If you’re a risk-averse investor, there are many dividend stocks to buy and hold that will amplify your returns with minimal downside risk. Many inelastic businesses generate substantial cash and have high payout ratios. Even in the worst-case scenario, cash-rich companies will remain stable and pay dividends while retaining modest upside potential. These stocks are perfect for a retirement portfolio or as defensive securities you can hold during market instability.
However, the current climate offers a unique opportunity. Many growth-oriented businesses are changing hands at a compelling value, sometimes even less than defensive stocks. Including some of these growth picks is a good idea, as they will provide proportionately higher gains when the market enters a sustained uptrend. Therefore, this article will mainly focus on a mix of defensive and growth-oriented dividend stocks that will provide more total returns over the long run.
The following seven dividend stocks to buy and hold should help you craft an ideal portfolio:
Source: FotograFFF / Shutterstock
One of the top dividend stocks to buy and hold is PepsiCo(NASDAQ:PEP), a well-known dividend king with a diversified business model. It is among the safest stocks to buy and provides a stable upside. Its five-year gain of 60.5% closely resembles theNasdaqand is 12% more than theS&P 500. That’s nothing unusual, but PEP’s remarkable aspect is its very little downside risk. The stock was among the first to recover during the coronavirus recession, and the late-2021 selloffs had minimal impact on its stock price. Essentially, PEP investors are mirroring gains similar to the Nasdaq but without much downside risk.
What really sweetens the deal here is its 2.61% yield and accelerating growth after the coronavirus pandemic. The company alsogrew at a double-digit clipin Q4.Moreover, PepsiCo has much room to continue increasing its dividends as it had a $5.1 billion cash buffer at the end of last year.
The selloffs in the last two years have turnedIntel(NASDAQ:INTC) into a value stock with very little downside. While growth stocks had a strong rebound in Jan., INTC was the only exception, and it now seems to be bottoming out.The company has a hard time catching up with its 2021 figures, and strong competition fromAdvanced Micro Devices(NASDAQ:AMD) is causing sales to take a hit. But once monetary policy allows more discretionary spending, it will cause a strong resurgence in demand for Intel products.
Moreover, Intel isn’t a pure-play chip company anymore. It has high-growth segments such as data and artificial intelligence that can drive growth in the future. Once margins improve and profits rebound, we will likely see INTC making a comeback. In addition, the 5.6% dividend yield makes the stock a must-buy at its current trough. It’s no dividend king, but I believe its upside potential makes up for the lack of historical increases.
BlackRock’s(NYSE:BLK) ever-expanding asset value and diversification make it a compelling pick regardless of short-term headwinds. The company has$671 billion of liquidityacross multiple currencies and has $8.6 trillion worth of assets under management. Simply put, it’s a colossal company that’s too big to fail.BlackRock has a tech-centric portfolio with substantial exposure toApple(NASDAQ:AAPL),Amazon(NASDAQ:AMZN), andMicrosoft(NASDAQ:MSFT). These companies won’t disappoint in the long run, and with BlackRock’s 2.79% yield; investors can bet on significant total returns when they cash out.
Of course, I would not recommend BLK stock if you entirely wish to avoid short-term losses. But its current valuation suggests that the trough won’t extend much further from here.The company has a streak of 14 consecutive years of dividend increases.
Lockheed Martin (LMT)
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Lockheed Martin(NYSE:LMT) is among the top dividend stocks to buy and hold for investors interested in the defense industry. The company has a strong history of delivering impressive returns to its shareholders, with a 10-yearaverage return of 21.7%without its dividends factored in. It currently yields 2.52%.
In addition to strong financial performance, Lockheed Martin is also a critical player in the defense and aerospace industry. Its advanced fighter jets and other aerospace hardware are essential to the security of the U.S. and Europe, and the company is well-positioned to benefit from the increased defense spending by NATO and other allies, including Japan and Australia.As my colleague, Will Ashworthpointed out, the company’s $150 billion backlog will also take several years to fulfill and generate lots of cash. The surge in demand has made the defense industry highly inelastic, putting LMT on solid footing for the years to come.
