Dividend stocks can make you rich. They can help you build a reliable cash income stream from the stock market -- one that you can count on to grow steadily over time.
The key, of course, is knowing which stocks to buy -- and when.
To help you in this regard, here are five outstanding dividend stocks that are particularly compelling investments today.
These are the income stocks you're looking for. Image source: Getty Images.
1. Microsoft
Microsoft (MSFT +1.72%) offers dividend investors many ways to profit. Microsoft 365 -- the cloud-based version of its venerable Office productivity software suite -- produces strong recurring revenue and bountiful profits. Microsoft's Azure cloud computing platform, meanwhile, is a powerful growth driver. The Windows, Xbox, and Surface brands give Microsoft's shareholders additional ways to win.
Moreover, the technology titan's fortress-like balance sheet and incredible cash flow generation allow it to reward investors with share repurchases and a fast-growing dividend. Microsoft's $73 billion in net cash reserves and $45 billion in annual free cash flow also help to lessen risk for shareholders, as the company has the financial fortitude to not just survive but thrive during periods of economic uncertainty, such as the current COVID-19 crisis.
Better still, with its cloud initiatives fueling its expansion, Microsoft offers investors the prospect of strong share price appreciation, in addition to its rapidly growing dividend (with a 1% yield) -- a potential fortune-building combination.
2. AT&T
While Microsoft is an excellent dividend growth stock, if high yields are more your thing, AT&T (T 0.25%) may be right up your alley. The telecom giant's massive 7% dividend yield can deliver a sizable cash income stream to you quarter after quarter and year after year.
It's true that AT&T is shedding DIRECTV subscribers, but it recently made the wise decision to reduce expensive promotional pricing and focus instead on its less price-sensitive (and profitable) customers. This ought to improve its margins, and the cash AT&T collects from its remaining DIRECTV business -- as well as the sale of non-core assets -- should help it pay down debt and strengthen its balance sheet over time.
Moreover, what AT&T loses in DIRECTV subscribers, it hopes to gain back with its new HBO Max streaming service. Additionally, AT&T's new 5G network is another exciting growth driver -- one that should also help the dividend stalwart further its 36-year streak of annual payout increases.
3. Bank of America
In the midst of a global pandemic and one of the worst economic declines in decades, now may not seem like the best time to buy a bank stock. However, at least one legendary investor -- a fellow by the name of Warren Buffett -- is buying Bank of America (BAC 0.59%). And when the Oracle of Omaha buys a stock, investors would be wise to take notice.
Berkshire Hathaway -- the mega-conglomerate Buffett leads -- has purchased more than $1.7 billion worth of Bank of America's shares in recent weeks. The bank stock is now Berkshire's second-largest holding behind Apple. Its stake in Bank of America is valued at roughly $25 billion.
So why is Buffett buying a bank in the middle of an economic storm? It likely has something to do with one of his famous quotes: "Be greedy when others are fearful." It's true that the economic fallout related to the COVID-19 crisis will weigh on Bank of America's profits, but its stock price -- which is down 30% in 2020 (and creates a dividend that is yielding nearly 3%) -- largely reflects this reality. Buffett, in turn, is betting an eventual economic recovery. For as Buffett says, "Never bet against America."
4. NextEra Energy
Utilities can be a great source of income for investors. Electric utilities in particular tend to enjoy recurring revenue and relatively stable cash flow, which are well suited to the payment of dividends -- and NextEra Energy (NEE +0.35%) is one of the largest and best in the business.
Its two electric companies, Florida Power & Light and Gulf Power, serve more than 5.5 million customers. But what really puts NextEra Energy in a league of its own is its renewable energy assets. NextEra is the world's largest producer of wind- and sun-based renewable energy, as well as a leader in battery storage.
Besides helping to battle climate change, these clean-energy assets give NextEra an electricity generation cost advantage over its less forward-thinking rivals. They also help to keep NextEra's dividend on solid ground. The stock currently yields a 2% dividend, and the electric utility leader has increased its dividend for 25 straight years.
5. Home Depot
As the coronavirus pandemic and related social-distancing guidelines drive people to spend more time indoors, many are choosing to invest in home improvement projects. Home Depot (HD 1.19%), of course, is a major beneficiary of this trend.
The retailer recently posted strong first-quarter results. Sales rose 7.1% to $28.3 billion, driven by a 7.5% rise in U.S. comparable-store sales. Better still, Home Depot's operating and free cash flow jumped 22% and 28%, respectively, to $5.7 billion and $5.2 billion.
Home Depot's strong cash generation has allowed it to increase its annual cash payout to investors for 11 consecutive years. The home improvement titan recently boosted its quarterly dividend by 10% to $1.50 per share in February, and its stock currently yields a solid 2.3% dividend.
