Dividend stocks are stocks of companies that make regular distributions to their shareholders, usually in the form of cash payments. Dividend stocks can be useful sources of income, but the best dividend stocks can also be excellent ways to increase your wealth over the long term.However, not all dividend stocks are great investments, and many investors aren't sure how to start their search. With that in mind, here's a list of dividend-paying stocks you might want to consider and some of the most important things to look for in top dividend stocks.
Top dividend stocks
Five dividend stocks to buy
The Dividend Kings list is a great place to find top dividend stocks. Dividend Kings are companies that have paid and raised their base dividend for at least 50 consecutive years. The Dividend Achievers list -- 10-plus straight years of dividend increases -- is another great list to research.Here are five top dividend stocks to consider buying now:
Home improvement giant Lowe's (LOW 2.56%) may not seem like a very exciting stock. And that's true -- unless you like dividend growth. The company has raised its dividend almost every year since going public in 1961 and has raised the payout by 511% over the past decade alone.However, investors worried about the housing downturn that began in the second half of 2022 shouldn't fret. When the housing supply is tight, making homes harder to buy, people tend to spend more to upgrade their existing homes.
2. Realty Income
If you're looking for a simple way to invest in high-quality real estate for income and growth, Realty Income (O 1.19%) might be the perfect stock. The company owns an array of largely e-commerce-resistant properties, earning strong cash flows from tenants on long-term leases.
Realty Income is also a Dividend Achiever with 28 consecutive years of dividend increases -- every year since going public in 1994 -- and 54 straight years of paying a dividend every month.
Many real estate investment trusts (REITs), including Realty Income, have seen their shares punished as interest rates have moved higher. And while more than a few will struggle with higher expenses as a result, investors can rest assured that Realty Income should continue its winning ways.
Oil is back. Over the past few years, oil stocks have roared back to the forefront. Energy has been one of the best-performing sectors since the COVID-19 pandemic, and Chevron (CVX 0.84%) has been a big winner for investors.But if we are being fair, Chevron has actually been a pretty solid stock to own -- especially for dividend investors -- for years, generating strong cash flows and growing the payout modestly every year for over 35 years. The stock price can fluctuate with the ups and downs of oil prices, but owning Chevron has proven a profitable investment for dividend-seekers over the long term.
For years, Target (TGT 0.72%) has been more profitable than its peers by posting some of the highest gross margins and operating margins in retail. At the same time, its focus on increasing its e-commerce business and expanding in-store offerings has kept sales growing at a solid clip.However, 2022 was a brutal year for Target investors, with extremely high expectations clashing with the challenging realities of retail, sending shares of the stalwart down sharply. Despite a tough 2022 and continued challenges in 2023, Target remains one of the best-run retailers out there and a solidly profitable company.
Over the past four decades, Starbucks (SBUX -0.1%) has established itself as the dominant brand in coffee beverages. With more than 38,000 global stores and Starbucks-branded ready-to-drink beverages and packaged coffees in hundreds of thousands more locations, nobody sells -- or buys -- more coffee than this company.
Its power as a buyer and its strong brand have resulted in robust competitive advantages, including cost benefits throughout its operations and pricing power with consumers. Those economic moats and strong digital flywheel driving orders and operations have resulted in a cash cow business.
6. Brookfield Infrastructure
Sometimes, the best stocks are the ones hidden in plain sight. That's the case with Brookfield Infrastructure (BIPC 5.86%) (BIP 5.92%), which owns water, energy, utility, transportation, and communications infrastructure projects all over the world. Its assets generate steady, recession- and inflation-resistant cash flows, and Brookfield returns a sizable portion to shareholders.
It claims a dividend yield close to 5% at recent Class C share prices, more than 5.5% for the limited partner units, and a goal to raise the payout 5% to 9% every year. Brookfield Infrastructure is a hidden dividend gem that's delivered more than 680% in total returns since it went public in 2008 -- more than double the S&P 500 over the same period.
Microsoft (MSFT -1.16%) is one of the most important software companies on earth. It has rebuilt its business over the past decade to focus on recurring subscription-based revenues that keep its customers connected and the cash flowing. The company has a solid balance sheet with more cash than debt and a very low payout ratio that leaves tons of room to increase the dividend.
