The Best Dividend Stocks To Invest
In fact, investing dividends can be an excellent way to make profits and increase your investment portfolio over time. If you focus on top-tier companies that regularly raise dividends, a small amount of the initial investment can become a fortune over time.
For long periods of time, dividends can reward a patient investor in full. By selecting the appropriate securities to add to the portfolio, the investor can obtain a near-guaranteed cash inflow. By the way, since 1929, reinvested dividends have accounted for approximately 40% of the total return of the S&P 500.
We understand that deciding to invest in dividend-paying stocks is not an easy decision, leaving only the choice of the best dividend stocks. That’s why we’ve done some research. In this article, we will tell you why criteria should select best dividend stocks, take a look at the UK and US stocks with best dividends, and as a bonus will give you some tips on how to invest in stocks correctly.
How to invest in dividend stocks
Before moving on to the central part of the article, let’s find out how dividends work. Basically, for every share of a dividend you own, you are paid a portion of the company’s profits. You get paid just to own the shares!
For example, suppose you own some Caterpillar shares and the company pays an annualized dividend of $ 4.12 per share. Most companies pay dividends quarterly (four times a year), which means that at the end of each trading quarter, the company will send a check for 1/4 of $ 4.12 (or $ 1.03) for each share it owns. It may not seem like much, but when you have built your portfolio of up to thousands of shares, and using those dividends to buy more shares in the company, you can make a lot of money in recent years. The key is to reinvest those dividends!
What is a dividend yield?
Dividend yield is an essential factor in determining the true value of Dividend Shares. This is especially true when investors seek dividend income from their investments.
It is an easy way to analyze the relative attractiveness of numerous dividend-paying stocks. Indicates the return that investors can expect if they buy this stock. Dividend yield is the relationship between an annual dividend payment of shares and the current share price. Taking into account price fluctuations, dividend yield is changing regularly.
To determine the dividend yield, we must apply the dividend yield formula: we divide the annual dividend by the current stock price.
Imagine that there is a company A with the shares priced at $ 100 and an annualized dividend of $ 4.00, in this case the return would be 4%.
$4.00 / $100 = 0.04.
What are the best dividend stocks?
To buy shares with better dividends, one has to understand the basic criterion that influences dividend yield. Hee are the most important indicators to pay attention to when choosing the best dividend stocks to invest:
Capitalization. An almost win-win situation is the blue chips. These are large companies with stable markets and commercial connections, so they can survive even long periods of crisis.
Dividend yield. The success of the purchase also depends on when the stock is bought. When it is possible to buy cheap with a relatively high dividend activity, this is a perfect time to buy. At the same time, if the share price is excessively high and the dividend yield is low, it is better not to buy the shares at that time. It will make sense to wait or choose the shares of another company with a higher dividend yield.
Payment history. It is a very illustrative indicator. There is not much to discuss here: if a company has successfully pleased its shareholders with the payment of dividends for 10, 15, 20 or more years, we can assume that this idyll is very likely to continue. Therefore, it is better to invest in these stocks.
Dividend payout ratio. Sounds more complicated than it is. The payout ratio is a percentage of the profit that the company allocates to dividend payments. Some might think that the higher it is, the better for the investor. But it’s not. After all, net profit is the company’s main development resource. If, for example, all net profits are paid to investors, and there is no “safety cushion”, there is a risk that the nearest crisis will bury the company. Therefore, if there is a calculation of long-term investment, the optimal indicator of P / E can be considered a figure of up to 70-75%.
Perspective. If you need a large but short-lived profit, you can choose young start-ups that are experiencing an increase in demand for your product or service. For long-term investments, it is better to prefer a company whose products
Profitability (some companies can generate hundreds of percent per year).
It is also worth noting the logic of the US stock market: economic reports are better than analysts ‘ expectations, which is immediately reflected in the stock price.
The second and Third Echelon on the New York Stock Exchange, although they have their peculiarities, but follow the same rules as the American giants: Apple, Microsoft, General Electric and others.
Best dividend stocks in the United States
Today, the US stock market is the largest in the world and the most attractive for investors. American companies like to pay dividends and are proud of it. For example, Coca-Cola has been paying quarterly dividends since 1920 and increasing dividends in each of the last 55 years. But Dover Corp is a record in payments: it has been increasing dividend payments for 63 years.
