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Some people look for investments that provide steady income, making high-dividend stocks an appealing option. These stocks allow investors to receive regular payments while holding shares in potentially growing companies.
Picking the right high-dividend stock can be challenging but rewarding. Investors often weigh different factors such as company stability and historical dividend performance. This guide explores what dividend stocks are, the top choices for higher returns, and tips for investing in them wisely.
Key Takeaways
- High-dividend stocks offer regular income to investors.
- Choosing the right stocks involves considering company health and dividend history.
- Careful selection can enhance income and provide financial stability.
What Are Stocks That Pay Dividends?
Dividend stocks are shares in companies that share a portion of their earnings with investors regularly. These payments can happen yearly, twice a year, four times a year, or even monthly. Some of the top ones have an average yield of 12.69%.
These stocks often come from well-known businesses that try to grow their payouts over time. They are known for being reliable, which makes them popular for people looking for safer investments.
Many decide to reinvest the money from dividends instead of using it as income. This can help their investment grow even more over time. Because these companies are usually steady, owning such stocks might add a bit of security to an investment portfolio.
20 Stocks with High Dividends
Some companies in the U.S. offer high dividends, appealing to investors who want good returns. These include firms listed on big stock indexes like the S&P 500 or Russell 2000. This list consists of 20 big dividend payers, ranked by their annual dividend yield. Other factors, like growth in dividends over five years and consistent payouts, are also considered here.
Below is a snapshot of these dividend champions:
| Company Name | Dividend Yield |
|---|---|
| International Seaways Inc (INSW) | 11.10% |
| Pennymac Mortgage Investment Trust (PMT) | 11.08% |
| Franklin BSP Realty Trust Inc. (FBRT) | 10.45% |
| Buckle, Inc. (BKE) | 10.13% |
| Seven Hills Realty Trust (SEVN) | 10.11% |
| AG Mortgage Investment Trust Inc (MITT) | 9.50% |
| CVR Energy Inc (CVI) | 8.85% |
| Altria Group Inc. (MO) | 8.05% |
| Insteel Industries, Inc. (IIIN) | 8.01% |
| Eagle Bancorp Inc (MD) (EGBN) | 7.71% |
| Alexander’s Inc. (ALX) | 7.39% |
| Artisan Partners Asset Management Inc (APAM) | 7.35% |
| Movado Group, Inc. (MOV) | 7.06% |
| Dine Brands Global Inc (DIN) | 6.92% |
| Granite Ridge Resources Inc (GRNT) | 6.84% |
These stocks show strong total returns and stable payouts. They attract investors aiming for significant income from their investments. Most of these companies have consistent dividend payment histories, offering more confidence to shareholders interested in reliable income streams.
Investing for Income: Dividend Stocks Versus Dividend Funds
When it comes to earning income through investments, people often consider dividend stocks and dividend funds. These are two popular strategies for those looking to receive a steady flow of income from their investments.
Dividend funds include options like index funds and exchange-traded funds (ETFs) that focus on stocks paying dividends. Investors get a convenient package with these funds, gaining access to a broad selection of dividend stocks with just one purchase.
Instead of dealing with individual stocks, you can own a slice of a large portfolio, which regularly pays out dividends. The earnings can be taken as income or reinvested to boost future returns.
One key advantage of dividend funds is diversification. This means if one stock stops paying dividends, you still earn payments from other stocks in the fund.
Pros of Dividend Funds
- Diversification: Spread risk by holding a variety of stocks.
- Convenience: Manage a range of stocks with one investment.
- Steady Income: Regular payouts even if some stocks reduce their dividends.
On the other hand, buying individual dividend stocks gives investors a chance to build a custom portfolio. This method requires more effort since it involves researching each company to ensure it suits the investor’s needs.
Despite this extra work, selecting individual stocks could result in a higher yield. Rather than paying a management fee like you would with funds, individual stocks often have lower expenses.
Benefits of Individual Dividend Stocks
- Custom Portfolio: Tailor investments to personal goals and preferences.
- Potential for Higher Yield: Possible to earn more by picking high-yield stocks.
- Lower Fees: Avoid the management fees that funds typically charge.
Moreover, reinvesting dividends from both dividend funds and individual stocks can enhance the overall return. Dividends usually add a few points to the return, which compounds over time.
For example, historically, the total annual return of a fund like the S&P 500, including dividends, can be about two percentage points higher than its price change. Over time, this difference can significantly increase the growth of an investment.
To illustrate, using a simple investment calculator: A $5,000 investment growing at 6% annually for 20 years might reach over $16,000. Including dividends to push growth to 8% per year increases the outcome to over $24,000. Clearly, dividends can make a real impact over time.
Comparison Table
| Feature | Dividend Funds | Individual Stocks |
|---|---|---|
| Diversification | High | Depends on selection |
| Convenience | Easy | Requires research |
| Potential Yield | Moderate | Can be high |
| Fees | Management fees exist | Generally low |
Investing in Stocks That Pay Dividends
1. Discovering Stocks That Offer Dividends
Investors can find stocks that give out dividends by visiting financial websites and browsing through their brokers’ online platforms. Free stock screeners are also useful tools for this.
For those who aren’t quite ready to use real money, trying a practice method called paper trading can be a great way to start. With paper trading, you can practice investing without any financial risk since it uses fake money.
2. Assessing the Value of the Stock
When considering high-dividend stocks, it’s crucial to compare their dividend yields with similar companies. If a stock offers much higher yields than others, this could signal potential problems.
It’s important to thoroughly check the company’s financial health and how stable its dividends are. Another thing to check is the payout ratio. This ratio indicates how much of the company’s earnings are spent on dividends.
A very high payout ratio, often over 80%, suggests that a company spends a large chunk of its earnings on dividends. In some cases, the ratio might even exceed 100%, hinting that the company might be borrowing money to keep paying dividends.
3. Planning How Much Stock to Purchase
When building a diversified portfolio, it’s essential to figure out how much of each stock to buy. For instance, if you plan to invest in five different stocks, consider spreading your investments evenly, maybe with around 2% in each stock.
Riskier stocks might mean investing less in them and focusing more on safer options. If dividends are reinvested, the initial cost of purchasing the stock—known as the cost basis—will need to be recalculated.
The top priority when choosing a dividend stock should always be the safety of its dividends. Yields that go beyond 4% need a second look, and anything above 10% can be particularly risky. Such high yields might mean the payouts aren’t sustainable, or that investors are selling shares, causing the price to drop and yield to rise.
Lastly, investors using taxable accounts should remember that dividends are subject to taxes the year they are received. This differs from non-dividend stocks, where taxes are mostly due only when stocks are sold. For those in higher income brackets, dividend stocks might not be the best tax-efficient choice compared to other types of investments.
Which Dividend Stocks Are Top Picks?
Choosing the best dividend stocks depends on personal investment goals and timelines.
Some stocks might offer high yields, but this doesn’t necessarily make them the ideal choice for everyone.
Often, investors prefer index funds over individual stocks to spread risk across different investments.
High dividend yields can have different meanings. Sometimes, a falling stock price boosts the yield, which isn’t always a great sign.
Companies may also overspend on dividends, leading them to take on debt. If the spending becomes too much, these companies might need to cut dividends.
One reliable choice for dividend stock seekers is the dividend aristocrats. These are S&P 500 stocks known for increasing their dividends every year for at least 25 years. Their track record suggests a lower risk of cutting dividends in the future.
These strategies focus on finding balance and reliability.
No one investment suits all, so it’s crucial to consider what aligns best with individual preferences and financial goals.
Each investor’s path can be quite different!