NextEra Energy (NEE)
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NextEra Energy(NYSE:NEE) is positioned to be one of the biggest beneficiaries of rising government investment in renewable energy and construction. With geopolitical tensions rising and climate change worries accelerating, now is the best time to diversify American energy sources and bring emission-free electricity to the grid.The company’s2022 earnings reportdemonstrated a 23% growth in revenue, and it provided guidance about dividends increasing by 10% over the next few years. It currently yields a modest 2.23% with a payout ratio of 81%.
Stock analyst Gurufocus.com also notes NEE stock as “modestly undervalued” with a net margin of 19.8%, ranked better than 85.26% of its peers. The company has increased its dividends for 30 years consecutively.
With massive amounts of spending going into construction projects, Caterpillar (NYSE:CAT), a global manufacturer of construction and mining equipment, is well positioned to benefit from the$1 trillion infrastructure bill, which allocates funds for investments in transportation, broadband, and water infrastructure, among others. Caterpillar’s equipment will be in high demand as the government ramps up its investment in infrastructure projects.
Caterpillar’s financials have been shining recently, and the company’s earnings have consistently exceeded analysts’ estimates. Its dividend yield of around 1.94% and a payout ratio of 37% make it an attractive option for income-seeking investors.
In addition, the company’snet margin of 11.28% is among the best in the construction industry, ranked 87.87% better than its peers. And Caterpillar’s return on equity of 41.5% is ranked better than 93.3% of construction companies. As the construction industry scales, this edge in the margin will make it one of the most profitable companies in its space.The company has increased its dividends for 30 years consecutively.
Union Pacific (UNP)
Union Pacific (NYSE:UNP) is a freight giant that will also bank on the infrastructure catalyst and keep growing. This railway business has one of the most robust fundamentals and is a cash-generating machine with significant share buybacks and a sustained uptrend. Last year, it paid $3.16 billion in dividends and targets to keep its payout ratio at 45% of its earnings.The company’s 28.13% net margin is especially robust and ranked better than 87% of companies in the transportation industry.
Union Pacific is necessary for the U.S. economy as over a third of American exports use freight transport. Being the second-largest freight pure-play company, it is important for the government to provide subsidies and pave the way for a more efficient rail network. With that in mind, I see more catalysts like the infrastructure bill positively impacting the company, which is why the current value is an entry point investors shouldn’t ignore. UNP stock offers a lot more upside potential, which combined with its 2.58% yield should lead to substantial long-term total returns. The company has increased its dividends for 16 years consecutively.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is also an active contributor to a variety of finance and crypto-related websites. He has a strong background in economics and finance and is a self taught investor. You can follow him on LinkedIn.
What is the best paying dividend stock? ›
- T. AT&T. Jan 25, 2023. ...
- XRX. Xerox. Jan 26, 2023. ...
- IBM. International Business Machines. Jan 25, 2023. ...
- CVX. Chevron. Jan 27, 2023. ...
- EOG. EOG Resources. Feb 23, 2023. ...
- ET. Energy Transfer. Feb 15, 2023. ...
- HESM. Hess Midstream Partners. Jan 25, 2023. 2022 (Q4) ...
- ARCC. Ares Capital. Feb 07, 2023. 2022 (Q4)
No matter what stage of life you're in, dividend-paying stocks can be a great way to supplement your income and improve your portfolio's growth potential. Just be sure you research the companies' overall financial health, not just their dividend rates, before investing.How many dividend stocks should I own? ›
We believe a dividend investor should own at least 20 stocks. However, we recommend diversifying to ETFs and mutual funds as well. Don't try to be smart when you are saving for your retirement. Most private investors fail to beat the market averages.How long must you hold a stock to get dividends? ›
Briefly, in order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record and still own the shares at the close of trading one business day before the ex-date.What is the safest dividend stock to buy? ›
- Verizon Communications VZ.
- Cisco Systems CSCO.
- Comcast CMCSA.
- Medtronic MDT.
- Gilead Sciences GILD.
- Blackstone BX.
- Public Service Enterprise PEG.
- International Flavors & Fragrances IFF.
