A strong dividend portfolio can be a powerful wealth-building tool, delivering gains from rising share prices and passive income. Many stocks pay dividends, but I would argue that blue chip companies are the winning strategy for long-term investors. In other words, let high-quality stocks do all the heavy lifting for you.
Don't know where to start or simply looking for some new dividend ideas? No worries, I've identified my top five dividend stocks for 2022.
Pharmaceutical company AbbVie (NYSE:ABBV) is one of the world's largest drug companies, behind well-known products like Botox and Humira, the world's top-selling prescription drug. Its dividend legacy goes back to its days as a part of Abbott Labs but it has continued putting money into shareholder pockets since spinning off as its own company in 2013.
Usually dividend stocks either pay a small starting yield and grow rapidly, or pay a high starting yield and grow modestly. AbbVie is a rare combination of both. The company's dividend yields 4.1% and has grown at an average of 18% annually over the past five years. Its 41% dividend payout ratio should give you confidence in AbbVie's ability to keep paying you to hold shares.
Philip Morris International
Tobacco's addictive nature gives tobacco stocks a reputation as fine dividend stocks. Philip Morris International (NYSE:PM) is arguably the king of the tobacco mountain, formed when parent company Altria Group spun off its international business as its own company, leaving Philip Morris International to sell the Marlboro brand of cigarettes worldwide.
Philip Morris International is the highest-yielding dividend stock on this list, offering up a 5.3% dividend yield. But its growth has been somewhat tame; the average annual raise has been 3.3% over the past five years. It's common for tobacco stocks to carry a higher payout ratio, so investors shouldn't rush to judgment on the 71% dividend payout ratio. The company's IQOS product is its future and could ensure Philip Morris International's payout for years to come.
Most homeowners have probably used Sherwin-Williams' (NYSE:SHW) products, as the company is one of the world's largest paint and coatings makers. Its products include its namesake network of stores across North America and a wide range of brands sold worldwide, like Valspar, Minwax, Purdy, Krylon, and Thompson's WaterSeal.
Paint is a great business because the material fades, chips, or simply becomes boring, requiring customers to keep buying more. The company has raised its dividend for 43 consecutive years. The dividend yield is small at 0.6%, but the dividend has averaged 14.6% growth annually over the past five years. The dividend's 22% payout ratio should leave plenty of room for that growth to continue.
Paint isn't the only business that homeowners support. Home Depot (NYSE:HD) is a leading home improvement retail chain that operates in the U.S., Canada, and Mexico. E-commerce has disrupted many retail categories, but Home Depot's strong network of stores and success in integrating its digital storefront has helped it continue growing and paying dividends.
Home Depot's dividend yields 1.6%, and the payout has grown at an average of 19.7% annually over the past five years. The dividend payout ratio is still manageable at 56%, so investors should continue seeing their dividend checks grow. Consumers gladly spend money to improve and maintain their homes, so Home Depot is among the "bluest" blue chips in the retail sector.
Real estate is one of humanity's oldest businesses, but many people cannot afford to own rental properties. Real estate investment trusts (REITs) are a workaround; these businesses acquire and rent out properties and pay out dividends to their shareholders. Realty Income (NYSE:O) is among the best known, specializing in retail properties. It's the landlord for customers like Walgreens, Dollar General, FedEx, AMC, and more.
REITs are excellent dividend stocks because their business structure requires paying at least 90% of their taxable income out as dividends to investors. Realty Income's dividend yield is currently 4.1%, and the company has raised its dividend for 28 years and running. Over the past five years, the dividend has grown at an average of 3.79%. Realty Income won't make you a millionaire overnight, but its steady business model makes it a reliable way to generate passive income from real estate.