When assessing income-generating stocks, one important thing to note is the yield, which measures the percentage the company pays out in dividends in relation to its stock price. As you analyze, you might come upon an expensive stock with a high share price and a higher payout per share, but it generates a lower yield for each share. You might also find cheaper stocks that distribute a much lower payout, but each share is getting a higher yield on that payout. All else being equal, you can buy more shares of cheaper stock with a higher yield, which increases the payout you get relative to your investment.
So, let's say you had a specific amount of money to invest -- $1,000. How much would you earn in dividend payouts if you invest it in three of what are considered top dividend stocks -- all with stocks trading at different price points and yields? Let's take a look.
1. BlackRock: Trading at $965 per share and offering a 1.72% yield
BlackRock (BLK -1.76%) is the world's largest asset management firm, with $7.8 trillion in assets under management as of Sept. 30. It is the world's leading provider of exchange-traded funds through its iShares ETF products with $2.3 trillion in ETF assets.
BlackRock has averaged about a 10% annual increase in earnings over the past 10 years through Nov. 10, and its stock price has climbed almost 20% per year over that time on an annualized basis. In the third quarter, it saw revenue increase 16% and earnings climb 23% year over year. The stock price is up about 34% year-to-date. So it has stock price appreciation going for it as well as dividend appreciation.
It has increased its dividend each year for the past 17 straight years and currently pays out $4.13 per share each quarter which works out to $16.52 per share annually, at a yield of 1.72%. That yield is above the average of stocks in the S&P 500, which is about 1.3%. That $16.52 a year seems like a very high payout, but one share costs nearly $1,000, so if you had $1,000 to invest, you could buy one share at its current share price of $965 and get an annual payout of $16.52 in dividends.
2. T. Rowe Price: Trading at $214 per share and offering a 2.03% yield
T. Rowe Price (TROW -2.28%) is also an asset manager with $1.7 trillion in assets under management at the end of October, which makes it one of the top 15 asset managers in the U.S. It is considered one of the best active managers in the world and recently launched a series of actively managed ETFs. About half of its assets are retail funds while the other half are institutional separate accounts and sub-advised assets.
T. Rowe Price has seen earnings rise about 15% on an annualized basis over the past 10 years through Nov. 10, and its share price has also averaged about a 15% annual gain over that time period. In the third quarter, revenue rose 22% and earnings climbed 21% year over year. The stock price is up about 44% year-to-date. So stock price appreciation is a factor.
The company is considered a Dividend Aristocrat, as it has increased its dividend annually for 34 straight years. It currently pays out a quarterly dividend of $1.08 per share, or $4.32 per share annually, at a yield of 2.03%. At its share price on Nov. 11 of $214, you could buy roughly five shares for a little more than $1,000. Those five shares would generate $21.60 in dividend income per year at the rate of $4.32 per share.
However, the company also gave out a special $3 per share dividend this year because of its healthy financial position (it has virtually zero debt), so add that $15 (five shares times $3) to the $21.60 and youʻd have a payout of $36.60.
3. US Bancorp: Trading at $61 per share and offering a 3.04% yield
US Bancorp (USB 0.30%) is the fifth-largest bank in the country, with $568 billion in total assets. But it recently acquired San Francisco-based MUFG Union Bank from Mitsubishi UFJ Financial Group. When the deal closes in the first half of 2022, US Bancorp, the holding company for US Bank, will add another $133 billion in assets and 342 branches, mostly in California.
US Bancorp is one of the most efficient banks among publicly traded financial institutions, with an efficiency ratio -- how much it spends to generate $1 of income -- of 58%. It has increased earnings about 5% per year on average over the last years, but that is including the pandemic, when banks were among the hardest hit. The stock price has averaged about a 9% gain over the past 10 years. This year, the price is up about 31%. So there is some equity appreciation.
US Bancorp has been able to increase its dividend for each of the last 11 years, even during a tough 2020. The company currently pays a quarterly dividend of $0.46 per share, or $1.84 per share annually, at a yield of 3.04%. At its current share price of about $61 per share, you could buy roughly 17 shares if you invested a little more than $1,000. If you multiply $1.84 times 17 shares, youʻd have a dividend payout of $31.28.
Which dividend payer is the best bet?
If you were looking to maximize your dividend income from one of these three stocks, T. Rowe Price would be your best bet this year due to the special dividend. But remember that this is a one-time payout. Discounting the special dividend, US Bancorp would actually have netted you more dividend income for your $1,000 investment. When you factor in the stock price appreciation, it's is worth noting that BlackRock has been the best performer over the past decade. That's something to consider as well.
No matter how you slice it though, all three of these companies are among the best in their respective industries and would make solid dividend-producing investments.