Investors should strongly consider adding dividend stocks to their portfolio to provide a more consistent stream of income, which can often be more predictable than investing for pure appreciation. The key is to find companies that pay solid dividend yields, have good track records, and generate enough earnings or free cash flow to not only cover the dividend, but also to raise it as well.
Here are three dividend stocks -- and their recent yields -- to buy heading into 2026.
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Realty Income: 5.62%
There aren't too many better dividend companies than the real estate investment trust (REIT) Realty Income (O +0.96%). REITs are exempt from corporate taxes if they meet certain conditions, such as deriving a significant portion of their revenue from real estate and distributing at least 90% of their taxable income in dividends. That's why investors often consider REITs when seeking strong dividend yields.
Realty is a triple-net lease operator, meaning the company leases properties to tenants that are then responsible for property maintenance, taxes, and insurance, among other costs. In return, tenants can negotiate long-term leases, potentially at more favorable rates, and have greater control over their properties.
The company primarily looks for tenants in nondiscretionary, service-related businesses that offer low prices to consumers. Top clients include 7-Eleven, Dollar General, and Walgreens.
NYSE: O
Key Data Points
Not only does Realty Income offer a very attractive, roughly 5.6% trailing-12-month dividend yield, but it has also paid and increased its dividend for over 30 years, putting it in an elite group of dividend payers.
The REIT has grown the dividend at a 4.2% compound annual rate. Its dividend payments so far this year consumed about 75% of the company's adjusted funds from operations (AFFO), which is essentially the equivalent of free cash flow for a REIT. That shows the company (which pays its dividends monthly) is covering its payments with a solid buffer.
Sirius XM: 5.02%
While the large digital audio producer Sirius XM Holdings (SIRI +0.27%) has not had the best-performing stock in terms of appreciation, investors can expect it to yield about 5% annually, and there may even be a turnaround story to be had for long-term, patient investors.
Warren Buffett's Berkshire Hathaway has acquired a substantial stake in Sirius, which has been suffering due to rising competition from companies like Spotify. Sirius has struggled to stabilize its subscriber base, and at the end of the third quarter, subscribers were once again down about 1% year over year.
NASDAQ: SIRI
Key Data Points
However, the company has a plan to turn things around that involves new pricing and subscription options, better tech, and an expansion of its ad-supported subscriptions, which has also involved signing podcasts with large brands. Management hopes this will lead to strong growth in subscribers and free cash flow in the long term.
The strategic revamp is undoubtedly a show-me story right now, but the stock is cheap, trading at 7.5 times forward earnings. In the meantime, investors can collect a strong dividend with strong support. The company's trailing-12-month free cash flow yield is close to 16%, showing the business can easily cover the dividend right now.
Wells Fargo: 1.93%
Wells Fargo (WFC 2.71%) can't boast the same high yield as the two names mentioned above, but I believe the bank will be able to grow its dividend strongly over the coming years, while the stock also has solid appreciation potential. Wells Fargo is coming off a successful turnaround following a scandal that came to light in 2016, which led the company to overhaul its regulatory infrastructure.
The bank also had to cut its dividend by 80% in 2020, but that wasn't because it couldn't pay it; rather, it was due to distribution limits imposed by the Federal Reserve at the beginning of the pandemic. I believe those struggles are safely behind the company. It has now grown its dividend by 350% since late 2020 and is now closing in on a 2% yield, despite the stock surging 220% over the past five years.
NYSE: WFC
Key Data Points
Wells Fargo's dividend payments still account for only about 27% of its earnings, while most large banks tend to pay out in the 30% to 40% range. Management also believes it is capable of significantly boosting returns over the medium term.
Lastly, the bank has significant excess capital. And the easing of regulatory capital requirements that has already taken effect will allow it to deploy more capital, and therefore return more to shareholders.
Given that Wells Fargo's valuation has already reached a high level, share repurchases are less accretive to the company's tangible book value, or its net worth. That's why I think the bank is well-positioned to continue growing its dividend.
