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 10.36% including dividend reinvestment. Without dividends, the return drops to 6.3% 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 less volatile than the S&P 500 (beta of 0.89)
The list of top dividend stocks below is much more selective and has nearly doubled the S&P 500 returns over the last five years alone, as well as handily outpacing Nasdaq 100 returns. Since 2007, the list below has more than QUADRUPLED the returns of the S&P 500.
Best Dividend Stocks for Long-Term Investment as August 8, 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
|ADP||Automatic Data Processing||2%||11.1%||13.5%|
|MMC||Marsh & McLennan||1.5%||11%||10.5%|
|LECO||Lincoln Electric Holdings||1.3%||12.3%||8.9%|
|TFI International||1.1%||13.6%||9.3% to 19.4%|
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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. 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 2022, the dividend was up to $3.96.
Making $3.96 (more in 2023) on your $25 purchase is a 15.84% 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? Because 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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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. Most of the stocks remain the same from month to month, but there are sometimes changes in the stock on the list. Here is where you can prior lists.
August 8, 2023
June 12, 2023