What are the best dividend stocks?

In a nutshell

While dividend stocks don’t normally provide the degree of growth offered by growth stocks, they do offer the potential for capital appreciation because they provide regular payments to shareholders in the form of dividends. This can also result in lower price volatility.

• Dividend stocks pay a portion of a company’s net income to shareholders in the form of dividends.
• The “Dividend Aristocrats” are dividend stocks that have consistently paid high dividends.
• Dividend stocks can make an excellent investment, offering a combination of steady income and capital appreciation.

What are dividend stocks?

Dividend stocks are perhaps best understood when compared to growth stocks. Those are stocks issued by companies that generally pay no dividends, instead choosing to retain their net income to invest in future growth.

Dividend stocks are issued by companies that regularly return a large portion of their net income to shareholders in the form of dividends. They are typically well-established companies, with long histories of steady revenues and net income. Because of the dividends paid, dividend stocks are thought to experience less price volatility than growth stocks.

What are the Dividend Aristocrats?

Perhaps the best-known of all dividend stocks is a group known as the Dividend Aristocrats.

These are not merely companies paying high dividends. To be included, each company must be part of the S&P 500 and have a history of increasing dividends in each of the past 25 years. Those qualifications make this a limited group. There are usually no more than 60 or so companies that qualify.

13 high-dividend stocks considered Dividend Aristocrats

We’ve selected 13 of the highest dividend-paying stocks within the Dividend Aristocrats as indicated by NASDAQ Dividend Aristocrats. All prices are current as of May 24, 2024 and are subject to change.

1. Leggett and Platt, Inc. (LEG)

• Industry: Manufacture and distribution of furniture and engineered components
• Current price: $10.68
• Dividend yield: 10.4%

Leggett and Platt was founded in 1883 and had more than $4.7 billion in sales in 2023. Despite the double-digit dividend yield, you should be aware that the company turned a net loss in 2023, and therefore currently shows no trailing earnings-per-share. That shouldn’t be too much of a concern, since the company is expected to be profitable in 2024.

2. AT&T (T)

• Industry: Telecommunications
• Current price: $17.45
• Dividend yield: 6.8%

Founded in 1983 after the break up of the state-sanctioned telephone monopoly in the U.S., AT&T is a holding company providing telecommunications, media and technology services. The company has total revenue in excess of $122 billion, and a price-to-earnings ratio sitting at a very low 8.3. That gives plenty of profit to continue paying this lofty dividend.

3. 3M Company (MMM)

• Industry: Manufacture of industrial, safety and consumer products
• Current price: $99.48
• Dividend yield: 6.6%

Based in St. Paul, Minnesota, the 3M company has been in business since 1902. The company had revenue of over $32 billion in 2023, and negative net income of $7 billion.

4. Realty Income Corp. (O)

• Industry: Retail real estate investment trust (REIT)
• Current price: $52.03
• Dividend yield: 5.9%

Founded in 1969, Realty Income Corp. is a real estate company focused on providing monthly cash flow. The company had total revenue of more than $4 billion in 2023. Its price-to-earnings ratio is 41, which indicates its earnings aren’t high relative to its stock price.

5. Walgreens Boots Alliance Inc. (WBA)

• Industry: Drug retail
• Current price: $16.13
• Dividend yield: 5.7%

One of the nation’s largest pharmacy chains, Walgreens has been around since 1909. The company had more than $139 billion in revenue in 2023, though it still showed a net loss for the year. That situation is expected to turn around in 2024, and the majority of analysts have a moderately favorable view of the stock.

6. Amcor PLC (AMCR)

• Industry: Global packaging solutions
• Current price: $9.85
• Dividend yield: 5.6%

Amcor is a low-priced stock paying an impressive dividend at 5.6%. The company has a conservative price-to-earnings ratio, at 20.38, and 12 out of 21 analysts have given the stock a hold rating.

7. Franklin Resources (BEN)

• Industry: Investment advisors
• Current price: $23.17
• Dividend yield: 5.0%

Franklin Resources was launched in 1947 and had nearly $8 billion in total revenue in 2023. It operates under various retail names, including Franklin Templeton, Legg Mason, Brandywine Global Investment Management, and many others. The current price-to-earnings ratio is 14.5, but be aware that stock analysts are less optimistic on this stock than others on this list.

8. T Rowe Price Group Inc. (TROW)

• Industry: Investment advisors
• Current price: $116.72
• Dividend yield: 4.6%

T Rowe Price is a well-established investment group, founded in 1937. The company had nearly $6.5 billion in revenue for 2023. The current price-to-earnings ratio hovers at just about 14.

9. Federal Realty Investment Trust (FRT)

• Industry: Retail REITs
• Current price: $98.51
• Dividend yield: 4.4%

Federal Realty Investment Trust is another real estate investment trust. It’s been in existence since 1962 and had revenue of more than $1.1 billion in 2023. The current price-to-earnings ratio is just above 35.

10. Essex Property Trust Inc. (ESS)

• Industry: Residential REITs
• Current price: $258.97
• Dividend yield: 4.2%

Yet another real estate investment trust on the list of top dividend-paying companies among the Dividend Aristocrats, Essex had over $400 million in income on just over $1.6 billion in revenue in 2023. The company has a current price-to-earnings ratio of just over 37.

11. Kimberly-Clark Corp. (KMB)

• Industry: Nondurable household products
• Current price: $131.61
• Dividend yield: 3.9%

Kimberly-Clark manufactures and markets products made from natural and synthetic fibers for personal care in various industry segments. The company was founded in 1872 and is based in Irving, Texas. It had revenue of more than $20 billion in 2024, and it has a current price-to-earnings ratio of just about 24..

