Dividend stocks provide a steady stream of income, and reinvesting those dividends adds significantly to long-term returns. Over the last 100 years, the average yearly return for a major US stock index is 10.54% including dividend reinvestment. Without dividends, the return drops to 6.51% per year. Dividends definitely play a role in overall portfolio returns when holding for the long term.
Dividend stocks also tend to outperform indices like the S&P 500. For example, I ran a scan for all stocks that increased their dividend by an average of at least 0.4% per year over the last decade, have at least a $1 billion market cap, and trade on a major exchange.
That’s it; no other criteria. The portfolio of dividend-increasing stocks doubled the gain of the S&P 500 since 2007, and the portfolio was even slightly less volatile than the S&P 500 (beta of 0.98)
The list of top dividend stocks below is much more selective and has more than tripled the S&P 500 returns since 2007, as well as handily outpacing Nasdaq 100 returns.
Best Dividend Stocks for Long-Term Investment as November 28, 2023
The best dividend stocks list includes stocks from the US and Canada (.TO) with a strong track record of increasing dividends and profits, as well as adequate daily volume. The full criteria are discussed below.
|Historical 10-Year Average Yearly
Dividend Growth Rate
|Estimated 5-Year Average
Yearly EPS Growth
|Automatic Data Processing
|Broadridge Financial Solutions
|Marsh & McLennan
|Lincoln Electric Holdings
See additional fundamental criteria on each stock using the graphic below. Stats provided by StockRover.
This is a list of stocks that meet certain criteria. Do your own additional due diligence before investing.
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Understanding the Top Dividend Stocks List
In the chart above, you will notice some figures. Here’s what they mean:
- Dividend yield: This is the yearly dividend payout divided by the current share price, as a percentage.
- The historical dividend growth rate is the average amount (percentage) the dividend has increased by each year over the last decade.
- Estimated EPS growth is the average percentage analysts in the industry expect the company to increase its earnings by each year over the next half-decade. Growth is important for paying and increasing dividends.
If a stock isn’t included on this list, that doesn’t mean the stock is bad. It just means it didn’t fit the criteria used to find these dividend stocks.
All stocks move up and down. This is just a list of stocks that meet certain criteria. When you buy will affect overall returns and dividend yield. When to buy is up to you.
Buy and Selling Long-Term Dividend Stocks
I typically buy these stocks when they form a setup I recognize, such as a rounded bottom (covered in my swing trading course) or the stock is bouncing off the lows of a long-term trend channel, for example.
I typically sell these stocks when they no longer exhibit the qualities that I want to see. This usually means they fall off the list. Falling off the list doesn’t necessarily mean the stock has to be sold immediately if it is still trending up. But if the stock is not performing well fundamentally, then I will input a tight trailing stop loss on it so if it starts to drop I get out. All that capital is still there to be compounded in something else that has the qualities I want in a dividend stock.
Look at Dividend Growth, Not Just Current Yield
With dividend stocks, don’t just look for the highest yield. Look for companies that increase their dividends regularly. This shows the company is steadily profitable and can afford to raise the dividend as profits grow. While your yield may be only 1% or 2% now, as the stock keeps rising and the dividend keeps growing, your yield on your investment can become quite large.
For example, if you bought Target (TGT)—a company that steadily raises its dividend—in 2009 at a price of $25, the dividend at that time was $0.66. That equates to a dividend yield of 2.64% ($25 purchase price divided by a yearly dividend payment of $0.66).
You collect your dividends and each year the company increases the dividend amount. Your original entry price remains $25. As of 2023, the dividend was up to $4.36.
Making $4.36 per share on your $25/share purchase is a 17.44% yearly return on dividends alone…plus your capital gains (TGT is over $130). If you reinvest those dividends, you will make dividends/returns on reinvested dividends, compounding your gains. While reinvesting dividends will alter your average price, it doesn’t change your original cost basis for the trade.
So don’t just think about yield and income now, think about yield and income if the dividend continues to be steadily increased. Look for companies that have a steady track record of increasing dividends. Also, look for companies that have steady profit growth, as this allows for dividends to be paid and increased over time.
Why not just buy the highest-yielding stocks? Typically stocks that pay a very high yield are either in trouble or have limited growth prospects so they pay out their profits to shareholders instead of reinvesting that money into the company. If you can get growing yield and growth in a company (which generally leads to a rising share price), that is a more powerful driver for long-term portfolio returns.
How to Scan for Top Dividend Stocks
The list of best dividend stocks above is generated using several criteria, including:
- Basics: a share price above $5, listed on a major exchange, and does at least 200,000 shares in daily average volume.
- Dividends: at least 10 years of consecutive dividend increases and the average increase is at least 7% yearly. Yield is above 1%.
- Profits: no negative EPS years recently and expected yearly EPS growth is greater than 8% per year going forward.
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What Yield is Possible With Dividend Stocks?
Dividend yields vary from 0% up to about 10%. It is possible to have dividend yields even higher than 10%. A 0% yield means the company doesn’t pay a dividend. Dividend yields cannot be negative.
Most high-quality stocks don’t pay high dividend yields. There are some exceptions, but as a general rule you don’t often see household name companies offering huge dividends year after year very often. High dividend yields are more common in some cyclical industries, such as oil and gas, but these stocks tend to be volatile, and the earnings of many of these companies can be erratic leading to frequent changes in dividend policy.
Low-quality companies that have a high dividend yield are often called yield traps. The company pays a dividend but the stock price is dropping. When a stock drops in price, and the dividend stays the same, the yield goes up. This can be a good thing in a high-quality company because the shares are likely to rebound and you get a nice yield. But in a poor company, the share price will likely keep falling, and eventually, the dividend will drop. If the price keeps falling, it could become a yield trap again because the dividend still looks high. People keep buying trying to capture the dividend, but both the share price and dividend keep falling, resulting in losses.
What Is a Dividend?
A dividend constitutes a cash disbursement issued by a company to its shareholders. The precise dividend amount per share is pre-announced. Shareholders who hold the company’s shares until the close of the day preceding the ex-dividend date are entitled to receive their dividend payment on the specified payment date. For instance, if the declared dividend is $1 per share, an investor possessing 100 shares will receive a total dividend payment of $100.
If a dividend is officially declared on June 3, with the Record Date set for August 30, the ex-dividend date will be the trading day immediately prior to that date. To qualify for the dividend, investors must own shares as of the close of trading on the day before the ex-dividend date. Purchases made on or after the ex-dividend date do not qualify for dividend payments.
The dividend yield is calculated by dividing the annual amount of dividends by the prevailing share price of the stock. For example, if a stock pays $1 in dividends each year and has a share price of $50, the resulting dividend yield is 2%.
Other Regularly Updated Stock Lists for Investing
By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage. Data is sourced from third parties and is intended for information purposes only. There may be errors in data, so check with other sources before relying on such data.
Historical Best Dividend Stocks Lists
This page is updated every couple of months. Many of the stocks remain the same from month to month, but there are sometimes changes. Here are the prior lists.
November 28, 2023
October 11, 2023
August 8, 2023
June 12, 2023