Looking for a way to boost your passive income? Dividend stocks might just be your golden ticket. Dividend-paying companies share a portion of their profits with shareholders, typically on a quarterly basis. Many investors find this appealing because it creates a steady passive income stream.
But the benefits don't stop there! Dividend stocks often leave their non-dividend counterparts in the dust. Research from Hartford Funds reveals something remarkable: During a 50-year span, companies that pay dividends have outperformed those that don't, 9.2% to 4.3% on average annually, and they have also done so with less volatility.
Ultimately, it boils down to this: Dividend-paying companies typically have effective business models, prudent capital management, and a strong commitment to rewarding their investors over the long term. Here are five quality dividend stocks that investors should consider adding to their portfolios today.
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JPMorgan Chase
JPMorgan Chase (JPM 0.54%) is the largest U.S. bank by assets and has a long history of capital discipline and profitability. Under the leadership of Chief Executive Officer Jamie Dimon, who has led the bank since 2005, the bank has consistently outperformed peers.
The bank has steadily increased its dividend during the past 15 years, boasting a current yield of nearly 2% and a low payout ratio, meaning there's room for future increases. Its strong capital position is reinforced by consistent results in Federal Reserve stress tests, allowing it to return capital to shareholders. It recently raised its dividend payout for the second time this year. Since the fourth quarter, the bank has increased its dividend payout by 20%.
JPMorgan Chase offers stability, dividend growth potential, and a fortress-like balance sheet, making it an ideal core holding for dividend-focused investors seeking exposure to the financial sector.
Ares Capital
Ares Capital (ARCC -0.75%) is the largest publicly traded business development company (BDC) in the U.S. As a BDC, Ares Capital primarily focuses on providing debt financing to middle-market companies. Not only that, but BDCs are required to distribute at least 90% of their taxable income to shareholders, making them ideal for dividend investors.
Ares stands out for its well-managed, diversified portfolio. It has a long history of strong underwriting and credit management processes, even during volatile periods such as the Great Recession from 2007 to 2009. Its portfolio spans hundreds of companies across various industries, reducing exposure to sector-specific downturns. As of March 31, its portfolio comprises 566 companies across numerous industries.
Ares also benefits from rising interest rates, as many of its loans are floating-rate. At the end of the first quarter, 69% of the investments in its portfolio, valued at fair value, pay interest and dividends at floating rates.
Ares Capital's dividend yield typically exceeds 9%, and it has also provided 15 years of stable or growing dividend payouts, showing its ability to reward shareholders over time.
T. Rowe Price Group
T. Rowe Price (TROW -0.36%) is a leading asset management firm recognized for its active investment strategies and strong long-term performance. The company has a solid track record. As of March 31, 61% of its U.S. mutual funds' assets under management (AUM) outperformed their Morningstar median during the past year, and 87% outperformed during the past 10 years.
As a money manager, T. Rowe earns fees from managing its assets of more than $1.57 trillion, creating a stable and scalable earnings stream as markets grow in line with its AUM. This fee-based model also helps generate steady earnings, which is significant as the company looks to maintain and expand its payout. The asset management company's dividend yields about 5% and it has raised the dividend every year for 39 consecutive years.
Aflac
Aflac (AFL 0.31%) is a leading provider of supplemental health and life insurance, with a strong presence in Japan and the U.S.
The company and its subsidiaries offer financial protection to policyholders, with a primary business focus on supplemental health and life insurance. Its emphasis on supplemental coverages aims to help consumers pay for medical and non-medical costs not covered by primary insurance, with a focus on products such as cancer, critical illness, accident, and hospital indemnity coverage.
Its Japanese business accounts for more than half of its revenue, providing a steady, cash-generating base. Furthermore, with premium persistency at 93.8% in Japan during the past 12 months, the company demonstrates strong customer retention, a crucial indicator of customer satisfaction.
Aflac has raised its dividend for over 42 consecutive years. The yield currently stands at 2.2% with a payout ratio of 31%, allowing room for continued increases. Aflac's conservative financial management, strong underwriting discipline, and stable cash-flow generation make it a reliable dividend stock.
Marsh & McLennan
Marsh & McLennan (MMC 0.11%) is a global leader in insurance brokerage, risk management, and consulting services through its Marsh, Mercer, Guy Carpenter, and Oliver Wyman brands. Marsh's dominance as an insurance broker positions it well to benefit from continued increases in insurance premiums, while Mercer's human capital consulting business adds a complementary revenue stream.
As a fee-based business, Marsh avoids underwriting risk and instead generates steady, fee-based cash flows. The company operates a capital-light business, serving a diverse range of clients, including corporations, government entities, professional organizations, and individuals. Last year, the company generated $4 billion in free cash flow, and has increased this vital measure by 17% compounded annually since 2010.
Marsh and McLennan has delivered consistent revenue and earnings growth during the past decade, increasing adjusted earnings per share for 17 consecutive years, enabling it to raise its dividend for 15 straight years. With a yield of about 1.5% backed by strong free cash flow, Marsh and McLennan is another solid dividend stock to consider today.
