If you're looking for ways to outperform the stock market over the long run, consider buying dividend stocks.
According to an analysis from J.P. Morgan Asset Management, dividend stocks have historically run circles around their non-dividend-paying counterparts. Between 1972 and 2012, publicly traded companies that initiated and grew their payout averaged an annual return of 9.5%. By comparison, non-dividend-paying stocks crawled to an average annual gain of 1.6% over the same span.
This disparity shouldn't surprise anyone. Companies that pay a dividend are almost always profitable, usually have clear long-term strategies and outlooks, and offer time-tested business models.
Perhaps no dividend stocks better fit the bill than the following six companies. On a combined basis, they're expected to pay out roughly $82 billion in dividend income this year.
Microsoft: $16.93 billion
You probably wouldn't know it by Microsoft's (MSFT -2.24%) 0.96% yield, but it divvies out more income on an annual basis to its shareholders than any other public company in the United States, at just over $16.9 billion.
Fueling Microsoft's enormous payout is a combination of cloud growth and high-margin legacy cash flow. Revenue from the company's Intelligent Cloud segment grew 23% to $14.6 billion in the most recent quarter, with sales from Azure up 50%. Cloud services revenue is applicable across a wide swath of the companies platforms, meaning Microsoft has multiple avenues to extract high-margin, double-digit growth from enterprises and consumers.
Ole Softy is also still churning out a healthy amount of cash flow from its legacy operations. Its Windows franchise might not be the growth story it once was, but it remains the dominant operating system on personal computers.
With close to $132 billion in cash and equivalents on its balance sheet and $68 billion in trailing-12-month operating cash flow, it's pretty safe to say the arrow is pointing up for Microsoft's future payouts.
AT&T: $14.85 billion
Telecom giant AT&T (T -0.55%) has seen its growth heyday come and go. Nowadays, management understands its role in beefing up shareholder value means doing everything possible to maintain its lucrative 7% yield. This year, AT&T is on pace to pay out more than $14.8 billion in dividend income.
The good news for income seekers is that AT&T's executives have stood behind the company's robust payout and don't see it going away or being reduced. The company recently announced the sale of a minority stake in subsidiary DIRECTV, which'll allow it to chip away at its debt. What's more, AT&T halted share buybacks last year to ensure its cash flows could support its premium dividend.
Despite its relatively slow-growth operating model, AT&T does have a few organic catalysts in the offing. The rollout of 5G networks should lead to an increase in wireless operating margins as businesses and consumers jump at the opportunity to upgrade their devices and take advantage of faster download speeds for the first time in a decade.
Furthermore, AT&T's streaming service HBO Max is gathering steam. With WarnerMedia releasing its 2021 films on HBO Max the same day they're slated to hit theaters, it should have no trouble adding new subscribers.
ExxonMobil: $14.72 billion
In spite of a rough 2020, which saw crude oil demand plummet off a cliff, integrated oil and gas giant ExxonMobil (XOM -1.10%) has also stood firm on its 6.3% payout and has no intention of reducing or halting its dividend.
ExxonMobil's operating model is one reason it's been able to ride out crude's demand roller-coaster over the past year better than many of its peers. As an integrated company, ExxonMobil can rely on its downstream operations (refineries and chemicals) as a hedge when its generally more lucrative upstream drilling operations struggle with lower crude prices. If oil prices fall, refineries and chemical plants benefit from lower input costs.
What's more, ExxonMobil has levers it can pull to improve its financial outlook. Last year, the company slashed about $10 billion off of its pre-pandemic capital expenditures plan. This year, it's much of the same, with ExxonMobil expected to spend only between $16 billion and $19 billion on capex. For comparison, that's down from a planned $30 billion to $33 billion in 2020 capex, before the pandemic surfaced.
ExxonMobil continues to invest carefully in high-efficiency projects and should benefit nicely from a steady economic bounce from the pandemic lows.
Apple: $13.77 billion
Perhaps it's no surprise that tech kingpin Apple (AAPL -3.63%) is one of Wall Street's top dividend-paying companies. Interestingly, Apple's aggregate payout has dipped a bit in recent years, with the company aggressively repurchasing its common stock. Still, a $13.77 billion estimated payout in 2021 is nothing to sneeze at.
As many investors probably know, Apple's journey to become the largest publicly traded company in the U.S. wouldn't have been possible without its core products. Specifically, Apple's iPhone innovation has allowed it to gobble up a significant chunk of U.S. market share and a notable percentage of international smartphone share.
However, CEO Tim Cook sees Apple transforming into a platforms and services company over the long run. The company's high-margin services and push into wearables has the potential to drive higher operating margins and more consistent cash flow.
With nearly $89 billion in trailing-year operating cash flow, Apple's payout looks incredibly safe.
JPMorgan Chase: $10.98 billion
Among big banks, JPMorgan Chase (JPM -1.06%) is doling out the handsomest reward to its shareholders. Assuming its existing payout remains the same, it'll be handing over nearly $11 billion in dividend income to investors in 2021.
What's interesting is that JPMorgan Chase has taken an interesting dual growth approach. While it's investing aggressively in digital initiatives like other bank stocks -- and was rewarded with a 10% increase in active mobile customers in the fourth quarter of 2020 -- it's also opening branches in new markets. With many of its competitors closing physical branches to reduce noninterest expenses, CEO Jamie Dimon appears to be reemphasizing the importance of local customer and business engagement.
JPMorgan also learned its lesson from the financial crisis more than a decade ago. Today, it's much better equipped to handle recessions, and it's largely avoided riskier derivative investments that could get it into trouble. By focusing on the bread-and-butter of banking (loan and deposit growth) and emphasizing digital transactions, JPMorgan looks well on its way to delivering a healthy return on assets.
Verizon: $10.39 billion
Finally, AT&T's chief rival, Verizon (VZ -0.75%), is also parsing out one heck of an annual dividend payment. If its existing quarterly payout remains unchanged, Verizon will hand over nearly $10.4 billion in dividend income to its shareholders this year.
Similar to its rival, Verizon should benefit for years to come from the 5G revolution. It's been a decade since businesses and consumers have seen download speeds noticeably increase, which should pave the way for a massive and multiyear technology upgrade cycle. Since wireless companies like Verizon generate some of their juiciest margins from data consumption, the spending on infrastructure upgrades should prove well worth it.
In addition to aggressively expanding its 5G reach, Verizon plans to utilize its recent purchases in 5G midband spectrum to deliver fixed broadband services to residential customers. By 2023, the expectation is Verizon's broadband services could reach as many as 30 million U.S. homes.
Like AT&T, Verizon is a slow-growth company. But the transparency and predictability of its cash flow makes it a rock-solid dividend stock.