Therefore, using the criterion we discussed above, here are some of the best dividend stocks to consider.
A list of the best dividend stocks for income
Wells Fargo (NYSE: WFC) is one of the largest U.S. Bank Holdings. The price of its stock is far from its highs, and it has a high dividend yield of around 7%.
Wells Fargo paid investors $ 0.20 per share ten years ago, and in the last decade, the dividend has skyrocketed to $ 1.92, an increase of 860%.
Compound annual growth is 25.4% in ten years, but over the past year, the dividend increased by 17.1%. Obviously, Wells Fargo could be a reasonable investment in the future. Let’s take a look at the performance.
The dividend yield is 7.38%, well above the 10-year average of 2.78%. The following chart shows the dividend yield over the past 10 years.
With the current situation in the world, the company can reduce its dividend to save more money. But it is not clear whether the economy as a whole accompanies the rapid recovery of the stock market.
The long history of the dividend payment bank makes it one of the best dividend stocks, and will likely continue for many decades to come.
Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) is a $ 342 billion business that runs within the consumer sector and maintains a solid credit rating (AAA) of S & P. It owns a portfolio of premium brands that make the products that people always need, specifically health care items. Johnson & Johnson won the title of Aristocrat Dividend as it has increased its dividend for 57 consecutive years.
Investors were paid $ 1.93 per share in 2009, and over the past ten years, the dividend has risen to $ 3.54, an increase of 83%.
Johnson & Johnson
The dividend yield is at 2.93%, and that’s below the 10-year average of 3.5%.
The lower return indicates that investors have bid the share price. They may be anticipating further increases and payments.
Johnson & Johnson
The company had a troubled year in 2019. Due to the various opioid-related claims, Johnson & Johnson’s actions have been volatile. Some investors are concerned that potential lawsuit settlements may affect the company’s reputation. Despite the turbulent year, the Johnson & Johnson dividend could still be a reliable investment.
Caterpillar is the world leader in the large machine building market. The company’s share in the global construction equipment market reaches 20%, which is twice as high as the share of its closest competitor, the Japanese company Kamatsu.
Caterpillar’s dividend yield is stable at 3%. The company allocates 35% of its annual net profit to dividends. In terms of free cash flow, Caterpillar’s performance is excellent, reaching $ 7.45 per share. The current stock price is approximately $ 139. So Caterpillar shares are a good option for a dividend strategy.
Best dividend stocks in the UK
It should be mentioned that the US stock market is not the only place to find the best dividend stocks. Many professional traders opt for trading on the UK stock market as it allows them to take advantage of the world’s most influential companies. As a result, it is not surprising that some of the UK’s best stocks are highly correlated with high-performing companies. These are some UK high dividend stocks that should be taken into account when choosing the best dividend stocks.
The British-Dutch multinational Unilever is one of the world’s leading consumer goods companies, selling some of the best-known food, cleaning and personal care brands. It is a joint venture of Unilever NV (Netherlands) and Unilever PLC (United Kingdom), the parent companies. Popular Unilever brands include Dove, Knorr, Lipton, Magnum, Omo, Cif, Slim-Fast, Iglo, Birds Eye, Becel, Blue Band, Unox, Calve, Conimex and Lever2000.
With such a diverse portfolio of products, the company sells them worldwide, along with developing markets such as Africa, China and India. As a result, Unilever is an influential candidate for one of the best dividend stocks not only in the UK, but in the world.
As already mentioned, Unilever is composed of two entities, and is listed on 3 stock exchanges: Unilever NV on NYSE and Euronext Amsterdam. Unilever NV, in turn, is listed on the London Stock Exchange. While each stock exchange uses different currencies, some traders could use this feature to benefit from the difference in exchange rates in the price of Unilever’s shares.
However, probably the most advantageous property of Unilever is the increase in the price of its shares since 1990. The high dividends paid in the UK rarely coincide with such a stable stock value, but Unilever has both: stock increase and substantial dividends (£1.35 per share). Of course, it will not last forever, but at this time, it is definitely worthy to be added to the list of the best dividend stocks.
