Dividends often replace earned income upon retirement, so identifying the best yields within reason is an important step to maximizing your lifestyle. Moreover, stocks that distribute cash to shareholders tend to be more stable; they are usually mature companies with sufficient financial health and limited growth opportunities that would necessitate earnings retention. This stability is ideal for retirees who want to avoid major swings in asset value.
Dividends are also useful for providing returns through market downturns. Companies that maintain dividends through a recession will continue to pay shareholders even if the market value of the stock is low. These stocks often outperform during bear markets for that reason.
It's important to focus on those characteristics when identifying the most attractive dividend stocks. High yields are preferable for obvious reasons, but they need to be sustainable too. Businesses with predictable performance, steady long-term growth, and demonstrated commitment to returning capital to shareholders are going to deliver the most reliable dividends, and the best stocks will appreciate with strong performance as well.
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A pharmaceutical leader
Drugmaker AbbVie's (ABBV -0.30%) dividend has increased every year since spinning off from Abbot Laboratories in 2013, and the forward yield now sits at a healthy 5.6%. For comparison, the S&P 500 average dividend yield is 1.7%. AbbVie's Humira is a blockbuster cash cow that produces roughly $20 billion in annual revenue despite experiencing increasing competition. The company also enjoys major contributions from Botox, and cancer drugs Venclexta and Imbruvica. Growth opportunities with Skyrizi, Rinvoq, and Ubrelvy, along with a modest payout ratio and 18% net profit margin, all indicate that AbbVie will continue to pay a strong dividend moving forward.
A telecom leader with 5G upside
Telecommunications giant Verizon (VZ -0.68%) operates a stable business of recurring revenues that is poised for sustained growth with the rollout of 5G networks and proliferation of connected devices. Further, the enormous capital expenditure required to establish physical network infrastructure and purchase radio bandwidth discourage new disruptors from competing directly with Verizon. The company's dividend has increased for 14 consecutive years, and the trailing yield now sits at an attractive 4.2%. Every industry experiences fluctuations and evolution, but Verizon is well-positioned to hold its leadership role for the foreseeable future.
An attractive entry point for a chemicals leader
LyondellBasell (LYB -1.09%) may lack brand recognition among the general public, but it is one of the largest chemical companies in the world. LyondellBasell engages in a number of production and refining operations, but it has an especially large plastics footprint. The coronavirus pandemic has created a challenging environment for the company, but analysts are forecasting improved results next year. The stock's 5.6% dividend yield currently exceeds a 100% payout ratio, but improving conditions in 2021 could push earnings back to a range that can sustain the distributions. This is a cyclical business without a long history of dividends, but it could represent an attractive entry point for exposure to this industry leader.
An agricultural supplier that isn't going away
CF Industries (CF 0.91%) makes and distributes nitrogen fertilizers in North America. Agricultural inputs might not be the most exciting or dynamic industry, but they aren't going away. A rising global population and an expanding middle class are outpacing harvested acreage. As a result, fertilizer sales are catalyzed by both more farming activity and the requirement for higher crop yields. The industry is cyclical, but not in the same way it is for airlines or other industrials. CF is forecast to deliver stable returns in coming years, making the 4.4% dividend yield very appealing.
A diversified real estate play
Realty Income (O 0.24%) is a REIT that manages a portfolio of over 6,500 commercial properties across more than 50 industries, usually with triple net leases. The business model carries risk, but the company has strategically targeted businesses that are less likely to experience cyclical volatility and are therefore less likely to violate lease agreements. REITs are obligated to distribute a high proportion of earnings to shareholders, and Realty Income is one of the most efficient and stable REITs available. Shares pay monthly dividends, and the 4.8% yield should be enticing to income investors.
High dividend stocks can be very helpful in generating income during market corrections or retirement. Mature, diversified companies with stable operating histories can be excellent dividend sources, so investors should consider buying the above stocks to fill that role in their portfolios.
