Are you looking for a smart way to generate passive income? Look no further than dividend stocks, which can be an excellent source of income. Dividend stocks are shares of companies that consistently pay a portion of their profit to investors.
Some companies aim for lofty dividend yields. While this may be appealing, those high dividend payouts aren't necessarily sustainable over time. What you really want are companies that grow their payouts year after year.
In the report "The Power of Dividends: Past, Present, and Future," by Hartford Funds and Ned Davis Research, researchers found that dividends play a significant role in driving investors' total returns over time. In fact, since 1960, a staggering 85% of the cumulative return of the S&P 500 has come from reinvested dividends, compounding over time.
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The study also found that companies that consistently raise their dividends outperform those that don't. According to the researchers, dividend growers and initiators have delivered average annual returns of 10.24% over a 50-year period. Dividend payers (not necessarily those raising their payout) have delivered average returns of 9.2%, while non-dividend payers only delivered meager annual returns of 4.3%.
Corporations that consistently increase their dividend payments tend to have robust fundamentals, strong business models, and an unwavering commitment to shareholders. If you have $500 to invest and are looking for passive income and the stability that comes with dividend stocks, here are three smart dividend stocks to scoop up today.
A top consumer name has raised its dividend for 69 consecutive years
Procter & Gamble (PG 0.20%) is a textbook dividend stock, characterized by steady cash flows, dominant brands across the consumer staples sector, and pricing power.
NYSE: PG
Key Data Points
What sets Procter & Gamble apart is its vast portfolio of recognizable brands across various product types, including Tide, Pampers, Gillette, Charmin, Dawn, Head & Shoulders, and Crest, among others. Its extensive portfolio gives it the advantage of pricing power, allowing it to pass on costs to consumers while maintaining sales volumes.
For 69 years, Procter & Gamble has consistently increased its dividend payout, earning a place among the elite known as Dividend Kings. This impressive track record spans numerous recessions and economic cycles, illustrating Procter & Gamble's resilience. In today's stock market, Procter and Gamble offers a durable, defensive stock that has consistently rewarded investors with reliable income.
An insurer that has raised its payout across eight recessions
If you're looking for a rock-solid income stock, Cincinnati Financial (CINF 1.27%) is another excellent choice. Also a member of the Dividend Kings club, the company boasts an impressive 65-year history of consecutive annual dividend increases.
NASDAQ: CINF
Key Data Points
It operates in the relatively boring but stable property and casualty (P&C) insurance business. What sets it apart is its ability to balance risk while effectively pricing policies. Its long history of dividend raises and profitability illustrates that it has done an excellent job navigating the toughest of environments.
In times of economic growth or inflation, Cincinnati Financial shines. As the economy expands, it benefits from premiums that gradually increase over time. And when inflation picks up, it can see the impact and adjust its premiums accordingly, giving it pricing power even in an environment of rising costs.
With a history of prudent underwriting and a business model that has navigated numerous storms, Cincinnati Financial is another stellar dividend stock investors can depend on.
This 5.5%-yielding real estate company pays dividends every month
If you're seeking reliability and a high dividend yield, Realty Income (O +0.31%) stock is for you. With an impressive 5.5% dividend yield, Realty Income is a monthly dividend powerhouse, making it an ideal choice for investors seeking passive income. Additionally, it has an impressive streak of raising its dividend for 112 consecutive quarters, or 28 years.
NYSE: O
Key Data Points
Realty Income focuses on free-standing, single-tenant commercial properties, serving clients such as Dollar General, Walgreens, Dollar Tree, 7-Eleven, and Life Time Fitness. It focused on triple-net lease (NNN) agreements, where tenants pay for taxes, insurance, and maintenance, thereby insulating it from many of the variable costs that make being a landlord more challenging.
In today's evolving market, Realty Income's business model is well positioned to adapt to inflationary pressures, thanks to its built-in rent escalators, which provide a cushion against rising costs. This is another aspect that makes the business resilient and dividend reliable, making this REIT a smart choice.
