Investing in the stock market can help you build long-term wealth, but it can take years or even decades to see substantial returns.
With dividend-paying stocks, however, you'll not only earn long-term returns on your investments, but you'll also receive dividend payments each year or quarter. Every time you receive dividends, you can either reinvest that money to buy more shares of stock or you can cash them out to create a source of passive income.
It's important to invest wisely when choosing dividend stocks. Not all stocks are created equal, and some investments are better than others. While each of these three companies have experienced setbacks, they consistently pay high dividends -- making them a smart choice for many investors.
AbbVie (ABBV -0.47%) is a biopharmaceutical company with a strong dividend track record. It's a member of the Dividend Aristocrats, which is a group of S&P 500 stocks that have each increased their dividend payment for at least 25 consecutive years.
AbbVie has been a favorite among dividend investors for years, as it's known for its high dividend yield and for increasing its dividend consistently. One potential red flag is that its best-selling drug Humira is losing exclusivity in the U.S. in 2023, which could result in Humira sales plummeting. However, the company already has several other drugs generating strong revenue growth, which could make up for the potential losses from Humira. For this reason, AbbVie is still in a strong position and should continue increasing its dividend.
The stock has a relatively high annual dividend payment of $1.30 per quarter, which amounts to $5.20 per year. It's also priced at around $106 per share as of this writing. If you invested, say, $5,000 in AbbVie stock, that amounts to roughly 47 shares. In this scenario, you'd be earning around $244 per year in dividend income.
Of course, $244 per year is hardly enough to pay the bills. But keep in mind that investing is a long-term strategy. The more you invest, the more you'll earn. If you reinvest your dividends to buy more shares, that can turbocharge your dividend payments.
IBM (IBM -0.91%) has been paying dividends since 1913, making it one of the longest-paying dividend stocks in existence. Although the company experienced a difficult quarter at the end of 2020, it's expected to rebound this year by focusing more on its cloud software solutions. This is a good sign for long-term investors willing to wait it out, because this restructuring could result in greater growth potential.
The company also boasts a hefty $1.63 quarterly dividend payment (or $6.52 per year), and currently trades at $120 per share.If you were to invest $5,000 in IBM stock right now, you'd own around 41 shares. With a dividend of $6.52 per year, that investment would earn you around $267 each year in dividend payments.
Also, keep in mind that as companies increase their dividends, that will also increase your annual payments -- even if you don't invest more money. By investing in strong companies that increase their dividends each year, you can boost your passive income with zero effort.
ExxonMobil (XOM 0.79%) is another member of the Dividend Aristocrats, having raised its dividend each year for 37 consecutive years. It has a slightly lower dividend payment of $0.87 per quarter ($3.48 per year), but it also has a lower stock price of just $53 per share as of this writing.
This stock is on the riskier side, because the company has had a rough year as oil prices dropped in 2020. In the past, ExxonMobil has tried hard to protect its dividend, choosing to take on more debt to avoid cutting dividend payments. But if the company continues to struggle, the dividend could be at risk.
However, the company is currently being pressured to focus more heavily on renewable energy, and it's reportedly considering making changes to its board of directors and investing more in sustainable energy. This could result in stronger long-term growth, which is a good sign for investors.
Currently, investing $5,000 in ExxonMobil would buy you 94 shares. At $3.48 per share in dividends, you'd be earning $327 per year in dividend payments. If you're a risk-averse investor, this stock may not be the best option. But if you're willing to bet on the company making a comeback, it could potentially be a profitable decision.
As you're choosing dividend stocks, focus primarily on the overall health of the company. Organizations that are consistently paying dividends and making moves to increase revenue growth are more likely to be solid-long term investments. And investing for the long term is key to generating wealth with dividend stocks.