With the stock market taking turns into a bearish outlook, more investors are looking at dividend stocks as a way to weather the storm. Dividend stocks are those companies that pay a portion of profits back to shareholders, and they’re popular in a bear market because they represent a guaranteed profit. The company’s board of directors decides what percentage to offer as a dividend, and it can be paid out in cash or stock. Dividends are paid quarterly, and a company can stop offering a dividend at any point in time.
Cash vs. Stock Dividends
An investor’s dividend payment is dependent upon how much of a company’s stock they own. Dividends are offered on a per stock basis. That means purchasing 1,000 shares in a company offering a dividend of $5 per share would net you $5,000 quarterly. A company that is low on cash flow might opt to offer dividends in the form of more stock. Stock dividends aren’t taxable until it is sold, while cash dividends are taxable immediately. Some companies go this route to give investors flexibility over when they pay those taxes. Investors tend to prefer stock dividends over cash dividends because of the difference in taxability. Companies distribute stock dividends based on the amount an investor already holds. For example, if an investor holds 1,000 shares of a company and the company issues a stock dividend of 10%, then you would receive 100 shares of stock.
Why Do Companies Pay Dividends, and Why Don’t They All?
Companies with high net profit can offer dividends to their investors without affecting their bottom line. Investors appreciate extra income that dividends provide and a high dividend price can attract new investors. A company that is paying dividends is considered to be thriving financially and is probably a sound investment for long-term growth. Companies that are still in the process of growing and don’t have a lot of liquid assets rarely pay dividends. These companies prefer to reinvest any profit in the company itself, rather than sharing with investors beyond a rise in stock price. Some established companies prefer to skip dividend payments for tax reasons, too. Dividends are taxed as regular income, which means those in the higher tax bracket pay more. Companies that reinvest in themselves and increase their value can lower their investor’s tax burden since shares sold after being held for a year or longer are only subject to the capital gains tax, which is 15% for the 30% tax bracket.
Best Dividend Stocks on StockTwits
StockTwits offers a discover list for finding the Highest Dividend Rate Stocks available today. It’s a good look at the stocks that pay well and continuously over several quarters.
AT&T’s estimated dividend yield is 6.2%, making it one of the best dividend stocks to buy. It has paid a higher dividend value for 34 consecutive years. With dramatic business changes coming from its merger with Time Warner and acquiring AT&T, the company is now a true media conglomerate rather than just a communications provider. AT&T has more than 170 million customers across its mobile, internet, and TV businesses. According to a recent financial report, AT&T’s management team expects the company’s free cash flow payout to be near 60% this year.
- Tanger Factory Outlet Centers
This real estate company leases store locations to 44 outlet centers based in the United States and Canada. High-end retailers like Michael Kors, Ralph Lauren, and Tapestry are part of the company’s clientele, but no single client makes up more than 7% of its rent collections. While it’s strange to find a retail stock at number two on this list, most of the outlet stores offer discounted merchandise that attracts consumers. These items often have been discontinued and cannot be found readily available online, where most shopping is done these days. Tanger’s occupancy rate has been 95% or above since the company launched its IPO in 1993. Its dividend yield is 5.9%, and it has delivered a higher rate every year since 1993.
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With a dividend yield of 5.7%, Enbridge rounds out the top three companies that offer great dividends. This energy company is estimated to meet its growth targets through 2020 and will likely maintain its distributable cash flow ratio of 1.4. The company owns transportation and storage assets for the oil and gas industry across the United States. Advances in shale drilling have led to higher demand for Enbridge’s pipeline-creating experience.
As the aging Baby Boomer populace comes to terms with advanced aging care, facilities designed to provide health care to this population is exploding. Welltower has over 1,200 health-care properties including hospitals, nursing facilities, and senior housing. The company’s dividend rate is 5.5%, and analysts estimate that the 80 and older crowd will double over the next 10 years. Welltower is well-suited to capitalize on the trend of providing medical care for an aging population. The business is managed conservatively and collects 90% of its rent from private pay, rather than relying on Medicare and Medicaid.
- Southern Company
Utility companies will always see high demand no matter the market outlook, which is why many of them can provide dividends to their investors. Southern Company is no different with its 5.2% dividend yield. The company has been paying dividend payments uninterrupted since 1948, which is truly impressive. The company serves more than nine million customers across the southeast and into Illinois. The company is managed conservatively after a few recent bumps in the road due to costs associated with coal and nuclear projects. Southern Company sold off two smaller utility subsidiaries to strengthen its balance sheet and help boost its investment-grade credit rating. The company is targeting 4% to 6% growth annually.