8. American Express
Financial services, such as consumer and business lending, are another place to find a handful of top dividend stocks, and American Express (AXP 1.75%) is one of the best. Although not on the list of every-year dividend raisers, American Express has a decades-long track record of either raising or maintaining its dividend through every economic environment.The big lesson here: When other banks and lenders have cut or even eliminated their dividends, Amex has proven strong enough to keep the payouts coming for its shareholders. That's a credit to its high-quality lending standards and focus on higher-income credit customers less likely to default on their debts during weak economic periods.
Thus, American Express appeals to investors who like owning a top financial services company but are also concerned about economic conditions. This is a great stock to buy during broad market downturns and a solid hold for a bull market recovery.
9. Clearway Energy
Renewable energy is mostly considered a place for growth investors, but it's also a wonderful opportunity for dividends. Clearway Energy (CWEN.A 1.06%) (CWEN 1.04%) is a perfect example. The company invests in, acquires, and operates renewables facilities, selling the power on long-term contracts -- think decades, not years -- to utility companies and large power consumers.After seeing the stock rocket higher during the COVID-19 pandemic, it's given back essentially all of those gains in 2023 on concerns that rising interest rates could affect its business. It does, indeed, require a lot of debt to finance wind and solar farms.
Highest dividend stocks
Highest dividend stocksWhether to generate the income you'll use today or the capital you can reinvest to increase your wealth, there's a good chance you're looking for a big dividend payout. If you're hoping to maximize the number of dividends you earn, here are some suggestions.
First, consider dividend yield above dividend size. The dividend yield is a percentage of the share price you paid for the stock, paid in dividends annually. That's far more relevant than the dollar amount of dividends per share.
Dividend investors should focus not on dividend size but on dividend yield.
What to look for
What to look for in dividend stocksIf you're new to dividend investing, it's smart to familiarize yourself with dividend stocks and why they can make excellent investments. Once you have a firm grasp on how dividends work, a few key concepts can help you find excellent dividend stocks for your portfolio.
- Payout ratio: A stock's payout ratio is the amount of money the company pays per share in dividends divided by its earnings per share. In other words, this tells you the percentage of earnings a stock pays to shareholders. A reasonably low payout ratio (say, 70% or less) is a good sign that the dividend is sustainable.
- History of increases: It's a very good sign when a company raises its dividend year after year, especially when it can continue to do so during recessions and other tough economic times, such as the COVID-19 pandemic.
- Steady revenue and earnings growth: When looking for the best dividend stocks to own for the long term, prioritize stability. Erratic revenue (up one year, down the next) and fluctuating earnings can be signs of trouble.
- Durable competitive advantages: This is perhaps the most important feature. A durable competitive advantage can come in several forms; for example, proprietary technology, high barriers to entry, high customer switching costs, or a powerful brand name.
- Supportable yield: This is last on the list for a reason. A high yield is obviously preferable to a lower one, but only if the other four criteria are met first. A high dividend is only as strong as the business that supports it. So, compare dividend yields after ensuring the business is healthy and the payout is stable.
Related investing topics
How Are Dividends Taxed?Here are the factors that determine how much you owe on dividends as well as a look at tax rates.
Top Dividend Mutual FundsWant to own a diversified collection of stocks that offer dividends? These may be a good fit.
Renewable Energy Dividend StocksGoing green is the future of energy. And investing here means you can see some green, too.
Dividend stocks are long-term investmentsEven the most rock-solid dividend stocks can experience significant volatility over short periods. There are simply too many market forces that can move them up or down over days or weeks. And many have nothing to do with the underlying business itself.So, while the companies above should make great long-term dividend investments, don't worry too much about day-to-day price movements. Instead, focus on finding companies with excellent businesses, stable income streams, and (preferably) strong dividend track records. The long term will take care of itself.
Dividend stock FAQs
How do dividends work?
A dividend occurs when a company sends money (or stock, though very rarely) to its shareholders. When a company gets to the point that it consistently earns more than management can effectively reinvest, establishing a dividend policy and sending those excess profits back to investors is a smart move.
What is a dividend yield?
Dividend yield is a stock's annual dividend payments to shareholders, expressed as a percentage of the stock's current price. This number tells you what you can expect in future income from a stock based on the price you could buy it for today, assuming the dividend remains unchanged.