $-1.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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