It's hard to beat dividend-paying stocks for building long-term wealth. For one thing, a healthy and growing dividend payer will tend to keep paying you, no matter what the economy is doing. The stock price may stall or slump for a while, but most of the time those payments will keep arriving.
Meanwhile, companies that pay dividends usually increase their payouts regularly over time. And best of all, as long as the company is performing well, the share price should rise over time, too.
It's a win-win-win proposition.
Image source: Getty Images.
The case for dividends
In case you're not yet a dividend fan, check out the table below:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2024 |
|---|---|
|
Dividend growers and initiators |
10.24% |
|
Dividend payers |
9.20% |
|
No change in dividend policy |
6.75% |
|
Dividend non-payers |
4.31% |
|
Dividend shrinkers and eliminators |
(0.89%) |
|
Equal-weighted S&P 500 index |
7.65% |
Data source: Ned Davis Research and Hartford Funds.
See? Dividend stocks are no kind of compromise.
Here, then, are several dividend-paying stocks to consider for your long-term portfolio.
1. Microsoft
Microsoft (MSFT 0.36%) is not only home to the dominant Microsoft (formerly Office) 365 suite of applications but also to the major Azure cloud computing platform, the widespread Xbox gaming platform, the ubiquitous Windows operating system, and even LinkedIn, among many other things.
The stock has averaged annual gains of 24% during the past decade, but it's down 17% year to date (as of Feb. 13). The decline has pushed up its dividend yield to an appealing 0.9%. (It will be more appealing when you realize how fast it's growing. The annual dividend amount was recently $3.64, which is up from $2.54 in 2022 and $1.89 in 2019.)
NASDAQ: MSFT
Key Data Points
Microsoft is still growing well, too -- its second-quarter report featured a 17% increase in revenue year over year while net income rose 23%. Chief Executive Officer Satya Nadella noted that "We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises..."
Its stock is attractively priced, too, with a recent forward price-to-earnings (P/E) of 24, lower than the five-year average of 30.
2. Medtronic
Medtronic (MDT 1.00%) is a medical devices titan, with a recent dividend yield of 2.8%. It has upped its payout at an average annual rate of 6% during the past decade, and it has increased its dividend for 48 consecutive years.
NYSE: MDT
Key Data Points
The company is performing well, with its second-quarter revenue rising 7% year over year. It has introduced the Hugo robotic-assisted surgery system and recently received Food and Drug Administration approval for a device to treat urinary incontinence, which plagues about 16 million people in the U.S. It's shedding its slower-growing diabetes division, too, to focus more on growth.
With a recent forward P/E of 16.6, a bit below the five-year average of 17, its stock seems attractive, too.
3. Schwab U.S. Dividend Equity ETF
This last recommendation isn't exactly a stock -- it's an exchange-traded fund (ETF), which is a pooled investment fund that trades like a stock. The Schwab U.S. Dividend Equity ETF (SCHD 0.18%) is a compelling portfolio candidate, as it combines a solid dividend yield -- recently 3.5% -- with an impressive growth performance.
NYSEMKT: SCHD
Key Data Points
The ETF tracks the Dow Jones U.S. Dividend 100 Index -- which features 100 stocks with track records of paying dividends for at least 10 years. Its top holdings recently were Lockheed Martin, Chevron, and Texas Instruments.
Its annual fee is a measly 0.06% too, costing you $6 per year for every $10,000 you have invested in the fund. Invest in this ETF and you'll quickly be an investor in roughly 100 established dividend-paying companies, poised to profit alongside them.
Give any or all of these suggestions a closer look if they intrigue you.
