Investing in dividend stocks is an easy way for investors to pad their overall returns, and they can also help offset bad years -- as long as the businesses are strong and profitable, their dividends should remain safe. The three stocks listed below are good long-term investments even without their dividends, making them attractive dividend stocks to buy and hold.
Microsoft (MSFT -0.23%) is still growing in interesting ways, but it's also a mature company that is past its high-growth years, which is why it can afford to pay a dividend. With a stock price of around $167, its quarterly payments of $0.51 only produce an annual dividend yield of about 1.2%, well shy of the 1.85% that investors can get from the average S&P 500 stock.
However, Microsoft's dividend has been rising. The company hiked its payouts by 11% in September, from $0.46 to $0.51. The company has maintained a strong rate of increase for the past decade, and dividend payments have nearly quadrupled from $0.13 in fiscal 2010.
The dividends are a nice addition, but Microsoft is still an attractive stock on the merits, achieving returns of 55% in 2019, well above the 30% that investors would have earned from the S&P 500.
Even at a market cap of more than $1 trillion, Microsoft still looks like a good value, trading at a forward price-to-earnings (P/E) of 27 and a PEG ratio of just over 2. There's little danger for investors to wake up to a nasty surprise, as Microsoft is one of the more stable tech giants.
2. UnitedHealth Group
UnitedHealth Group (UNH 1.50%) offers a slightly higher dividend than Microsoft, but at 1.5% it too falls short of even the S&P 500. The company currently pays its shareholders a quarterly amount of $1.08, and that has more than doubled from four years ago when UnitedHealth was paying $0.50. Its most recent dividend hike was 20%, and it's raised its payouts every year for nearly a decade.
The healthcare giant had a solid 2019, yet its shares' modest gain around 20% underperformed the S&P 500's. Given the political uncertainty facing the healthcare industry, it's understandable that investors would be hesitant to invest in UnitedHealth. Additional regulations and pressure to keep consumer costs in the industry down could result in changes to rebates and drug prices, which could hurt UnitedHealth's bottom line.
However, the uncertainty around healthcare helps to make UnitedHealth's stock a cheap buy as well, preventing it from soaring too high in what's been a strong bull market over the past 12 months -- it's trading at a forward P/E of 16 and a PEG of just 1.4.
3. Brookfield Property Partners
Brookfield Property Partners (BPY) is the highest-yielding dividend stock on this list. The company's dividend of $0.33 per quarter translates to a 6.7% annual dividend yield. And even though that's fairly high, the company hasn't been shy about increasing its payouts over the years.
In 2014, Brookfield was paying $0.25 every quarter, meaning that dividends are up 32% since then, averaging a compounded annual growth rate of 5.7% during that time. That's a good, sustainable percentage (although certainly no guarantee of future increases). The commercial real estate giant has assets in many parts of the world, and it can provide a lot of the stability that UnitedHealth offers without the political uncertainty.
However, one thing investors shouldn't expect much from this stock is returns -- the stock's loss of 10% over the past two years lags the S&P 500's gains of 16%. With Brookfield's shares trading at just 14 times earnings and well below book value, investors aren't too anxious to pay much of a premium.
One of the reasons is likely its debt. Brookfield has $46 billion in long-term debt on its books, and with interest rates on the rise, it does have some risk that may keep some investors away. The positive is that its long-term debt has come down from the $58 billion it was as of Dec. 31, 2018.
However, given the impact that an increase in interest rates will have on the economy as a whole, it's not likely that we'll see sharp, sudden increases in interest rates. For that reason, Brookfield still appears to be a relatively safe buy for the foreseeable future.
Which stock is the best buy today?
It's appealing to gravitate to the high yield that Brookfield offers, but Microsoft may be the better overall stock for dividend investors who want to maximize their total returns. The company is still growing, and its dividend is on track to continue rising as well. Investing today while the yield is still low can mean a much higher effective yield in the future. And when combined with the capital appreciation that Microsoft is likely to continue generating for investors, the stock's total returns could well dwarf what investors can earn from holding the other two stocks on this list.