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 -0.68%), 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%.
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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 -1.40%) 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.
