If you have $5,000 you can afford to invest in the stock market right now, dividend stocks could be your best option. They can help make the most of your investment income, especially with growth stocks falling out of favor and more value-oriented investments rising in popularity.
Three income stocks that pay high yields and are backed by strong financials include Novartis (NVS 0.53%), Colgate-Palmolive (CL +1.01%), and Fortis (FTS +0.19%). These stocks don't just pay dividends, but have also been increasing their recurring payments for decades.
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1. Novartis
Healthcare giant Novartis is a reliable stock that income investors can rely on for some solid, recurring dividends. At 3.9%, its yield is nearly three times the size of the S&P 500's average of 1.4%. On a $5,000 investment, you could be earning close to $200 per year from Novartis.
NYSE: NVS
Key Data Points
The biotech stock has solid financials with its free cash flow totaling more than $10 billion in each of the past four years. That's more than enough to support the $7.5 billion it has paid out in dividends over the past 12 months. Plus, the company enjoys strong gross margins that are normally around 70% of revenue, which means that as the business grows, profits will also likely get larger.
All this, combined with Novartis projecting 4% annual revenue growth to 2026 with the help of new drugs, should give investors confidence in the healthcare stock's ability to continue paying its dividend for the foreseeable future. In addition, there's the potential for the dividend to rise as the company has been increasing its dividend since 1996.
Whether you want stability or just a great yield, Novartis is a stock that could make for a solid addition to your portfolio.
2. Colgate-Palmolive
Colgate-Palmolive pays a lower dividend yield of 2.5%, but that's still above average. Investing $5,000 here would get you approximately $125 in annual revenue. And what's special about this stock is that it's a Dividend King. In March, the company announced it was increasing its dividend for the 60th consecutive year. It has been paying a dividend without interruption since the 19th century.
NYSE: CL
Key Data Points
Although the company's latest rate hike was a modest two-cent bump up, it's an important sign of Colgate-Palmolive's strength, even amid a pandemic and rising inflation. For the first three months of 2022, the company reported net sales of $4.4 billion, which were up 1.3% year-over-year. It has been raising prices to combat inflation. What's impressive is that Colgate-Palmolive expects its margins to widen this year. With stable growth and better margins, that will only make its dividend look even safer. At $0.66 of diluted per-share profits in the first quarter, there is plenty of room for Colgate-Palmolive to continue paying and increasing its quarterly dividend of $0.47.
3. Fortis
Offering a 3.4% dividend, Fortis is another relatively high-yielding stock for diversifying your portfolio. If you were to invest $5,000 in it, you'd be looking at $170 in recurring dividend income over a 12-month period.
NYSE: FTS
Key Data Points
The electric and gas utility company makes for a good, boring investment that you can count on for consistent profits and a strong yield. In the past five years, the lowest its annual profit margin has gone to is just below 12% of revenue. Its payout ratio is around 80%, but it has been known to fluctuate in the past.
Over time, this has been one of the safest utility stocks to own; Fortis announced a 6% increase in its dividend last year, marking the 48th straight year that it has increased its payouts. And the company's guidance calls for 6% rate hikes to continue through to 2025.
The company has 10 utility operations spread across the United States, the Caribbean, and Canada. At 3.4 million customers, it considers itself a leader in the North American market for regulated gas and electric utilities. The company's stability and limited volatility, combined with its continued growth, are why Fortis can be an ideal dividend stock that you can just buy and hold forever.
