Here at Morningstar, we believe that the best dividend stocks are more than just those with the highest yields. Rather, we advise investors to select stocks with stable dividends and purchase them at a discount, rather than focusing only on yield.
“It’s imperative to exercise prudence when purchasing dividend-paying stocks and pursuing yield,” says Morningstar Index strategist Dan Lefkovitz. Searching for the market’s highest yielding sectors can frequently lead you into risky sectors and dividend traps, which are businesses with attractive yields but ultimately unsustainable business models. Moving forward, you need to check for dividend durability and reliability. ”.
Editor of Morningstar DividendInvestor David Harrell advises putting an emphasis on businesses whose management teams back their dividend policies and giving preference to businesses with economic moats, or competitive advantages.
Although there is no guarantee of dividends with a moat rating, Harrell notes that there are strong correlations between economic moats and dividend durability.
Investors searching for the best dividend stocks may want to add cheap, high-quality dividend stocks to their portfolios in light of the current state of the economy and stock market volatility. After all, when investors can purchase these companies’ stocks at a discount, price risk is minimized and quality companies have the financial stability to continue paying their dividends during uncertain economic times.
Are you looking for investment opportunities that offer a steady stream of income? If so, then high-dividend stocks might be the perfect solution for you. These stocks distribute a portion of their profits to shareholders regularly, providing a passive income source that can supplement your regular income or contribute to your long-term financial goals.
But with countless stocks available, identifying those with the highest dividend yields can be a daunting task This comprehensive guide will delve into the world of high-dividend stocks, providing you with the knowledge and insights you need to make informed investment decisions
Understanding High-Dividend Stocks
Before diving into specific stocks, let’s first understand what defines a high-dividend stock. Generally, stocks with dividend yields exceeding 4% are considered high-yield. However, it’s crucial to remember that a high dividend yield doesn’t automatically equate to a good investment. Several factors need to be considered when evaluating high-dividend stocks.
Dividend Sustainability: A high dividend yield can be enticing, but it’s essential to assess whether the company can sustain such payouts. Companies with a history of consistent dividend payments and strong financial health are more likely to maintain their dividend payouts.
Dividend Growth Potential: While a high current yield is attractive, it’s even better if the dividend has the potential to grow over time. Companies with a track record of increasing their dividends regularly offer the potential for your income stream to grow alongside your investment.
Company Fundamentals: Beyond the dividend itself, it’s crucial to examine the company’s overall financial health and prospects. Analyze factors like revenue growth, profitability, debt levels, and competitive landscape to assess the company’s long-term viability.
Top High-Dividend Stocks in the S&P 500
The S&P 500 index comprises 500 of the largest publicly traded companies in the United States. This index serves as a benchmark for the overall stock market and includes several companies with impressive dividend track records. Here are some of the highest-yielding dividend stocks currently within the S&P 500:
| Stock | Trailing Annual Dividend Yield* |
|---|---|
| AT&T Inc. (T) | 6.3% |
| Verizon Communications Inc. (VZ) | 6.3% |
| Healthpeak Properties Inc. (DOC) | 6.6% |
| Altria Group Inc. (MO) | 8.8% |
AT&T Inc. (T): This telecommunications giant boasts a long history of dividend payments and currently offers a yield of 6.3%. While the company faces challenges in a rapidly evolving industry, its established customer base and diverse revenue streams provide some stability.
Verizon Communications Inc. (VZ): Another telecommunications leader, Verizon, also offers a 6.3% dividend yield. Similar to AT&T, Verizon faces competitive pressures, but its strong brand recognition and reliable network infrastructure contribute to its dividend sustainability.
Healthpeak Properties Inc. (DOC): This real estate investment trust (REIT) specializing in healthcare facilities provides a 6.6% dividend yield. The aging population and increasing demand for healthcare services bode well for the company’s future growth and dividend potential.
Altria Group Inc. (MO): The tobacco giant Altria offers a staggering 8.8% dividend yield. However, investors should be aware of the inherent risks associated with the tobacco industry, including regulatory scrutiny and declining smoking rates.
Beyond the S&P 500: Exploring Other High-Yield Options
While the S&P 500 offers several high-dividend stocks, there are numerous other companies outside this index that also boast impressive dividend yields. Here are a few examples:
Realty Income Corporation (O): This REIT, known as “The Monthly Dividend Company,” has paid out monthly dividends for over 630 consecutive months. Its diversified portfolio of commercial properties and strong track record make it a popular choice for income-seeking investors.
Main Street Capital Corporation (MAIN): This business development company (BDC) focuses on providing financing to middle-market companies. MAIN offers a high dividend yield and a history of dividend increases, making it an attractive option for investors seeking income and growth potential.
AGNC Investment Corp. (AGNC): This mortgage REIT invests in agency mortgage-backed securities. AGNC offers a high dividend yield and benefits from the stability of the mortgage market.
