3 Reasons To Lean Into High-Yield Dividend Stocks This Year — and Which Ones Make the Most Sense for You
Written by
Karen Doyle
Edited by
Levi Leidy
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High-yield dividend stocks can make a lot of sense. In addition to appreciation in the stock price, investors get a quarterly payment based on the company’s performance. This payment, called a dividend, can be taken as cash to generate an income stream from the investment, or it can be reinvested, using the money to purchase additional shares of the stock.
Why should you buy high-yield dividend stocks this year? And which ones should you invest in? Here’s what you need to know.
High-Yield Dividend Stocks Provide an Income Stream
While the stock market’s recent performance has been good, it has been volatile. Dividend stocks provide an income stream in addition to price appreciation, which can be reassuring in an up-and-down market.
Many High-Yield Dividend Stocks Are Stable With Long-Term Profitability
Companies typically pay dividends on a quarterly basis, deciding the amount when earnings are announced. A company that can pay a dividend every quarter will have consistently attractive earnings per share and will often enjoy appreciation in the stock price as well.
Dividend Stocks Usually Stay Dividend Stocks
Companies that have consistently paid dividends in the past are likely to consistently pay dividends in the future. To do this, management must run the company in such a way that there is enough profit and free cash flow to cover the dividend. A company that has paid dividends for years and then stops is a big red flag for investors, so any company that regularly pays dividends will try very hard to continue to pay them.
A Word of Caution
While many high-yield dividend stocks are dependable, others can be risky. Some companies will pay high dividends in the hopes of getting investors to buy their stock, but these dividends are unsustainable. Beware of new companies that are paying large dividends instead of reinvesting in the business. Look for a company that has been paying dividends for a long period of time, such as the so-called “dividend aristocrats,” which have increased their dividends each year for at least 25 years.
High-Yield Dividend Stocks To Consider
Companies that have paid dividends regularly are a good bet if you’re looking to add high-yield dividend stocks to your portfolio. Look for companies that are considered dividend aristocrats (paying an increasing dividend for at least 25 years), or dividend kings (paying an increasing dividend for at least 50 years).
According to StockAnalysis.com, dividend kings include these stocks:
- Proctor & Gamble (PG)
- Johnson & Johnson (JNJ)
- The Coca-Cola Company (KO)
- Stanley Black & Decker (SWK)
- Lowe’s Companies (LOW)
The list of dividend aristocrats includes household names such as:
- The Clorox Company (CLX)
- The Sherwin-Williams Company (SHW)
- Exxon Mobil Corporation (XOM)
- Caterpillar Inc. (CAT)
- International Business Machines (IBM)
- The J. M. Smucker Company (SJM)
Dividend Stock Mutual Funds and ETFs
If you don’t want to choose one or two high-yield dividend stocks to invest in, you can buy a mutual fund or ETF that includes these types of stocks. The Vanguard High Dividend Yield Index Fund, for example, tracks the FTSE High Dividend Yield Index, and is available as a mutual fund or an ETF. The Fidelity Dividend Growth Fund is another option to consider.
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