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3 Top Dividend Stocks to Buy Right Now

By James Brumley - Mar 9, 2021 at 11:07AM

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Investors looking to play more income-minded defense should start their search with these blue-chip names.

Has the market's recent volatility got you worried about your high-flying growth stocks? You're not alone.

Another round of stimulus checks looks like it's in the works, but this may also be the last of them, and we still don't know how well the economy can stand on its own. This might be a smart time to dial back your exposure to more aggressive names and ratchet up your exposure to reliable, income-generating picks.

With that as the backdrop, here are three of the best dividend stocks to add to your portfolio -- at least until the market settles down.

Roll of dollar bills and  stack of post-its with the word Dividends written on it

Image source: Getty Images.

1. McDonald's

Dividend yield: 2.5%

On the surface, it looks like a fast-food chain. Under the hood, however, McDonald's (MCD -0.15%) is the real estate company many observers say it is. Of the 39,198 McDonald's restaurants on the planet as of the end of last year, only 2,677 of them were owned and operated by the company itself. The other 36,521 were franchised to .... well, franchisees.

That's not unusual within the fast-food business. Most McDonald's franchisees, however, don't actually own the real estate they're utilizing. The parent owns it and rents it to operators at current market rates. That's in addition to royalties the franchisees pay on the sales they drive. McDonald's franchisees often argue their total costs are well above the industry's average. Indeed, it's become a contentious point between the company and its franchisees.

The fact is, though, franchisees need the parent more than the parent needs any particular franchisee. McDonald's is the world's most recognized restaurant chain, and the company has masterfully leveraged its powerful brand name and reach to remain the dominant player in the business. Although it's expensive to do so, most operators are better off paying McDonald's steep fees than they would be working with another fast-food outfit.

Those recurring, reliable rent and royalty payments make McDonald's business model an ideal one for generating income to pass along to shareholders. And it's done exactly that. This company has increased its annual dividend payout for 44 consecutive years now.

2. Cardinal Health

Dividend yield: 3.6%

Cardinal Health (CAH 0.60%) may be one of the market's better-kept secrets. It's neither sexy nor a growth machine, but what it lacks in pizzazz it makes up for in consistency. This company has not only paid a dividend in every quarter since 1986, but it upped its payout every year since 2004.

These aren't pittance improvements, either. Over the course of the past 10 years, the dividend has grown at an average annual clip of 9.6%. Revenue growth has been about as consistent since 2015, and analysts are expecting respectable single-digit percentage sales growth this year and next.

Earnings growth is projected at the same healthy, single-digit percentage pace, and will be more than enough to cover the dividend. The projected payout of $1.94 per share for this year is less than a third of the consensus per-share earnings estimate of $6.01, giving the company plenty of fiscal wiggle room should things get rocky.

But the nation's healthcare arena is forever changing, with even bigger changes seemingly on the way. That makes it difficult to step into health-related names.

Of any sliver of the healthcare market shielded from regulatory upheaval, however, Cardinal Health is squarely in the middle of it. No matter what sort of drug pricing or reimbursement shakeups are imposed, though, hospitals and clinics are always going to need supplies from distributors like this one.

3. Verizon Communications

Dividend yield: 4.5%

Finally, add Verizon Communications (VZ -0.40%) to your list of dividend stocks to buy if you're looking for a little more current cash flow in your portfolio.

You know the company. Verizon is the United States' biggest wireless company. It's also got exposure to the broadband, landline, and cable markets, although its breadwinner is its cellphone business. Like McDonald's, it's a business model well-suited for driving dividend payments. Consumers may skip a trip to the mall or postpone a vacation, but they're keeping their mobile phones connected regardless of the cost. To this end, the company's not only paid a dividend every quarter for the past few decades, but it has been raising it every year since 2007.

The company's setting the stage for continued dividend growth too.

While some investors lamented the heavy cash outlays at the time, the billions of dollars Verizon spent on its fiberoptic network beginning in earnest in 2007 has left the company well prepared for the present. The advent of 5G wireless connectivity is putting massive data demands on networks, but Verizon's fiberoptic network allows consumers and corporations to make the most of 5G speeds by offloading much of that work to physical rather than wireless infrastructure.

To this end, the fact that Verizon's wireless network -- including its 5G network -- was selected as the best overall network in RootMetrics' most recent comparison speaks volumes about the company's readiness to compete on this front.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$48.84 (-0.40%) $0.20
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$243.66 (-0.15%) $0.38
Cardinal Health, Inc. Stock Quote
Cardinal Health, Inc.
CAH
$56.48 (0.60%) $0.34

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

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