To generate $1,000 per month in dividends, you'll need to build a portfolio of stocks that will produce at least $12,000 in dividends on an annual basis. Using an average dividend yield of 3% per year, you'll need a portfolio of $400,000 to generate that net income ($400,000 X 3% = $12,000).What are the 3 dividend stocks to buy and hold forever? ›
Prudential Financial Inc. Coca-Cola Co. AbbVie Inc. AT&T Inc.What stocks to buy for next 10 years? ›
- Alphabet Inc. (GOOGL) ...
- NVIDIA Corporation (NVDA) ...
- International Business Machines Corporation (IBM) ...
- Microsoft Corporation (MSFT) ...
- Amazon.com, Inc. ...
- Advanced Micro Devices, Inc. ...
- Intel Corporation (INTC) ...
- Baidu, Inc.
Coca-Cola (KO (opens in new tab), $63.57) is one of Berkshire's oldest holdings and one of the best Warren Buffett dividend stocks. The Oracle of Omaha first started buying the beverage giant's stock in 1988, building his stake to 23.4 million shares by the end of 1989 – a position valued at roughly $1.8 billion.What is the 4% dividend rule? ›
One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.
Can you make a living off stock dividends? ›
Nevertheless, it is still better to have passive income streams than withdraw investments for your retirement expenses. It makes it possible to live off dividends for a long time. You will have an opportunity to maximize the potential value of your investments.How do you build wealth with dividends? ›
- Diversify your holdings of good stocks. ...
- Diversify your weighting to include five to seven industries. ...
- Choose financial stability over growth. ...
- Find companies with modest payout ratios. ...
- Find companies with a long history of raising their dividends. ...
- Reinvest the dividends.
- Declaration Date. The declaration date is the date on which the board of directors announces and approves the payment of a dividend. ...
- Ex-Dividend Date. The ex-dividend date is the first day that a stock trades without a dividend. ...
- Record Date. ...
- Payment Date.
You must hold the shares or interest for 45 days (90 days for certain preference shares) excluding the day of disposal. For each of these days you must have 30% or more of the ordinary financial risks of loss and opportunities for gain from owning the shares or interest.Should I invest in dividend stocks for long term? ›
Yes, dividend stocks may be the right fit for your portfolio if you are looking for an additional source of income. In addition to this, dividend stocks, like all stocks, also come with the potential of value appreciation over the long term.What stocks will boom in 2023? ›
- HAL+0.14 (+0.39%)
- ENPH+0.39 (+0.19%)
- NFLX+0.48 (+0.14%)
- SWK+0.50 (+0.59%)
- VFC-0.11 (-0.44%)
- Easterly Government Properties. Easterly Government Properties (NYSE: DEA) just might have the most dependable cash flow you'll find anywhere. ...
- Johnson & Johnson. Investors have turned to Johnson & Johnson (NYSE: JNJ) as a safe haven for a long time. ...
2023 Dividend Tax Rate. Earning dividends is a great incentive for investing in certain companies and mutual funds. Dividends are particularly useful for people who want to supplement their retirement income. However, like all income, you'll need to pay taxes on any dividends you receive.How much dividend does Coke pay? ›
Historical dividend payout and yield for CocaCola (KO) since 1964. The current TTM dividend payout for CocaCola (KO) as of February 17, 2023 is $1.76. The current dividend yield for CocaCola as of February 17, 2023 is 2.93%.What is the best passive income? ›
Dividends are paid per share of stock, so the more shares you own, the higher your payout. Opportunity: Since the income from the stocks isn't related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.
What stocks does Warren Buffett own? ›
Besides Apple, those holdings include Bank of America (BAC) and Kraft Heinz (KHC), as well as Coca-Cola (KO) and American Express (AXP). Buffett has owned KO stock and AXP stock since Q1 2001, for example.Which is the best stock to hold for long term? ›
- 1) Reliance Industries. ...
- 2) Tata Consultancy Services (TCS) ...
- 3) Infosys. ...
- 4) HDFC Bank. ...
- 5) Hindustan Unilever.
Total dividend is 248.25 cents. Average dividend is 11.28 cents. Maximum dividend is 56 cents while minimum dividend is 2 cents.Which stock will grow in next 5 years? ›
|3.||R Systems Intl.||253.95|
- 5G Security. ...
- Virtual Reality Gaming. ...
- Virtualization Software. ...
- Digital Education. ...
- Healthcare Predictive Analytics. ...
