Every investor has their own strategy, from those who prefer the slow but steady ride of index funds to those who want to maximize their short-term gains via day trading. Whichever strategy you use, however, you can’t afford to overlook the value of dividend stocks.
Dividend stocks are stocks that pay out a percentage of their value every year. As a shareholder, this means that the best dividend stocks are a continual source of income, whether you decide to take the money or re-invest it in the same stock. And market studies indicate that dividend stocks outperform their non-dividend peers in both the medium and long term.
Here at Wealthface, we recognize the value of dividend stocks, and have built our investment platform in a way that allows you to get the best out of them. Whether you are looking to invest for retirement, or to become a millionaire over the next few years, you can use Wealthface to build a portfolio, buy and sell dividend stocks, and make the stock market work for you.
In this article, we’ll get you started with dividend stocks by explaining what they are, why you should invest in them, and which dividend stocks to invest in right now.
What Are Dividend Stocks?
Dividend stocks are a special type of stock. Just like any other asset, these stocks can rise and fall in value due to market conditions and corporate performance. However, dividend stocks also make investors money in a different way – they pay out a certain percentage of corporate profits to their shareholders.
Beyond this basic definition, there are many differences between different dividend stocks. The most obvious is that the value of your dividend will vary considerably based on the stock you hold, because the amount a company pays in dividend is decided by shareholders themselves, via their voting rights. Depending on the dividend stock, you can expect to receive between 1% to 10% of the value of your investment in dividends per year.
This dividend can be paid out in a variety of ways. The most common is to receive a cash payment yearly, although there are stocks that pay monthly dividends, and other companies choose to disburse their dividends as stocks. Even in the case of cash dividend payouts, many investors choose to immediately reinvest their dividends back into the original stock, therefore hoping to get an even bigger dividend payment next year.
If you are looking for the best dividend stocks, it’s also important to consider the industry that a company operates in, and their record when it comes to delivering profits. Certain industries are known for generating high, dependable profits – such as the oil and gas industry, tobacco, banks, and utilities firms. Then there are some companies, such as master limited partnerships (MLPs) and real estate investment trusts (REITs) that are also top dividend payers, since their designations require specified distributions to shareholders.
Why Dividend Stocks?
The highest dividend paying stocks offer several advantages to many types of investors. Though day traders might not hold a dividend stock for long enough to qualify for a dividend payout, medium to long term investors should look to high dividend yielding stocks as a potentially important source of returns.
This is for a number of reasons. One is simply that established dividend stocks offer an (almost) guaranteed return on your initial investment. If a company has generated profits every year for the last 30 years, for example, it’s a fair bet that they will do so this year, and this return will be paid to you in cash.
Of course, when it comes to the stock market nothing is certain, and this last year we’ve seen the proof of that when it comes to dividend stocks. Many of the best paying dividend stocks of the last few decades have been in oil firms, and this year was expected to be much the same until the intercession of the Covid-19 pandemic, which sent oil prices soaring and oil profits plunging.
Still, in general it is the case that dividend stocks out-perform their non-dividend peers. In a major study undertaken by JP Morgan a few years ago, they looked at the performance of a diversified basket of dividend-paying and non-dividend-paying stocks. Their conclusion? That dividend-paying stocks averaged an annual return of 9.5%, compared to a measly 1.6% for non-dividend-paying assets.
For all of these reasons, most investors will find that dividend stocks make a valuable addition to their portfolio – either because they generate an annual income that can be used for other purposes, or because they simply tend to grow more quickly than other types of investment.
Best Dividend Stocks for 2021
Though essentially all dividend stocks share the same basic advantages, there are big differences when it comes down to how much they pay out as dividends, and how frequently they do so. In this analysis, we’ve taken the highest-paying and most reliable dividend stocks of the last few years, and collected them together.
1. Enterprise Products and Partners (EPD)
As we’ve said above, oil companies have had a pretty bad time in the last few years. This should have affected Enterprise Products and Partners as well, but it doesn’t appear to have hit their bottom line. A possible explanation for this is that the company owns and manages the underlying infrastructure of the oil industry – pipes, plants, and pumps – rather than being an oil distributor on its own.
This has contributed to the company posting impressive, sustainable profits for the last few years. Even better, shareholders with voting rights seem keen to attract more inward investment by offering high levels of dividends – representing a yield of 8.36% over the last year. This makes the stock one of the most profitable dividend-paying stocks on the market today.
2. AGNC Investments
AGNC investments is a Real Estate Investment Trust (REIT), and these organizations are required by US law to pay a percentage of their profits back to investors in the form of a dividend. AGNC’s specific business model involves buying mortgage assets at short-term lending rates, and then using this capital to buy high-yield long-term assets. The difference between the short-term borrowing rate and the long-term profit here is called the net interest margin, and is the source of AGNC’s profits.
Those profits have been impressive, as has AGNC’s willingness to pay them out as dividends. The yield of an investment in AGNC over the past year would have been 9%, and for most of the past decade the company has offered yields in the double digits.
3. Altria Group (MO)
Altria Group owns many of the most recognizable tobacco brands in the US, including Marlboro. This means that, although smoking rates continue to decline around the world, the company’s profits have stayed fairly consistent over the past decade.
They have made these profits available to investors via dividends at an impressive rate, providing a yield of 7.48% over the past year. In part, this is because the company is responding to short-term pressure on tobacco shares – the decline in smoking rates has spooked many investors, and firms like Altria find themselves in need of investment capital. Offering dividends is one way to attract that capital.
It’s also important to note, however, that Altria is preparing for the future. They have recently licensed a smokeless tobacco system – IQOS – from Philip Morris International, and are making investments in the Canadian marijuana industry. This means that they should be able to build on their existing profitability in the medium to long term, good news for patient investors.
4. Annaly Capital Management (NLY)
Annaly Capital Management is a firm in the same business as AGNC above – another REIT that deals in mortgages. In fact, it might be argued that because all REITs are required to pay some form of dividend, they tend to offer higher rates in order to attract investment capital from their competitors.
This is certainly the case with Annaly. The firm has been very generous when it comes to paying out dividends over the last few decades – since 2000, the company has paid out more than $20 billion in dividends and has averaged a yield of roughly 10% over the past two decades.
This means that investments in Annaly over this period would have offered investors a seriously impressive yield – on the order of 10%. Whether you put that money back into stocks, or used it to augment your income, this makes Annaly one of the best dividend stocks for 2021.
A Final Word
Of course, when it comes to dividend stocks there is a lot of variation we can’t cover in this article. Though most types of dividend stocks are valuable for most types of investor, some may be looking for a specific type of stock – dividend stocks to buy and hold, for instance, or the best ETF dividend stocks.
For now, however, take a look at the dividend stocks above, and assess whether they can add value to your portfolio. And then, when you are ready to buy them, take a look at our investment platform, where you can buy, sell, trade, and manage your dividend stocks easily.
Here are the best 4 dividend stocks in 2021:
Enterprise Products and Partners (EPD) (8.36%), AGNC Investments (9%), Altria Group (MO) (7.48%), Annaly Capital Management (NLY) (10.21%)