12. AbbVie Inc. (ABBV)

• Industry: Biotechnology
• Current price: $157.66
• Dividend yield: 3.8%

AbbVie is a relative newcomer to the Dividend Aristocrats, coming into existence only in 2011. The company produced total revenue of more than $54 billion in 2023, and its price-to-earnings ratio is just over 60.

13. International Business Machines (IBM)

• Industry: Computer services
• Current price: $170.47
• Dividend yield: 3.7%

At one time, IBM was the bluest of blue chip stocks. It no longer sits atop the stack, but the company is a steady performer. For 2023, the company produced a net income of $7.5 billion on total revenue of just below $62 billion. The current price-to-earnings ratio sits at 22.3.

How is dividend yield calculated?

Dividend yield is calculated by dividing the annual dividend paid on a stock by the current value of the stock.

For example, if ABC Company is currently trading at $100 per share and has an annual dividend of $5, its dividend yield is 5.00% ($5 divided by $100).

How to choose the right dividend stocks

Dividend Aristocrats are hardly the only stocks paying dividends. Some of the highest-paying dividend stocks are not included on the list. This is because they don’t meet the criteria described above, and the stock may have only recently begun paying dividends.

However, if you’re searching for dividend stocks, you’re probably also interested in a solid measure of capital preservation. For that reason, you should favor stocks from the Dividend Aristocrats. They’re well-established companies with a long history of not only paying but also increasing their dividends.

But don’t stop there, and don’t focus exclusively on the stocks paying the highest dividends.

Use the following tips to help you make your choices:

• Carefully evaluate recent and projected growth in both revenues and net income for any company you’re interested in. Both will affect the company’s ability to pay and increase dividends in the future.
• Review analysts' ratings of each company. Any company you invest in should have a minimum consensus rating of “hold,” though "overweight" or "buy" are even better ratings. You can see analyst ratings on popular investment websites, like MarketWatch and Yahoo Finance.
• Be sure to diversify. If you plan to buy positions in 10 different companies, make sure each is engaged in a different industry. Too much concentration in a single industry could cause problems if that industry runs into difficulty in the future.

Why should investors buy dividend stocks?

Financial advisors commonly recommend maintaining a balance of stocks and bonds in a portfolio. Dividend stocks represent something of a hybrid between the two. The dividends they pay are similar to the interest paid on bonds. At the same time, dividend stocks are still stocks and have the potential to provide capital appreciation.

That combination of capital appreciation and steady income makes dividend stocks one of the best long-term investments. If you’re choosing from the Dividend Aristocrats, you’ll also have the benefit of investing in some of the largest and most well-known companies in America. That can make dividend stocks an especially good choice for retirees who are looking for steady income along with at least some potential for capital appreciation.

Are there disadvantages to dividend stocks?

Let’s start by saying all investments come with some disadvantages, and that includes dividend stocks. The first potential disadvantage is that the company may reduce or even eliminate the dividend. Should that happen, the price of the stock would likely fall.

A more common disadvantage is interest rate risk. Since dividend yield is a major part of the reason why anyone invests in dividend stocks, rising interest rates can have a negative impact on the stock price. For example, if prevailing interest rates rise by 1%, the value of the dividend stock may fall until the dividend yield reaches a level that’s comparable with risk-free investments, like CDs and Treasury securities.

Finally, because dividend stocks pay out a substantial amount of net income to shareholders, their price performance tends to be more subdued. While growth stock prices may rocket during a bull market, dividend stocks may languish. It’s a classic example of the risk/reward trade-off. Because dividend stocks are lower risk than growth stocks, they tend to provide less generous rewards over the long term.

What are the alternatives to dividend stocks?

As an alternative, you can consider investing in a Dividend Aristocrats fund. ProShares S&P 500 Dividend Aristocrats ETF is one example. However, since that fund invests in the entire list of Dividend Aristocrats, the dividend yield will be lower than the stocks we’ve included in this guide.

Preferred stocks are another potential alternative. They generally pay higher yields than bonds because they are riskier. For example, the company can delay or cut dividend payouts, reducing both the yield and the value of stock. But preferred stocks offer a combination of high dividends and potential capital appreciation since they trade just like common stocks.

Finally, real estate investment trusts (REITs) can be an excellent source of dividends. REITs are required by law to pay at least 90% of their net income to shareholders in the form of dividends. The average dividend yield on REITs is 4.39%. REITs may also generate capital appreciation when they pay additional distributions from the sale of properties owned.

The AP Buyline roundup

Dividend stocks are an excellent choice if you’re looking for steady cash flow with the potential for capital appreciation. This can be a comfortable middle-ground between growth stocks and bonds. As you can see from the companies included in our list, some pay dividend yields higher than CDs and U.S. Treasury securities. If you’re a retiree looking for a blend of income and capital appreciation, investing in dividend stocks can be an especially good strategy.

Frequently asked questions (FAQs)

Are dividend stocks suitable for a retirement portfolio?

For most retirees, yes. They offer both steady income and the potential for capital appreciation. That will provide retirees with income to live on, and future growth to deal with the effects of inflation. However, be sure to consult with your financial advisor before implementing any new investment strategies, especially in retirement.

What is the record date vs. the “ex-dividend” date?

The ex-dividend date and the record date are complementary. The ex-dividend date is the date upon which the dividend is declared and payable to owners of the stock as of the record date.

For example, if a company declares a dividend payable on April 15, it must only pay dividends to owners of record as of that date. Anyone who purchases the stock after April 15, will not be entitled to the April 15 dividend distribution.

Are dividend stocks good for passive income?

Yes, since the investor is required to do nothing to earn the income apart from owning the stock. This is especially true in the case of the Dividend Aristocrats, with their history of increasing dividends for at least the past 25 years. Dividend stocks also provide the added benefit of the potential for capital appreciation.