Do you know the only thing that gives me pleasure? It's to see my dividends coming in. -- John D. Rockefeller
It's hard to argue with the delight of opening up your brokerage statement and seeing that there's been a new infusion of cash -- without your having sent in any deposits. Dividend-paying stocks deliver infusions to your account regularly, and that income can be very welcome if you want to reinvest it in more shares of stock or if you simply need it for living expenses.
Image source: Getty Images.
Here's a look at three that are worth considering for your portfolio.
Why dividends?
First off, if you're not already a big fan of dividends, you should be. Consider, for example, that according to the research of academics Eugene Fama and Kenneth French, who studied stock market data from 1927 to 2014, dividend payers outperformed non-payers, averaging 10.4% annual growth versus 8.5%.
If you don't think that's such a big difference, check out the table below:
|
$10,000 invested annually over |
Growing at 8.5% annually |
Growing at 10.4% annually |
|---|---|---|
|
10 years |
$161,000 |
$179,400 |
|
20 years |
$524,900 |
$661,800 |
|
30 years |
$1.3 million |
$2.0 million |
Source: Calculations by author.
To better imagine how a dividend-rich portfolio can serve you, imagine having a $400,000 portfolio with an overall dividend yield of 3%. That would generate about $12,000 annually -- some $1,000 per month. (Better still, healthy and growing companies tend to increase their payouts regularly.)
Dividend-paying contenders for your portfolio
So which dividend payers should you consider for your portfolio? Here are three that offer meaningful dividend yields and that stand a good chance of growing at a solid clip over the coming years.
Chevron
Energy giant Chevron (CVX 1.04%) recently sported a massive dividend yield of 6.2%, and that payout has grown at an annual average rate of 3.8% over the past five years. Indeed, the company has hiked its dividend every year for the past 32 years, demonstrating a commitment to rewarding its shareholders.
Shares have been pushed down by prices falling due to increased supply, along with shrinking demand as fewer people are driving to work in this pandemic period. Still, the company has the strongest balance sheet among its peers, in part due to its reducing its spending sharply. Note that when the Dow Jones Industrial Index, which is composed of only 30 stocks, recently ejected three companies, the oil company it removed was ExxonMobil, not Chevron. Chevron is also gobbling up Noble Energy, conserving its cash by paying in stock -- though the acquisition also brings with it significant debt. Noble will help Chevron's Permian Basin operations and can help it grow in the eastern Mediterranean area and western Africa.
AT&T
Shares of telecom titan AT&T (T -1.37%) recently yielded an impressive 7.1%, and its payout has grown at an average annual rate of 2% over the past five years. That's not a huge growth rate, but the company has been increasing its dividend each year for 36 consecutive years.
Like Chevron, AT&T has also been challenged by the new pandemic normal, with its retail stores having been closed for a while and lower demand for new phones. The company's launch of its new HBO Max streaming service has not blown past expectations, with far fewer subscribers signing up compared to Disney's new Disney+ service. Many consumers have been confused between HBO Max and other offerings including HBO Go, HBO Now, and the HBO cable channel.
Still, the company has much going for it, such as its 5G network, which is now available nationwide. Its WarnerMedia business also contains a treasure trove of content that will keep consumers' interest, and the company is working on simplifying its HBO offerings. The stock is not likely to soar in the near future, but it offers a fat dividend for patient income-seeking investors.
IBM
Big Blue, tech giant IBM (IBM -8.25%), recently featured a hefty dividend yield of 5.3%, and its payout has grown at an average annual rate of 4.6% over the past five years. Its last dividend increase was its 25th consecutive annual boost.
The company has faced challenges in recent years, but it has a long history of reinventing itself as needed, morphing from a mainframe hardware specialist to a significant player in the cloud computing and artificial intelligence arenas, bolstered by its acquisition of Red Hat last year. It has a new CEO, too, in Arvind Krishna, who previously helmed the cloud and cognitive software division. In its second quarter, revenue from cloud operations rose 30% year over year -- up from 19% in the quarter before.
Long-term investors looking for income can collect a lot of it from IBM, and they may enjoy significant price-share appreciation, too, if IBMs cloud designs play out.