- Cannabis Edibles. ...
- E-commerce Logistics. ...
- Solar Energy Solutions.
- The Internet of Things. ...
- 3-D Printing. ...
- Finding Trust in the Sharing Economy. ...
- Wearables in Health Care. ...
- Virtual Reality. ...
- Connected Schooling. ...
- Digitized Hospitality. ...
- 5 Things to Do After You Publish Your Book.
The company has paid out $1.08 billion in dividends over the last year, and its roughly $2 billion in free cash flow for 2022 means investors shouldn't have to worry about receiving their checks.Is it better to reinvest dividends or cash? ›
A good dividend reinvestment plan (also called DRIP) is vastly superior to taking a dividend payout as cash for most investors. It provides great levels of compound interest, which is the key to long term investing success. In fact, there's much evidence that DRIP investing can result in serious returns.What is the downside of high dividend stocks? ›
Some experts criticize dividend producing stocks because dividend payments are taxed twice. Taxes are paid by the corporation and you, the investor, must pay personal income tax on dividends earned over the course of a given tax year.Is 4 million enough to retire at 65? ›
Is $4 million enough to retire at 65? Yes, you can retire at 65 with four million dollars. At age 65, an annuity will provide a guaranteed level income of $269,200 annually starting immediately for the rest of the insured's lifetime.
How much money needed to retire at age 65? ›
Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary.What is the 60 day dividend rule? ›
To qualify for the lower tax rates, the taxpayer must now hold the dividend-paying stock for at least 61 days during the 121-day period (instead of the current 120-day period) beginning 60 days before the ex-dividend date – the first date that the buyer will not be entitled to receive that dividend.Do people get rich off dividends? ›
Yes, dividends can make you rich.
However, it requires regular investment in high-quality dividend stocks, low investment costs, a tax minimization strategy, and a great deal of time in the market.
One way to avoid paying capital gains taxes is to divert your dividends. Instead of taking your dividends out as income to yourself, you could direct them to pay into the money market portion of your investment account. Then, you could use the cash in your money market account to purchase underperforming positions.Can you make a million from dividends? ›
Concluding Thoughts About Million Dollar Dividend Portfolios
Building a $1 million stock portfolio that pays dividends is entirely possible. However, it takes time, discipline, and consistency to become dividend income rich. And be a dividend millionaire. Work at it hard enough, smart enough, and long enough.
- Invest New Cash In Dividend-Paying Stocks To Increase Dividend Income. ...
- Receive Dividend Increases To Increase Dividend Income. ...
- Reinvest Your Dividends To Increase Dividend Income. ...
- Swap Lower-Yielding Stocks For Those With Higher Dividend Yields To Increase Dividend Income. ...
- Practice Dollar-Cost Averaging.
An aggressive portfolio seeks outsized gains and accepts the outsized risks that go with them. 1 Stocks for this kind of portfolio typically have a high beta, or sensitivity to the overall market. High beta stocks experience greater fluctuations in price than the overall market.What is the next dividend date for Verizon? ›
Verizon's next quarterly payment date is on Jan 31, 2023, when Verizon shareholders who owned VZ shares before Jan 08, 2023 received a dividend payment of $0.65 per share. Add VZ to your watchlist to be reminded of VZ's next dividend payment.How much is the next Exxon dividend? ›
Exxon Mobil's upcoming ex-dividend date is on Feb 12, 2023. Exxon Mobil shareholders who own XOM stock before this date will receive Exxon Mobil's next dividend payment of $0.91 per share on Mar 09, 2023. Add XOM to your watchlist to be reminded before Exxon Mobil's ex-dividend date.When should I start dividend investing? ›
The best time to buy dividend-paying stocks is really anytime you find investments that are in a position to survive a period of adversity and go on to thrive all over again when conditions improve.
