Dividend stocks are shares of companies that make regular distributions to their shareholders, usually in the form of cash payments. Dividend stocks can be a useful source of income, but the best dividend stocks can also be an excellent way to build wealth over the long term.
However, not all dividend stocks are great investments, and many investors are unsure how to start their search. With that in mind, here's a list of dividend-paying stocks you might want to consider and some of the most important things to look for in the top dividend stocks.
Nine top dividend stocks
The Dividend Kings list is a great place to find top dividend stocks. These companies have paid and raised their base dividends for at least 50 consecutive years. The Dividend Achievers list, whose companies boast 10-plus straight years of dividend increases, is a trademarked property owned by Nasdaq and another great list to research.
Here are nine top dividend stocks to consider buying now.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| Lowe's Companies (NYSE:LOW) | $154.2 billion | 1.71% | Specialty Retail |
| Realty Income (NYSE:O) | $55.5 billion | 5.34% | Retail REITs |
| Chevron (NYSE:CVX) | $336.7 billion | 4.09% | Oil, Gas and Consumable Fuels |
| Target (NYSE:TGT) | $49.7 billion | 4.12% | Food and Staples Retailing |
| Starbucks (NASDAQ:SBUX) | $103.6 billion | 2.69% | Hotels, Restaurants and Leisure |
| Brookfield Infrastructure (NYSE:BIPC) | $5.9 billion | 3.87% | Gas Utilities |
| Microsoft (NASDAQ:MSFT) | $3.4 trillion | 0.74% | Software |
| American Express (NYSE:AXP) | $246.8 billion | 0.92% | Consumer Finance |
| Clearway Energy (NYSE:CWEN) | $4.0 billion | 5.33% | Independent Power and Renewable Electricity Producers |
1. Lowe's
NYSE: LOW
Key Data Points
Home improvement giant Lowe's (LOW +0.26%) may not seem like a very exciting stock. And that's true -- unless you like dividend growth. The company has raised its dividend almost every year since going public in 1961 and has raised the payout by more than 300% over the trailing decade alone.
Investors worried about the housing downturn shouldn't fret. When the housing supply is tight, homes are harder to buy, and people tend to spend more to upgrade their existing homes. So any cyclical weakness in its results will likely return to growth over the long term, even if short-term shifts in consumer spending cause an overall slowdown in renovations.
2. Realty Income
NYSE: O
Key Data Points
3. Chevron
NYSE: CVX
Key Data Points
NYSE: TGT
Key Data Points
NASDAQ: SBUX
Key Data Points
6. Brookfield Infrastructure
NYSE: BIPC
Key Data Points
NASDAQ: MSFT
Key Data Points
NYSE: AXP
Key Data Points
9. Clearway Energy
NYSE: CWEN
Key Data Points
Dividend investors should focus not on dividend size but on dividend yield.
How to choose dividend stocks
Here are some key things to look for when investing in dividend stocks.
- Identify dividend stocks that meet your criteria. You may be looking for yield, history of dividend growth, or something different.
- Research the history of earnings growth. Dividend growth is sustainable only if a company's earnings have also steadily grown at a similar or higher rate over time.
- Consider valuation. While paying a modest premium for a high-quality business can sometimes be justified, overpaying can significantly weigh on long-term returns.
- Determine position sizing. Consider how much exposure you want to a particular stock, how much income you expect it to generate, and other factors to ensure you buy an appropriate amount.
- Focus on the long term. Dividend stocks deliver best when you buy and hold them for many years. Having patience and letting exceptional managers run great companies while you just sit back and own them is how you get the best returns from dividend stocks.
Strategies for investing in dividend stocks
If you’re going to successfully invest in dividend stocks, you need to focus on the quality of the underlying business, the sustainability of its dividend, and diversify your capital across multiple companies rather than solely chasing high yields. Sometimes, a high yield can signal a sell-off of the underlying stock and reflect a company in trouble.
Dividends are generally taxable income, even if reinvested. Qualified dividends are often taxed at lower rates than ordinary income, so consider this when planning your strategy.
If you need current income (e.g., in retirement), you may prioritize stable, higher-yield stocks with financials to support a robust payout. If you are growth-oriented with a long time horizon, focus on companies with lower initial yields but strong dividend growth rates.
Dividend stocks versus dividend funds
Dividend stocks and dividend funds are both popular ways to generate income and potentially grow your investments.
- Dividend funds, such as mutual funds and exchange-traded funds (ETFs), invest in a portfolio of multiple dividend stocks.
- Dividend funds can offer diversification and professional oversight by investment managers who carefully select the underlying stocks.
- With a dividend fund, it's important to pay attention to the expense ratio to determine how much of your investment goes toward fees.
Both types of investments can offer advantageous returns for a long-term investor with a well-diversified portfolio and a durable time horizon.
Related investing topics
Best sectors for dividend investing
Dividend investors often prefer to focus on companies in a range of sectors with stable cash flows and predictable earnings. The best market sectors can offer different advantages, from high yields to steady dividend growth.
However, the right mix really does depend on your investment goals. The utilities, energy, healthcare, consumer goods, and financial sectors contain some of the top dividend-paying companies to consider.
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