The Best Dividend Stocks For Income

November 11, 2019 17:30 UTC
Reading time: 14 minutes

When it comes to choosing the best stocks to invest in, dividend paying stocks are high on the list for many investors. And why not? If an investor can pick some of the top-performing stocks, they could potentially capitalise on growth in the share prices, as well as regular income payments in the form of dividends.

In fact, many investors like to take advantage of the steady cash payments some companies provide to shareholders. After all, it gives the investor the opportunity to reinvest and buy more shares for compound growth, or to simply use as a source of income. Interestingly, reinvesting dividends accounted for 42% of the average total return of the Standard & Poor's 500 Index since 1930.

Picking the best stocks to buy now and attempting to identify the top dividend paying stocks may seem daunting at first, however, there are a few guidelines that can make the process much clearer. Let's take a look at this before we look at some of the best dividend stocks to invest in.

How to Invest in Dividend Stocks

Dividend stocks are shares in public companies where those companies pay shareholders a slice of company profits. Dividends are usually paid out on a quarterly basis, and are a way for shareholders to participate in the success of the company. Most dividends are cash dividends.

These are cash payments made on a per-share basis to investors. For example, BlackRock Inc, the world's biggest money manager of ETFs, pays out $3.13 per share every quarter in dividend payments - this is known as the dividend amount.

What is a Dividend Yield?

You may have heard the term dividend yield before but do not worry if you haven't - it's a simple calculation:

  • Dividend Yield = Annual Dividend / Share Price

The dividend yield is the annual dividend divided by the share price. So, in the case of BlackRock Inc, the annual dividend would be $3.13 multiplied by four quarterly payments, which amounts to $12.52. On the last dividend payment date of 6 December 2018, the share price closed at $400.23. This means that the dividend yield was 3.1% ($12.52 / $400.23). So how can we use this information to identify dividend stocks to invest in? Let's take a look.

What Are the Best Dividend Stocks?

Before we look at the list of some of the top dividend paying stocks, it's important to understand some of the criteria that could help improve your investing when looking for the best stocks to invest in.

#1 Dividend Growth

Stocks with rising dividends tend to outperform stocks with steady or decreasing dividends. How do we know this? By comparing the return of the S&P 500 Dividend Aristocrats index with the S&P 500 index. After all, the Dividend Aristocrats index is made up of S&P 500 companies that have been increasing dividends for at least 25 years.

Source: Bloomberg - SPDAUDT Index - Data Range: 1990 - 2019 - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

Overall, the stocks with increasing dividends have outperformed the S&P 500 index. It is worth remembering that some companies do not pay dividends, and those that do can also cut dividend payments in times of trouble.

#2 Dividend Yield

The dividend yield of a company can be a useful metric. It shows the investor the ratio of the annual dividend compared to the current share price, as a percentage. Essentially, it shows an estimate of the dividend return of a stock investment. Of course, many investors would only search for high-yield stocks, which can be a mistake. Why? Because many companies that have a very high yield often have very low share prices.

And, if a share price is low, it is for a reason. In fact, research shows that between January 1928 and December 2017, the fourth yield quintile of dividend stocks outperformed the first and fifth yield quintile of dividend stocks. This basically means that picking mid level yield dividend stocks outperforms the highest yielding, and the lowest yielding dividend stocks.

Source: Heartland Advisors - Highest and lowest payers - Data Range: 1928 - 2016 - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

Quite often, companies that have the highest forecasted dividend yield may not end up paying the estimated amount. Very high-yield stocks are actually ones that most investors should avoid, as there is a big gap between the estimated dividend yield, and the actual dividend yield, as the bar chart below shows.

Source: CNBC - Yield Bait & Switch - 20 Year Equal - Weighted Average for Stocks in the S&P 500 - Data Range: 1996 - 2015 - Forecasts such as this are not a reliable indicator of future results, or future performance.

Now we know some of the pros and cons of the dividend amount and dividend yield, this helps us to figure out the top stocks that make the list of considerations when trying to search for the best stocks to invest in. Now, let's take a look at some of best dividend stocks from around the world:

The Best Dividend Stocks in the United States

The United States is home to some of the most recognisable companies in the world. With a variety of sectors to choose from such as retail, energy, and financial services, there are many candidates that can make the list of the best dividend stocks to invest in. However, using the guidelines listed above, we know that the company must have:

  • A long track record of steady payouts
  • Increasing dividend growth
  • A dividend yield that is not too high or too low

A List Of The Best Dividend Stocks For Income

1. JP Morgan Chase

JP Morgan, one of the world's largest banks, has an impressive dividend history going back a long way. Before the financial crash of 2008, the investment banking giant was paying an annual dividend of $1.52. Shortly after the financial crash they cut it to just $0.20 cents. However, the dividend payout has been increasing every year since, and is at its highest level in two decades, surpassing its pre-2008 level.

Source: Admiral Markets MetaTrader 5 Supreme Edition - #JPM, Weekly Chart - Data range: 18 August 2013 – 06 November 2019 - Performed on 06 November 2019 at 2:30 PM GMT - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

On top the dividend payout, shareholders have enjoyed an increase in the share price as well, which gives investors more options. They can choose to use the dividend payouts as a form of income, or they could use it to reinvest and buy more shares - thereby compounding their return over time.

Of course, the move higher in the company's share price didn't go up in a straight line. However, during the times that the stock is falling, the investor at least has some capital coming from the company in the form of dividend payments.