- Dominion Energy
Get used to seeing lots of energy and utility companies in the high dividend’s category. Dominion Energy has a dividend yield of 4.7% and targets 10% dividend growth into 2020. For that reason, the stock is considered one of the best opportunities for dividend-based growth. Dominion Energy has paid out uninterrupted dividends for more than 80 years, but that doesn’t mean the company hasn’t experienced changes in its business model. The company has an investment-grade credit rating.
- Realty Income
Realty Income is unique because it pays dividends monthly instead of quarterly. That makes it a hot item for retired investors. It has paid uninterrupted dividends for more than 48 years, giving it an impressive track record for dividend payments. Realty Income owns 5,400 commercial real estate properties that lease to 250 different tenants including FedEx, Dollar General, and Walgreens. The real estate company has acquired clientele across a variety of industries. Realty Income is a good pick because 51% of its income is derived from tenants who have investment grade credit ratings themselves. The company has reported positive growth earnings for 21 out of the past 22 years. Since Realty Income focuses on providing real estate for low-price tenants, it’s unlikely it will be impacted by the shrinking of the brick and mortar retail sector.
Verizon has stayed focused on its core wireless business outside of a few acquisitions like AOL and Yahoo. The company’s dividend yield is only 4.5%, but it is a market leader in postpaid communications. Verizon also has a massive subscriber base thanks to early mergers with several of the “baby bells” that split off during the AT&T breakup in 1984. Verizon has paid its investors’ uninterrupted dividends for more than 30 years, though its growth rate has never been as impressive as some of the other companies on this list. Verizon’s focus on its core business has led it to be a market leader in the communications department, though growth is not as high as AT&T’s projected forecast.
- National Retail Properties
Another retail real estate property company, National Retail Properties has a dividend rate of 4.5%. The company has paid out uninterrupted dividend rates for 29 years. Only two other companies (higher on this list) have a better track record with dividend payments in the real estate sector. NRP owns more than 2,800 properties that are rented to 400 retail tenants in more than 30 different industries. No single industry represents more than 18% of NRP’s total revenue, making it a safe bet for weathering any bearish storm. Most properties are convenience stores and restaurants.
- Exxon Mobil
Exxon Mobile is one of the most reliable dividend companies in American history. With a dividend yield of 4.5%, the company has been offering uninterrupted dividends for well over 100 years. In addition, the company has also raised its dividend payout rate every year since 1983. That’s an impressive track record. While its yield percentage isn’t as high as AT&T or Southern Company, it’s hard to argue with that dividend track record. The price of oil has a massive impact on the value of energy companies, but Exxon has been able to weather low prices thanks to its investment in upstream production and chemical production. Despite the lower dividend yield, Exxon remains one of the best companies to invest in for dividends simply due to that uninterrupted track record. Barely any other company on this list can touch that level of dividend return and for a good reason.
Should I Invest in Dividend Stocks & Which Should I Pick?
Analysts have backtested stock data to look at whether those companies that traditionally pay dividends each quarter offer better growth than companies that offer none. The unsurprising answer is that they do. In fact, in data tested from 1972 through 2016, dividend-paying companies were the best investment over that 44-year window. Companies that offered no dividend payments or even cut them were found to have decreased the value of the initial theoretical $100 investment. Interestingly enough, dividend growers from this analysis had a lack of price volatility associated with them, too.
The ten-stock analysis above gives you a look at the current best performing dividend stocks. If you’d rather not get into the nitty-gritty details of each individual company, dividend ETFs are available and might be for you. Dividend ETFs include hundreds of dividend-paying stocks that have been lumped together into one fund to be traded. It offers instant diversification of your portfolio and a higher chance at getting the expected dividend payments. Even if a few companies within the ETF cut their payments for a quarter, you still have hundreds of other companies paying out. Look at the five-year return rate for these ETFs, here you want a higher number. The expense ratio should be low. If you like what you see, buy the ETF and let the dividend payments roll in.
For investors who prefer to pick individual companies, you should do your due diligence before investing. Analyze the company to determine how well it is positioned competitively within its industry. Check the balance sheet to make sure everything look set for growth. Understand the management team and their previous work to get a sense of direction for the company. Always remember that the number one factor for buying a dividend stock is ensuring that stock will continue to pay a dividend. Most of the companies featured on this list have a long, uninterrupted history of paying out on a quarterly basis. That should definitely be one of your primary considerations when choosing to invest in a dividend-offering company.
A company cutting dividends can impact shareholders in two ways. Once the company announced the dividend cut, a sell-off will happen which causes the stock price to drop. If the stock drops below where you entered your position, you’ve lost both your dividend and any profit from holding the stock. Dividend stocks can be an excellent way to earn additional money on trades you’re already considering, but they should be treated differently from standard investments. Payout ratios can help determine if a dividend stock is worth investing in, but the ten companies listed here are a good starting place for anyone new to dividend investing.