Investors who are looking for good dividend stocks don't have to forgo the possibility of earning capital appreciation along the way. While many dividend stocks may sometimes offer mediocre returns, some have real potential. The three stocks listed below pay as much as 4.5% per year in dividends, and they've also outperformed the S&P 500 this year, which is down 13% since January.
1. Eli Lilly
Eli Lilly (LLY 0.91%) is up 20% since the start of 2020, as the drug manufacturer's been a stable buy during a very volatile year thus far. The low-volatility stock is trading near its 52-week high. A big part of the reason it's doing so well is because the company's coming off an impressive quarter. On April 23, Lilly released its first-quarter results of fiscal 2020, which showed revenue rising 15% from the prior-year quarter up to $5.9 billion. The company says consumers were buying more as a result of the pandemic, estimating that it added $250 million to its top line.
Another reason investors are bullish on the company this year is that Lilly noted in its results that the National Institute of Allergy and Infectious Diseases is studying baricitinib, which is a drug that treats rheumatoid arthritis, to see whether it could be effective in treating patients with COVID-19. If successful, it could be a tremendous opportunity for Lilly, as there are more than four million people who have contracted COVID-19 around the world.
In addition to these terrific reasons to invest in Lilly today, the Indianapolis-based company also pays a dividend. Currently, the company distributes $0.74 per share to its shareholders every quarter. That yields about 1.9% per year, which is only a little less than the S&P 500 average of 2%. In 2019, the company increased its payouts by 15%.
Visa (V 0.29%) is down around 6% year to date, and that's still a good return compared to how the markets have performed. Since it's a financial stock there's a bit more risk involved here, as Visa will likely see more consumers and businesses defaulting on payments due to COVID-19 in the weeks and months ahead. However, spending could be up, as people may look to credit as they run low on cash. When the credit card company released its second-quarter results on April 30, Visa stated that COVID-19 has not caused a disruption in its operations thus far, but admitted that the effects will be "difficult to predict."
During the quarter, the company's revenue increased by 7% from the prior-year quarter. That's only slightly worse than the 8% revenue growth that Visa generated in Q2 last year. Visa also continued to build on its bottom line, which was up 4% from the prior-year quarter up to $3.1 billion. In Q2 2019, its profits rose by 14% year over year.
Most investors don't even think about Visa being a dividend stock. It currently pays its shareholders a quarterly dividend of just $0.30 per share, which yields 0.66% annually. That's small, but it can still help pad the returns that you'll earn from the top California-based financial services company.
Verizon Communications (VZ 0.17%) has performed the worst of the three stocks listed here, as it's down around 11%, but that's still good enough to beat the S&P 500 by a couple of percentage points. However, 2020 could be a good year for Verizon, as the telecom stock may benefit from increased activity levels by consumers who are bored and staying at home, using the internet to look for ways to entertain themselves.
When the company released its first-quarter results of 2020 on April 24, Verizon noted that about 70% of its retail stores have closed due to COVID-19, and that's had a negative effect on consumer activity as operating revenue declined 1.6% from the prior-year quarter. But the company still reported a healthy profit of $4.3 billion, which was 14% of the $31.6 billion in revenue that it brought in during the quarter.
Its numbers could get stronger as the rollout of its 5G wireless network continues to be an attractive growth opportunity for the company. Verizon expects it will lead to more throughput on its network. In its earnings release, the telecom giant said that it's launched its 5G Ultra Wideband Network in 34 markets across the U.S. thus far as it continues to build the network.
Verizon currently pays investors a quarterly dividend of $0.615 per share, which today yields 4.5% annually. It's the highest yield on this list, and the company's also increased its payouts for 13 straight years.
Which stock should you buy today?
All three dividend stocks listed above provide investors with good growth opportunities and recurring income. But Visa may be the riskiest of the three, given that it may be the most vulnerable to job losses and people being unable to pay their bills. Although its returns are the weakest this year, I'd go with Verizon today as it pays the highest yield on the list, and it could stand to gain the most as states start to open back up and its retail stores are able to generate more growth in future periods.