GlaxoSmithKline is a UK-based pharmaceutical holding company that operates internationally with major production facilities in the UK, Spain, Ireland, the United States and Singapore, with its shares listed on the Stock Exchange and The New York Stock Exchange under a single GSK ticker. The corporation was formed after the merger of two pharmaceutical companies, Glaxo Wellcome and SmithKline Beecham, whose names are derived from founding entrepreneurs John Smith and Marlon Klein.
GlaxoSmithKline produces a variety of medicines, including vaccines against HIV, tuberculosis and malaria.
Today, GlaxoSmithKline is a large pharmaceutical group with many divisions specializing in various areas of pharmaceutical and medical science.
Investors can easily add GSK to the dividend watch list as the company has a dividend yield of 4.98%. However, the higher dividend yield has a toll. As practice shows, the shares of pharmaceutical companies can be extremely volatile, as billions can be wasted as a result of failed clinical trials.
Best dividend stocks in Europe
If investors focus too much on U.S. companies, they may miss the many attractive investment opportunities offered by markets elsewhere in the world. To help some of them broaden their views, let’s look at three European companies, each offering an attractive combination of dividends with returns above 3% and long-term growth prospects.
BASF SE. It is the largest chemical company in the world with its main production facilities located in Germany. From 2010 to 2019, the company increased its dividend per share from 1.70 euros to 3.20 euros. The average dividend payment is 5-8%.
Volkswagen. German car concern was at the epicenter of the scandal due to the emission of its diesel engines, which caused the collapse of stock quotes. However, this temporary phenomenon is a good opportunity to invest in assets and expect the business to recover with the prospect of higher quotes and higher dividend yield. The most recent dividends were 4-5%.
Publicis Groupe SA. It is the European leader in advertising communication technologies. Pay 3-9% of your dividends consistently, and your shares have long-term growth potential.
Total. It is a European oil and gas company, based in France. To date, large amounts of investments have been made in the development of wind energy, as well as in the opening of new wells for oil production. Despite the crisis period, there was no decrease in dividends (5-6%), which speaks of reputation and guarantees for shareholders. So far, stocks remain undervalued, allowing new investors to consider buying them.
Michelin. It is a world-famous brand of quality car tires. Shareholders of the company receive a stable dividend payment. Recently, due to crisis conditions, it has been reduced from 3.85 to 2 euros per share. However, quotes now allow you to buy shares at an advantageous price.
Novartis. A pharmaceutical company with a subsidiary focused on the production of eye care products. At this time, the business is going through some bad times, and the stock price is around 2014. However, there is the potential for recovery and a new wave of development. It is a good time to invest in assets and receive stable dividends of 3.2% in the future.
How to buy dividend shares
To invest in stocks, investors must have a trading account that provides access to the market itself.
The most popular tools are available for competent analysis and making profitable business decisions.
Three simple rules when buying dividend shares:
Past income does not guarantee the same future income
High dividends for one year do not guarantee its payment in the future. The company’s profits may change, the profit may decrease and the value of dividends paid may decrease accordingly.
It does not always make sense to buy shares of a company that can pay high dividends, but at once, and in the future due to the deterioration of financial performance will not be able to maintain its level.
The main thing is the constant cash flow.
It is best to make a dividend portfolio of those companies that can generate consistently high cash flows and are willing to share them with shareholders. It is also necessary to consider the debt burden of the company.
Make your own decision.
When choosing an object for investment, the investor should not rely solely on advice, even from professional consultants. It is necessary to study the financial statements of companies on their own; it will also help to project dividends.
The stock market is an attractive and advantageous area for investors to ensure a prosperous investment and a stable long-term income. By choosing from the companies described above, you can become a member of the global business and receive dividend payments. In addition, buying shares allows you to diversify your portfolio and distribute financial risks wisely.
Of course, investing in stocks with better dividends is certainly not the main thing for investors. Even a conservative strategy can show higher profits than dividend payments. However, if one chooses between a bank deposit and equity investments, the shares certainly win. A dividend strategy for investing in stocks is a good assistant to a stable profit.
When you invest in stocks, you become the owner, and even if the company loses market value, it is always possible to receive those dividends. And if the stock price skyrockets, the profit will definitely exceed conservative bank deposits many times.