Prospect Capital Corporation (PSEC): Another BDC, Prospect Capital, focuses on providing debt and equity financing to middle-market companies. PSEC offers a high dividend yield and a history of dividend increases, making it an attractive option for income-seeking investors.
Investing in High-Dividend Stocks: A Step-by-Step Guide
Once you’ve identified high-dividend stocks that align with your investment goals and risk tolerance, it’s time to take action. Here’s a step-by-step guide to help you invest in high-dividend stocks:
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Open a brokerage account: If you don’t already have one, open a brokerage account with a reputable online broker. This will allow you to purchase and sell stocks.
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Research and select stocks: Conduct thorough research on the companies you’re considering. Analyze their financial statements, dividend history, and future prospects. Choose stocks that meet your investment criteria and risk tolerance.
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Set a budget: Determine how much you can comfortably invest without jeopardizing your financial stability. Start small and gradually increase your investment over time.
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Place your order: Once you’ve selected your stocks, place your order through your brokerage account. You can choose to buy whole shares or fractional shares, depending on your budget and investment goals.
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Monitor your investments: Regularly monitor your portfolio and the performance of your high-dividend stocks. Stay informed about any company news or market events that could impact your investments.
Important Considerations for High-Dividend Investing
While high-dividend stocks can be an excellent source of passive income, it’s crucial to approach this type of investing with caution. Here are some key considerations to keep in mind:
Dividend Sustainability: As mentioned earlier, a high dividend yield doesn’t guarantee sustainability. Companies can reduce or even eliminate their dividends if their financial health deteriorates. Therefore, it’s essential to assess the company’s ability to maintain its dividend payments.
Tax Implications: Dividends are taxable income, so you’ll need to factor in the tax implications when calculating your overall return. Depending on your tax bracket, a portion of your dividend income may be subject to taxation.
Growth Potential: While income is important, don’t neglect the potential for capital appreciation. Choose stocks with the potential to grow in value over time, providing you with both income and long-term capital gains.
Diversification: As with any investment strategy, diversification is crucial. Don’t concentrate your entire portfolio in high-dividend stocks. Instead, spread your investments across different asset classes and sectors to mitigate risk.
High-dividend stocks can be a valuable addition to your investment portfolio, providing a steady stream of income and the potential for long-term growth. However, it’s essential to approach this type of investing with a thorough understanding of the risks and rewards involved. By carefully researching, selecting, and monitoring your investments, you can harness the power of high-dividend stocks to achieve your financial goals.
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What Is the Morningstar Dividend Yield Focus Index?
The Morningstar Dividend Yield Focus Index tracks the top 25% of high-yielding stocks that meet our screening requirements for quality and financial health. It is a subset of the Morningstar US Market Index, which represents 2097% of equity market capitalization.
How are the stocks chosen for the index? Real estate investment trusts are excluded and only securities with qualified income dividends are included. After that, businesses are evaluated for quality using the Morningstar Uncertainty Rating and Economic Moat. Companies must obtain a Low, Medium, or High Uncertainty Rating in addition to a Moat Rating of Narrow or Wide; those with Very High or Extreme Uncertainty Ratings are not eligible. The index incorporates a distance-to-default measure, a measure of balance-sheet strength that assesses a company’s likelihood of defaulting on its debts by analyzing accounting and market data.
The index’s 75 highest-yielding stocks that make it past the quality filter are included, and each component is weighted based on the total amount of dividends that the business has paid to investors.
7 Dividend Stocks That Pay Me $1,000 Per Month | Do This Now
FAQ
What are the 3 dividend stocks to buy and hold forever?
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Dividend Stock
|
Current Dividend Yield*
|
Analysts’ Implied Upside*
|
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Home Depot Inc. (HD)
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2.5%
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10.5%
|
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Procter & Gamble Co. (PG)
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2.4%
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15.4%
|
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Johnson & Johnson (JNJ)
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3.1%
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25.3%
|
|
Merck & Co. Inc. (MRK)
|
2.4%
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10.6%
|
Is Coca Cola a dividend stock?
What stocks have dividends over 5?
Which stocks have the highest dividend yields?
For example, a real estate investment trust (REIT) is required to pay out up to 90% of its earnings as a dividend. As a result, these stocks have some of the highest dividend yields available. You’ll want to make sure you compare companies that are in similar sectors (financials, consumer durables, healthcare, etc.).
Which stocks pay the highest dividends in the S&P 500?
A longtime leader among the highest dividend-paying stocks in the S&P 500 dividend, tobacco giant Altria again tops the list as we finish up the first quarter.
What are the best dividend stocks?
The best dividend stocks are shares of well-established companies that increase their payouts over time. The average dividend yield of some of the top dividend stocks is 12.69%. Investors can also choose to reinvest dividends if they don’t need the stream of income. Here’s more about dividends and how they work.
What is a high dividend yield?
Dividend yields over 4% should be carefully scrutinized; those over 10% tread firmly into risky territory. Among other things, a too-high dividend yield can indicate the payout is unsustainable, or that investors are selling the stock, driving down its share price and increasing the dividend yield as a result.