2. Johnson & Johnson

Any dividend investors love Johnson & Johnson. Whilst it doesn't provide the highest dividend yield in the market, it does offer a good balance between dividend growth and a stable stock price. Not only has the company increased its dividend for 56 years in a row, it is also considered a defensive stock - a company that will perform in good and bad economic times.

After all, the company is one of the largest manufacturers and distributors of medical and pharmaceutical products in the world. So, there is always a need for the products they provide, no matter how the economy is performing.

Source: Admiral Markets MetaTrader 5 Supreme Edition - #JNJ, Weekly Chart - Data range: 18 August 2013 – 06 November 2019 - Performed on 06 November 2019 at 2:30 PM GMT - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

Investors have enjoyed the benefits of a rising share price and stable dividends. This provides a good balance for many investor portfolios. Interestingly, between 1970 and 2016 the annual average return has been almost 15%. In that time, there have only been 13 down years, meaning that 72.2% of the time the shares have ended positive for the year.

The Best Dividend Stocks in the UK

The UK stock market is a very popular place for international investors to find top dividend paying stocks. It houses some of the biggest companies in the world, who operate on a global scale. It is no coincidence that some of the best UK stocks have a high correlation with high-yield stocks. Here is a selection of just a few high dividend stocks UK that are worthy of consideration for the best stocks to buy now.

1. Unilever PLC

  • Estimated Dividend Yield: 2.89%

Unilever PLC has a rich history since its establishment in 1885. The consumer staple stock is home to brands recognised all over the world such as Dove, Lipton, Hellmann's, Ben & Jerry's, and many, many more. The fact that the company has a very large portfolio of products that are sold all over the world, including emerging markets like Africa, China, and India, makes it a strong contender for one of the best UK dividend stocks.

Source: Admiral Markets MetaTrader 5 Supreme Edition - #ULVR, Monthly Chart - Data range: 1 December 1992 – 06 November 2019 - Performed on 06 November 2019 at 2:30 PM GMT - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

Unilever is actually listed on three different stock exchanges around the world, as its brand is formed of two entities. Unilever NV is listed on the Euronext Amsterdam and New York Stock Exchange. Unilever PLC is listed on the London Stock Exchange. As each exchange offers different currencies, there is room for savvy investors to also play the exchange rate of different Unilever shares.

However, perhaps the most attractive quality of Unilever is the rise of its share price since 1990, depicted in the screenshot of Unilever PLC's share price (see the graph above). High dividend paying stocks in the UK rarely come with such a steady rise in their share price. While it may not last forever, it certainly makes it attractive, and one of the best stocks to invest in.

2. GlaxoSmithKline

  • Estimated Dividend Yield: 4.66%

GlaxoSmithKline is one of the biggest healthcare and pharmaceutical companies in the world, with a market capitalisation of over £80 billion. Their primary focus areas are pharmaceuticals, vaccines, and consumer healthcare. One of the major reasons the company is a major contender for the top dividend paying stocks in the UK is clearly its 5.44% dividend yield.

However, the higher dividend yield comes at a price. Pharmaceutical companies' stock prices tend to be very volatile, as billions can be spent on drugs - only to then fail at clinical trials.

Source: Admiral Markets MetaTrader 5 Supreme Edition - #GSK, Monthly Chart - Data range: 1 December 1992 – 06 November 2019 - Performed on 06 November 2019 at 2:30 PM GMT - Please note: Forecasts such as this are not a reliable indicator of future results, or future performance.

The share price of GlaxoSmithKline can be quite volatile, as the screenshot (see above) of the company's share price shows. There are times that the share price rallys higher but also times where it falls. However, since 1991 the share price has yet to break its long-term bullish trend line support (highlighted in the blue line).

Those confident enough to utilise market timing methods to try and benefit from capital growth, as well as the high dividend yield, will certainly be considering this company within their high dividend stocks UK watchlist.

The Best Dividend Stocks in Europe

Europe has a large selection of dividend stocks across a variety of sectors. This makes it an interesting place for investors when choosing the best stocks to invest in. One way to help locate some of the top dividend paying stocks is to look at the mutual fund sector. It is home to many European dividend focused mutual funds.

Source: Seeking Alpha

The table above lists the top 19 European dividend stocks that are most widely held in at least a third of the European dividend-focused mutual funds. This information informs the investor as to which dividend stocks are most attractive to institutional fund managers.

The companies come from a range of sectors, and cover a wide spectrum of dividend yields. At the lower end is Germany's SAP SE, with a 1.4% dividend yield, and at the higher end is the UK's HSBC Holdings PLC, with a 10.4% dividend yield.

Savvy investors may want to consider performing additional research on each company. Whether it's fundamental analysis or technical analysis, identifying the best dividend stocks provides the investor with an edge. However, it is just as important to maintain that edge. In order to do so, investors need to have the right research and the best possible investing platform, as well as the right product to invest in.

How to Buy Dividend Stocks

If you are considering investing in the stock market to build a portfolio of the best dividend stocks, you need to have access to the best investment products available. One such product is Invest.MT5.

Invest.MT5 is the investing account offered by Admiral Markets. This account enables you to invest in stocks and ETFs across 15 of the world's largest stock exchanges with the MetaTrader 5 trading platform. Other benefits include free real-time market data, premium market updates, zero account maintenance fees, low transaction commissions, and dividend payouts. Open an investing account today by clicking the banner below!


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Disclaimer: This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.