If you're a beginning investor and the first things you're thinking of adding to your new portfolio are some top dividend stocks, bravo! You're on the right track, as dividends can be powerful wealth-builders, and they offer the extra benefit of providing income even during market or stock pullbacks.
It can be hard to figure out, though, just which dividend stocks are best for you. It's good to seek significant income, of course, such as a yield of, say, 3% or more. It's also good to choose dividends that have been growing significantly in recent years, as that can plump up your income stream further. When it comes to what kind of company to consider, you might start with the old adage to "buy what you know."
That's not enough, of course, because we all have been very familiar with companies that have fallen on hard times. But it's a good start to focus on businesses that you understand, and that aren't among the most complicated.
Here are some top dividend stocks that beginning investors might consider:
McDonald's (MCD 1.05%), recently yielding 3%, is familiar to just about everyone, and not just in the U.S. According to its website, it sports more than 34,000 restaurants in 118 countries, and employs 1.8 million people worldwide. More than 80% of its restaurants are franchised, too. It's likely to keep growing, though some see its competitive edge shrinking some, and worry about possible rising minimum wages. McDonald's dividend has grown by about 15% annually over the past five years.
Paychex (PAYX 1.24%), recently yielding 3.4%, may not seem like a familiar name, but there's a good chance its name is on your paycheck, as it's a major provider of outsourced payroll, benefits, and other such services to companies. The company is growing gradually these days, as is its dividend. But its fortunes should improve as the economy picks up, and many companies will want to keep saving money by letting Paychex handle various tasks for them. Top dividend stocks benefit from business models such as Paychex's, which feature customers often reluctant to bother switching to another vendor.
Waste Management (WM 1.41%), recently yielding 3.4%, is another top dividend stock in another very understandable business: garbage. It's the nation's leader in garbage collection and also a recycling giant. The company is busy converting waste and landfill gases to energy and has been streamlining its business and cutting costs, too. This dividend stock's payout has been growing by about 6% annually over the past five years.
Finally, all beginning investors, and most others, as well, should give strong consideration to parking their money in a simple, inexpensive broad-market index fund, such as the SPDR S&P 500 ETF (SPY +0.81%), which will instantly plunk you into 500 of America's biggest and best companies, and which recently sported a 1.9% dividend yield, as well. It's an easy way to be invested in almost all top dividend stocks, at least those of substantial size.
