More often than not, dividend stocks are what make the most successful investment portfolios tick. Aside from the fact that dividend stocks have handily outperformed their non-dividend-paying peers over the long run, there are a number of reasons why income stocks are rightly lusted after by investors.
For one, dividends are usually being paid by companies that are profitable and have a time-tested business model. A board of directors isn't going to continue sharing a percentage of its profit or operating cash flow with shareholders if a business isn't expected to remain profitable and/or grow. Thus, dividend payments are like a beacon that attracts income investors to time-tested companies.
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A regular payout can also be used to calm the nerves of investors. Since 1950, the broad-based S&P 500 has undergone 37 stock market corrections of at least 10%, not including rounding. While the market has a knack for eventually putting corrections in the rearview mirror, it nevertheless creates a wall of worry for a number of investors. A regular dividend payout can help partially hedge this inevitable downside and keep long-term investors on track.
Perhaps best of all, payouts can be reinvested back into more shares of dividend-paying stock via a dividend reinvestment plan (DRIP). A DRIP is what most top-tier money managers use to build wealth for their clients over long periods of time.
These advantages are what continue to drive investors to five of the stock market's most generous dividend stocks. These income stocks may not have the highest yields in their respective industries, but on a combined basis are paying out more than $70 billion in dividends annually to their shareholders.
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Microsoft: $15.59 billion per year
Don't let Microsoft's (MSFT 1.21%) dividend yield of 1.5% fool you one iota; This company is an income monster! With a forward payout rate of $2.04 annually, Microsoft is on track to divvy out well over $15 billion in payouts to its shareholders over the next year, making it the biggest dividend-paying stock on the planet.
Microsoft's success can be attributed to pretty much all facets of its business model doing well. In July, the company reported its fourth-quarter and fiscal 2019 operating results, with full-year sales and operating income up 14% and 23%, respectively. On a more individualized basis, Microsoft saw sales gains in every single operating segment in the fourth quarter, save for Xbox software and services, and gaming. The company's Azure cloud computing platform grew year-on-year sales by 68% on a currency-adjusted basis, with sales from its Office line of products, and even LinkedIn surging.
Most important is the fact that Microsoft is witnessing a discernable shift from low-margin product sales to high-margin service revenue driving its growth. Currently paying out less than 40% of Wall Street's projected 2020 earnings per share (EPS) as a dividend, it's safe to say Microsoft's payout could (and should) head higher in the years to come.
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AT&T: $14.91 billion
There's no beating around the bush: AT&T's (T +1.45%) growth heyday has long since passed. But that doesn't mean this telecom and content giant doesn't have a few tricks up its sleeve to entice income investors to look its way. Currently sporting a 5.5% yield, AT&T is giving nearly $15 billion a year to its shareholders in the form of a dividend.
Easily the most exciting development for AT&T is the potential growth that the rollout of 5G networks could bring the company. Even with increased spending on 5G infrastructure, we're talking about the first major upgrade to data speeds in the U.S. in nearly a decade. That's bound to entice consumers to upgrade their smartphones, which should lead to a healthy increase in data usage. For AT&T wireless, data is its margin driver.
AT&T's streaming content may also provide a growth spark. Following the acquisition of Time Warner, AT&T now has the CNN, TNT, and TBS networks in its portfolio. This should give the company better negotiating power with advertisers, as well as more clout to pull streaming users away from competitors.
Suffice it to say that this Dividend Aristocrat is a mainstay in income-seekers' portfolios.
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ExxonMobil: $14.72 billion
Even though oil and natural gas can be exceptionally volatile commodities at times, it hasn't disrupted the payout schedule for one of the largest integrated oil and gas companies in the world, ExxonMobil (XOM +0.67%). Over the next 12 months, ExxonMobil will pay around $14.7 billion to its shareholders.
The beauty of the ExxonMobil business model is that it's hedged. The company has upstream drilling operations, downstream refining operations, and is one of the largest chemical manufacturers in the world. If the price of oil and natural gas rises, the company's upstream operations benefit. Meanwhile, if crude and natural gas decline, demand for these goods rises in the enterprise and consumer markets, thereby boosting ExxonMobil's refining operations. No matter what's happening with the energy market, ExxonMobil always has a means to take advantage of the situation.
Likewise, shareholders also benefit from ExxonMobil's geographic and production breadth. The company has new production and infrastructure coming online in the Permian Basin, and has a number of compelling projects under way in Guyana, Brazil, and Mozambique. While its high-growth days are long gone, ExxonMobil is about as steady as they get in the energy space for income investors.
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Apple: $13.92 billion
Perhaps it's no surprise that the most cash-rich company in the world, Apple (AAPL +0.72%), also happens to be one of the stock market's biggest dividend payers. Over the next year, Apple will be paying out close to $14 billion in dividends to its shareholders.
To build on a previous point, the rollout of 5G networks in the U.S. should be big for Apple. With the exception of its 2019 fiscal third quarter, the company has generated at least 51% of its revenue from iPhone sales since the beginning of 2013. The expectation is that Apple will introduce a 5G-capable smartphone in September 2020. Given the company's almost cult-like following, it should have no trouble inspiring a wave of smartphone upgrades, which, in turn, might push revenue to record levels on a quarterly and annual basis.
Apple has also done a bang-up job of growing its high-margin wearables and services operations. Apple's management team is intent on pushing the company beyond just being a products company. With the AppleTV+ streaming service launching on Nov. 1, the company rolling out an Apple credit card, and Apple Music gaining global market share, Apple has found new and innovative ways to beef up its operating margin.
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JPMorgan Chase: $11.52 billion
Finally, there's money center bank JPMorgan Chase (JPM +1.63%), which is paying out $11.5 billion per year on an extrapolated basis to its shareholders. The bank's quarterly payout has more than doubled over the past 3.5 years.
One the primary factors working in JPMorgan's favor has been the Federal Reserve lifting the federal funds rate 25 basis points nine times between Dec. 2015 and Dec. 2018. Even though the Fed has cut this rate twice in 2019 by a quarter point each time, the steady and telegraphed moves by the Fed have allowed JPMorgan Chase to earn more net interest income on its outstanding loans.
JPMorgan Chase also has a disciplined management team that kept the bank from diving into riskier investment opportunities during the Great Recession. With a far cleaner balance sheet than many of its peers, and considerably fewer scandals to speak of, it's no surprise that JPMorgan Chase has been generating an industry-leading return on assets among the United States' major banks. Investors should expect JPMorgan to remain generous with its shareholder return plans moving forward.
