The stock market has risen sharply over the past five months, and the Nasdaq Composite (^IXIC +0.01%) has led the way higher. On Monday, though, the Nasdaq largely took a pause, as some of the leading tech stocks that have powered the index's advance stayed close to flat. Even so, all it took was the smallest of gains to push the Nasdaq 100 and Composite indexes further into record territory.
Many investors believe that the Nasdaq is all about growth. It's true that you'll find plenty of young, ambitious companies on the Nasdaq. But there are also many mature, well-established businesses that have the cash flow to pay generous dividends. Below, we'll look more closely at some of the reasons that dividend investors shouldn't overlooked the Nasdaq. You'll also learn about the top-yielding dividend stocks that trade on the exchange.
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Yes, Nasdaq stocks pay dividends
The Nasdaq got a reputation for being a poor place for dividend investors to look for promising stocks. That's largely because of the concentration of tech companies that have made it their home. In general, high-growth businesses in technology, biotech, and other capital-intensive industries have to take any spare cash flow they have and plow it right back into growing their business. That doesn't leave any capital available to pay back to shareholders.
Yet the idea that the Nasdaq is entirely composed of young, high-growth tech stocks is outdated. Currently, nearly half of the Nasdaq 100's components pay dividends. You'll find almost two dozen that have a dividend yield of 2% or more, which is above the average for the broader S&P 500. Ten stocks pay yields exceeding 3% right now, and a half-dozen weigh in with 4%-plus yields.
Haves and have-nots
Among those six stocks yielding 4% or more, though, there's a wide spread in performance. Three of the stocks have lost significant ground in 2020, while the other three have done reasonably well.
On the downside, Walgreens Boots Alliance (WBA +0.00%) has the top yield of 4.8% but also the worst year-to-date loss, 33%. The drugstore chain has been in turmoil with the COVID-19 pandemic pushing costs up and revenue sharply lower. CEO Stefano Pessina is in the process of being replaced, and continuing financial pressures could keep weighing on the share price.
Also losing ground are Exelon (EXC 0.38%) and NetApp (NTAP 3.79%). Exelon's Commonwealth Edison subsidiary recently had to pay $200 million in fines as part of a settlement of allegations of bribery. Meanwhile, NetApp has worked to make a transition away from its traditional business toward cloud computing, but the process has been slower than hoped.
Prospects have been somewhat better for Kraft Heinz (KHC 3.19%), Broadcom (AVGO 0.98%) and Gilead Sciences (GILD +1.25%), which are up between 1% and 9% on the year. Kraft has seen sales rise as those staying at home cook more, but it still faces challenges in refreshing its aging brands. Broadcom has also cashed in on high demand for network infrastructure, and investors hope that it could keep doing well as the Internet of Things develops. And for Gilead, hopes for remdesivir becoming a key player in the fight against COVID-19 could lead to much bigger gains if the biotech giant is successful.
As with all investments, buying dividend stocks just because of their yield isn't the smartest move. But for those companies with good growth prospects as well as healthy payouts, Nasdaq investors should take a close look if they want more income from their portfolios.
