Dividend investing provides investors with long-term stable cash flow. The magic of compounding can accelerate your returns when you reinvest your dividend income. Dividend payments have accounted for about 40% of the S&P 500’s total returns over the last century.
The best dividend stocks are good inflation hedges because they provide appreciation and capital gains to offset rising costs. From 1991 to 2015, dividend-paying stocks returned more than twice as much as non-dividend-paying stocks.
Here’s the thing: Not all dividend stocks are created equal. For example, a good dividend can’t make up for an underperforming stock. Likewise, high dividend yields can be a trap, masking inconsistent payouts, poor performance, or minimal growth prospects.
To help you find solid dividend candidates, we’ve identified the 10 best dividend stocks in the U.S. stock market today. These companies have increased annual dividend payments for at least 10 years, yielded attractive yields, and achieved long-term price stability.
Best Dividend Stocks of July 2022
- First American Corp. (FAF)
- Packaging Corp of America (PKG)
- JPMorgan Chase & Co. (JPM)
- Extra Space Storage Inc. (EXR)
- BlackRock, Inc. (BLK)
- Texas Instruments Incorporated (TXN)
- Lockheed Martin Corp. (LMT)
- Home Depot Inc. (HD)
- Allstate Corp. (ALL)
- Union Pacific Corp. (UNP)
Method
- Our pick list of the best dividend stocks is based on nine key metrics. To be listed, each stock must demonstrate:
- Long-term dividend increases. Companies must increase their dividends for at least 10 consecutive years.
- Decent annual dividend growth. Annual dividend amounts have increased by at least 5% on average over the past five years.
- Sustainable profitable growth. Over the past five years, earnings per share have grown at an average annual rate of more than 8%.
- There are no unprofitable years. Results must have been positive for at least the past six years.
- The current dividend yield increases. The current dividend yield must be at least 1%.
- Decent total shareholder return. Return to shareholders must be at least 1%. Returns to shareholders include dividends and share buybacks or issuances.
- Outperformed the S&P 500. The stock must outperform the S&P 500 by at least 1% annually over the past 10 years.
- The stock price is stable. Over the past ten years, the maximum price drop allowed is 51%. This limit helps exclude volatile stocks.
- Basic threshold. Companies must be listed on a U.S. stock exchange, have a share price of at least $5, and have an average daily volume of more than 500,000 shares.
At the time of writing, there are only 25 U.S. stocks that meet all of the above criteria. This listing has selected the top 10 dividend yields.
Remember, dividends are great, but they’re not the only factor to consider when buying stocks. Ideally, dividend stocks are financially strong and growing — consistent stability and growth indicates that a company’s dividend is sustainable over the long term and may increase regularly.
What are dividend stocks?
Dividend stocks pay shareholders in cash and stock on a regular basis. Income investors who want cash flow buy dividend stocks, although the best dividend stocks offer good long-term value appreciation in addition to earnings.
Here are the key concepts you need to know when evaluating the best dividend stocks:
- Payout ratio. This is a percentage that represents a stock’s annual dividend amount divided by its annual earnings per share. The payout ratio rises and falls as a company’s earnings and dividend yield change. A relatively low payout ratio of 60% or less indicates a company’s dividend is sustainable.
- Dividend yield. This is another percentage that represents a stock’s annual dividend amount divided by its current per-share price. Dividend yields give investors an idea of how much a stock pays in annual dividends relative to its price.
- Sustainable dividend increases. While dividend payout ratios and dividend yields can provide insight into a stock’s current dividend, it’s also important to find stocks that have consistently increased their dividend over time.
- Earnings per share and sales have grown steadily. The dividend is only as healthy as the company’s underlying business. Look for dividend stocks that deliver steady and growing earnings and sales.
- Lasting competitive advantage. Undoubtedly, the companies that held the best dividends the longest also gained a lasting competitive advantage. Whether it’s because of technology, barriers to entry, high switching costs, or a strong brand, the best dividend stocks have them all.
Disclaimer: The content of this website should not be construed as investment advice. Investing is speculative. When investing, your capital is at risk.
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