When should I stop reinvesting dividends? ›
There are times when it makes better sense to take the cash instead of reinvesting dividends. These include when you are at or close to retirement and you need the money; when the stock or fund isn't performing well; when you want to diversify your portfolio; and when reinvesting unbalances your portfolio.How do I make 5k a month in dividends? ›
In order to make $5000 a month in dividends, you'll need to invest approximately $2,000,000 in dividend stocks. The exact amount will depend on the dividend yields for the stocks you buy for your portfolio. Take a closer look at your budget and decide how much money you can set aside each month to grow your portfolio.How much dividends can you live off? ›
You can expect an investment portfolio to pay out dividends roughly between 1% to 6% of its value each year. At those dividend yields, you'd need a portfolio value between $100,000 and $600,000 to make $500 per month in dividends.What is the highest dividend yield stock? ›
|High-yield dividend stock||Ticker||Dividend yield|
|Medical Properties Trust||(NYSE:MPW)||9.76%|
|Procter & Gamble||(NYSE:PG)||2.88%|
The Growth And Income Investor
They shoot to have about 50% of their stock portfolio allocated to dividend stocks. The other 50% is focused on non-dividend paying growth stocks. Of course, there is no magic to the 50% allocation. It can be altered in one direction or the other.
Some experts criticize dividend producing stocks because dividend payments are taxed twice. Taxes are paid by the corporation and you, the investor, must pay personal income tax on dividends earned over the course of a given tax year.Is it good to buy stock before dividend? ›
If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.Should I invest in dividend stocks as a beginner? ›
One of the first things most new investors learn is that dividend stocks are a wise option. Generally thought of as a safer option than growth stocks—or other stocks that don't pay a dividend—dividend stocks occupy a few spots in even the most novice investors' portfolios.Do dividend stocks lose value? ›
After the declaration of a stock dividend, the stock's price often increases. However, because a stock dividend increases the number of shares outstanding while the value of the company remains stable, it dilutes the book value per common share, and the stock price is reduced accordingly.Why do people not invest in dividend stocks? ›
Dividend income is taxable unless you hold your dividend stocks in a tax-advantaged account. Dividend stocks can produce competitive total returns, but they can fall short on share-price appreciation alone. Dividend stocks prove their worth over time, so they're often not suitable for shorter-term investment timelines.
Can you live off of dividend stocks? ›
Is it possible to live off dividends? Yes, some people are able to cover their expenses with cash flow from dividend income. It's not easy, and it takes a long-term focus, but it's definitely possible.Why not just invest in high dividend stocks? ›
The biggest risk in stocks with high dividend yield
That's because a high yield may signal danger rather than a bargain if it reflects widespread investor skepticism that a company can keep paying its current dividend.
2) Dividend Growth Stocks Have Outperformed the Stock Market over Time. While it may seem counterintuitive, companies that consistently pay and grow their dividends have historically outperformed non-dividend stocks, further increasing the appeal of being a dividend growth investor.When should I invest in high dividend stocks? ›
As well, portfolios should be diversified across most if not all of the five main economic sectors. The best time to buy dividend-paying stocks is really anytime you find investments that are in a position to survive a period of adversity and go on to thrive all over again when conditions improve.Are dividend stocks good during inflation? ›
Dividend payers are good investments in inflationary times because they tend to have sustainable and relatively predictable cash flows. These cash flows are the lifeblood of payouts to investors and offer a stream of steady income to support returns—if they can be maintained.Do you pay taxes on dividends? ›
Yes – the IRS considers dividends to be income, so you usually need to pay taxes on them.Can dividends make you rich? ›
Can an investor really get rich from dividends? The short answer is “yes”. With a high savings rate, robust investment returns, and a long enough time horizon, this will lead to surprising wealth in the long run. For many investors who are just starting out, this may seem like an unrealistic pipe dream.What is a good dividend yield for a portfolio? ›
A good dividend yield is high enough to meet your current income needs. But low enough to suggest a company's dividend is not at risk. Dividend yields that meet these requirements will typically fall between 2% and 5%. Since a stock with a yield of less than 2% may not provide the investor with enough current income.What is the best growth stock? ›
|Company Name & Symbol||Revenue Growth (Last Qtr vs. Same Qtr Prior Yr)||Price Performance (1 Yr)|
|e.l.f. Beauty Inc. (ELF)||33.20%||94.69%|
|Axcelis Technology Corp. (ACLS)||29.70%||75.61%|
|UFP Technologies Inc. (UFPT)||91.18%||60.27%|
|Enphase Energy Inc. (ENPH)||80.56%||57.60%|