Some investors try to beat the stock market while others simply want to build a reliable stream of passive income to fuel their retirement dreams. The good news for all of us is that you don't have to choose.
Folks who buy shares of the best dividend-paying businesses they can find have a great chance of beating the market, and there are numbers to prove it. During the almost 50 years between 1973 and 2022, the benchmark S&P 500 index delivered a 7.68% average annual return. Dividend-paying stocks in the same index rose 9.18% annually on average, according to Hartford Funds and Ned Davis Research.
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If the average dividend-paying stock already outperforms the benchmark index, it stands to reason that investors who buy better-than-average dividend stocks can look forward to gains that beat the market by a mile.
These two dividend stocks offer such high yields that about $10,510 spread between them is all it takes to secure at least $1,000 worth of dividend payments in 2024. Moreover, the well-established businesses underlying these stocks are positioned to raise their quarterly payouts in the years ahead.
Altria Group
Altria Group (MO -0.37%) is the tobacco company that markets the leading Marlboro brand in America. Its lead brand is still on top, but cigarette smoking has been in decline for decades.
Altria's attempt at transitioning customers to e-vapor products with Juul was incredibly successful until the U.S. Food and Drug Administration (FDA) banned candy-flavored vapes that both teens and adults appeared to prefer in 2020.
A stock market nervous about the proliferation of illicit candy-flavored e-vapor products has hammered Altria Group's stock so low that it offers a 9.5% dividend yield at recent prices. That's extremely high for a company that has raised its dividend payout 58 times over the past 54 years.
Altria sold its stake in Juul for a steep loss in 2023 and acquired NJOY, another e-cigarette manufacturer. At the moment, NJOY is the only brand of pod-based, e-vapor products with marketing authorization from the FDA. This puts it in a great position to benefit from escalating enforcement of the ban on flavored e-vapor products.
Last October, NJOY filed suits against 34 manufacturers, distributors, and retailers selling illicit, disposable e-vapor products in California. In December, the FDA teamed up with Customs and Border Protection to seize 41 shipments containing illegal e-cigarettes.
Despite a strong illicit market for e-vapor products, Altria reported adjusted earnings that rose 3.3% year over year during the first nine months of 2023. Less competition from the illicit e-cigarette market means investors can reasonably expect this company's earnings and dividend payouts to continue climbing for years to come.
Ares Capital
Ares Capital (ARCC 0.73%) is a business development company (BDC). This means it's a specialized lender to businesses that are too big for a government-backed, small-business loan but still too small to get a large American bank to pick up the phone.
Income-seeking investors love BDCs because these specialized entities can legally avoid income tax by distributing nearly all their profits to investors as dividend payments. With an investment portfolio totaling $21.9 billion, Ares Capital is the largest publicly traded BDC that everyday investors can add to their portfolios.
Ever since the Great Recession, America's largest banks tend to ignore just about any business that isn't established enough to have a credit score from Moody's or another rating agency. As a result, heaps of high-quality, middle-market businesses are willing to borrow at higher interest rates than you might expect. In the third quarter, Ares Capital reported an 11.2% average yield on total investments at cost.
Shares of Ares Capital offer investors a huge 9.5% dividend yield at recent prices. The stock is under pressure because the market is concerned its portfolio companies won't be able to keep up with interest rates that climbed in 2022 and early 2023.
So far, worries about a wave of defaults appear overblown. Loans on non-accrual status peaked in the first quarter of 2023 at 2.3% of the total portfolio at cost. This figure dropped to just 1.2% during Q3. With a diverse collection of borrowers that aren't having much trouble repaying their loans, this stock is a screaming buy right now.
