Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

2 Great Income Stocks to Buy Right Now

By Dave Kovaleski - Nov 23, 2020 at 11:07AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BlackRock and Prudential pay out two of the best dividends you'll find.

Income in the form of steady dividends is always a good thing, but it may be even more valued now that markets are volatile and fixed income investments aren't yielding as much bang for the buck due to low interest rates and higher default risk. More investors are looking to good dividend stocks to supplement their income strategies. When looking for good income stocks, you want dividends that are consistent and sustainable -- as well as the potential for long-term capital appreciation and total returns. Here are two great income stocks that fit the bill.

1. BlackRock offers massive payouts

You will find few companies that offer higher dividends than BlackRock ( BLK -0.63% ), the largest asset management firm in the country, with $7.8 trillion in assets under management. BlackRock pays out a ridiculously high $3.63 quarterly dividend per share, which comes out to $14.52 per share annually. I'm no math major, but if you own 100 shares of BlackRock, that means you get $1,452 per year in income. BlackRock pays out a dividend yield of 2.18%, which is the percentage it pays out in relation to its stock price. It also pays a manageable 50% payout ratio, which is the percentage of earnings that go to the dividend. You don't want too high a ratio, or the company is paying out more of earnings for dividends than it probably should. Over the last five years, BlackRock's dividend has increased by 66%.

Smiling woman holding plate with increasing stacks of coins

Image source: Getty Images.

These percentages indicate a dividend that's sustainable, but let's examine why this dividend will probably continue to grow or maintain. BlackRock is the outright market leader in the asset management space, and its strength is in the fastest-growing segment of the industry: Exchange-traded funds, or ETFs. BlackRock is the market leader in ETFs with about 40% of the $5.3 trillion ETF market, ahead of its next closest competitors, Vanguard (25%) and State Street (16%). The ETF market is expected to grow to $50 trillion over the next 10 years, so BlackRock's earnings will grow with it.

The company also has a long-term track record of success through all market conditions. Over the last 10 years, the stock price has an annualized return of about 14%, and this year it's up 32% year to date. In the third quarter, net income was up 21% to $1.3 billion and revenue was up 18% to $4.3 billion. BlackRock had $129 billion of new money flow into its funds, led by its fixed-income offerings. It has the breadth of offerings and the huge distribution capabilities to adapt to any market environment.

2. Prudential stands tall with dividends

Insurer and financial services firm Prudential Financial ( PRU -0.63% ) has two things in common with BlackRock -- it is an industry leader, as the largest life insurance company in the country, and it pays out a significant dividend. Prudential distributes a dividend of $1.10 per share each quarter, which calculates to $4.40 per share annually. So, if you owned 100 shares, the math comes out to $440 per year in dividend income. Over the last five years, that dividend has shot up 98%. The dividend yield -- the percentage of the share price -- is 4.4%, which is better than BlackRock. It also has a good payout ratio -- the percentage of earnings -- of 37%.

Prudential is a diversified financial services firm that offers more than insurance, which has not been a great business this year. But it managed to increase its net income by 5% to $1.5 billion and boost its operating income by 59% to $370 million year over year, thanks to the strength of its investment arm, PGIM. PGIM increased its assets under management 11% to $1.4 billion on capital appreciation from rising equity markets and strong inflows into its fixed-income investments. Prudential also saw gains in international insurance, offsetting losses in U.S. insurance businesses.

Prudential has been effectively managing expenses during the pandemic, implementing a plan to reduce costs by $750 million through 2023. It has also sold off Prudential of Korea and is in the process of doing the same for Prudential of Taiwan, which will improve its already strong $6.1 billion cash position. It is a company with roots that date back to 1875, so, like its symbol, the rock, it's not going anywhere.

Investors who are looking for additional income cannot go wrong investing in these two stocks -- both industry leaders with the strength and stability to continue to provide great dividends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BlackRock, Inc. Stock Quote
BlackRock, Inc.
BLK
$918.00 (-0.63%) $-5.86
Prudential Financial, Inc. Stock Quote
Prudential Financial, Inc.
PRU
$105.04 (-0.63%) $0.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
145%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/09/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.