There are endless ways to make your money work for you on Wall Street but few are as consistently successful as buying dividend-paying stocks.
Companies can't pay quarterly or monthly dividends to their shareholders unless they already have reliable profits. Plus, making regular dividend payments that rise year after year forces management teams to focus on what's most important instead of chasing every potential growth initiative that presents itself.
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The difference between dividend payers and non-dividend payers is probably more dramatic than you'd expect. From 1973 through 2022, members of the S&P 500 index that paid a dividend delivered a 9.18% average annual return. Stocks in the same index that didn't pay dividends rose by just 3.95% annually over the same time frame, according to Hartford Funds and Ned Davis Research.
Right now the average dividend-paying stock in the S&P 500 index offers a meager 1.55% dividend yield. These two offer yields that are more than triple the benchmark average. Here's why picking them up in December to hold for at least a decade looks like a brilliant move.
AT&T
The first high-yield dividend stock begging to be bought in December is the telecom giant AT&T (T 1.02%). The stock has fallen about 20% this year and at recent prices, it offers a 6.8% yield.
AT&T shares have been under pressure thanks to a report from The Wall Street Journal this summer that suggests legacy cables that were sheathed in lead are a major health risk. Pinning financial liability on a telecom provider for old cables that were legal when they were installed seems like an uphill battle.
While we wait to see what becomes of AT&T's long-forgotten lead-sheathed cables, a steady uptick of 5G and broadband internet subscribers could drive an already high dividend yield even higher. Operating income from its mobility segment reached a new company record in the third quarter thanks to mobility service revenue that is rising on the back of an ongoing 5G revolution.
The 5G rollout isn't AT&T's only growth driver. In less than four years, AT&T Fiber doubled its subscriber count to more than 8 million and investors can look forward to more growth in the years ahead. This October, its fiber service was available to just 20.7 million consumers but management expects this figure to expand past 30 million by the end of 2025.
People hardly ever change their internet service providers, especially when they're enjoying the increased speed and reliability that fiber connections are known for. Buying AT&T now to hold for a decade or longer looks like a reliable way to grow your passive income stream.
Realty Income
The second high-yield dividend stock that's screaming for attention in December is Realty Income (O -0.17%), a gigantic real estate investment trust (REIT) that collects rent from a portfolio of over 13,000 properties. At recent prices, the stock offers a 5.7% yield.
Realty Income's monthly dividend program is famous for delivering monthly dividend payments that increase steadily. A lot has happened to the global economy since the late 1990s but none of those events prevented this well-managed REIT from meeting and raising its dividend commitment. Its payout has risen for 104 consecutive quarters.
Diversification combined with a net lease strategy allows Realty Income to grow consistently. The REIT employs long-term net leases that transfer all the variable costs of building ownership to its tenants.
Realty Income limits exposure to the sort of retail businesses that go belly-up during economic downturns. Operators of drug, dollar, convenience, and grocery stores are its top tenants.
With a long track record of success, Realty Income can boast highly favorable credit ratings that hardly any competing REITs can match. This advantage will help it consolidate a huge addressable net lease market in Europe that is still largely untapped and continue raising its monthly dividend payout. With at least another decade of growth ahead, tucking some shares of this stock into your portfolio right now could lead to heaps of passive income over time.
