Having a thorough understanding of how to invest in dividend paying stocks will help you to make more informed decisions when building your portfolio.
The best dividend stocks give you a great hedge against inflation, as they provide both appreciation and capital gains to offset rising costs. From 1991 to 2015, dividend stocks delivered more than twice the return of non-dividend paying stocks. When inflation is up and many stocks are down, dividend-paying stocks may offer investors some unique benefits.
But here’s the trouble: Not all dividend stocks are created equal. For instance, a good dividend cannot make up for an underperforming stock. Similarly, a high dividend yield could be a trap that covers up erratic payouts, poor performance, or minimal growth prospects.
Building a portfolio of individual dividend stocks takes time and effort, but for many investors, it's worth it. Here’s a quick guide to help you start dividend investing:
- Find a high dividend-paying stock. You can screen for stocks that pay dividends on many financial sites, as well as on our platform that provides access to +5.000 stocks. We've also included a list of high-dividend stocks below.
- Evaluate the stock. To look under the hood of a high-dividend stock, start by comparing the dividend yields among its peers. We’ve also detailed how to evaluate the best dividend stocks below.
- Decide how much stock you want to buy. You need diversification if you’re buying individual stocks, so you’ll need to determine what percent of your portfolio goes into each stock.
- Take your position – create an account with us to start dividend investing.
For more info about the best dividend stocks, you can discover everything you need to know in this guide.
What are dividend stocks?
Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. These companies usually are well established, with stable earnings and a long track record of distributing some of those earnings back to shareholders. The distributions are known as dividends and may be paid out in the form of cash or as additional stock.
Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend. While dividend stocks are known for the regularity of their dividend payments, in difficult economic times those dividends may be cut to preserve cash.
One useful measure for investors to gauge the sustainability of a company's dividend payments is the dividend payout ratio (DPR). The ratio is a measure of total dividends divided by net income, which tells investors how much of the company's net income is being returned to shareholders in the form of dividends versus how much the company is retaining to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), this indicates that the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively greater risk of being cut. We look at a practical example of evaluating dividend stocks later in the article.
Below, we look at some of the best dividend stocks in the USA 500 index and Europe by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. Dividend stocks, as measured by the S&P 500 Dividend Aristocrats Index, have outperformed the broader equity market.
High-Dividends Stocks 2022
Those are some of the ways you find potentially lucrative dividend stocks. Again, learning how to choose the best dividend stocks isn’t an exact science. The goalposts are always moving, and you must do some research to stay on top of the game. However, if you look at well-established companies and assess their yields, you’ll start to get a general idea of where to put your money.
Here are some well-known dividend stocks you can buy on CAPEX.com:
Best US Dividend Stocks 2022
Lumen Technologies Inc. (ticker: LUMN)
Lumen Technologies is a U.S. telecommunications company that changed its name from CenturyLink in 2020. Lumen is moving to divest some of its assets, and on Aug. 1, the company completed a $2.7 billion sale of its Latin American operations to Stonepeak. In August 2021, Lumen announced a planned $7.5 billion sale of its traditional telecom business to Apollo Global. Lumen shares are down more than 50% in the past five years, but experts say the company has tremendous potential once it completes its divestitures.
- Dividend yield: 9.1 percent
- Annual dividend: $0.91 per share
Altria Group Inc. (MO)
Altria is one of the world's largest tobacco companies. Analysts say Altria is no longer a pure-play cigarette company. Roughly 15% of experts' valuation estimate for Altria comes from the company's 10.2% stake in alcohol giant Anheuser-Busch Inbev SA (BUD). In addition, the company has acquired both vaping and cannabis assets in recent years, including its stakes in Juul and Cronos Group Inc. (CRON). Analysts say the U.S. cigarette market is in secular contraction, but it remains attractive for now given its profitability.
- Dividend yield: 8.2 percent
- Annual dividend: $3.69 per share
AT&T is another telecommunications leader that generates solid cash flow for shareholders. Recently, the company has divested some assets and cut its dividend by nearly half as it focuses on 5G investments and paying down its heavy debt load.
- Dividend yield: 6.1 percent
- Annual dividend: $1.11 per share
Verizon Communications (VZ)
Verizon is a leader in communication and technology services. Along with AT&T and T-Mobile, they provide most mobile-phone services in the U.S. Verizon generated more than $130 billion in revenue in 2021.
- Dividend yield: 5.8 percent
- Annual dividend: $2.56 per share
Philip Morris International (PM)
Philip Morris sells cigarettes and smoke-free products in more than 180 countries outside the U.S. Though the company still generates significant profits from sales of tobacco-related products, it’s moving towards a greater focus on smoke-free products that, while not risk-free, present less of a health risk than cigarettes.
- Dividend yield: 5.1 percent
- Annual dividend: $5.00 per share
Intel is one of the leading semiconductor companies in the world, and its chips help to power much of the technology we use every day. The company plans to invest billions of dollars in new capacities as it tries to keep pace with rival chipmakers. Intel returned about 90 percent of its free cash flow to shareholders from 2015 to 2019.
- Dividend yield: 4.1 percent
- Annual dividend: $1.46 per share
Exxon Mobil (XOM)
Exxon Mobil is the largest oil and gas company in the U.S. and can trace its roots back to John D. Rockefeller’s Standard Oil empire. In 2022, Exxon set a goal to reduce or offset greenhouse gas emissions from its operations to zero by 2050 in response to pressure from investors and the public about the company’s role in climate change.
- Dividend yield: 3.9 percent
- Annual dividend: $3.52 per share
Chevron is a leading energy company that has outlined a plan it says will produce high returns for shareholders from its advantages in traditional energy such as oil and gas and allow it to lead in the lower-carbon future. The company boasts about its strong balance sheet and history of returning cash to shareholders.
- Dividend yield: 3.7 percent
- Annual dividend: $5.68 per share
JPMorgan Chase (JPM)
JPMorgan is one of the largest banks in the U.S. and is run by highly respected CEO Jamie Dimon. The bank navigated the 2008 financial crisis better than most, and its stock has appreciated more than 5-fold since then, all while paying a sizable dividend to shareholders.
- Dividend yield: 3.5 percent
- Annual dividend: $4.00 per share
Cisco Systems (CSCO)
Cisco provides a variety of networking, security, and cloud solutions and generated nearly $50 billion in revenue in 2021. The company is very profitable and has earned more than $15 billion in operating cash flow each of the past three years. Almost one-third of its cash flow was used for dividends in 2021.
- Dividend yield: 3.4 percent
- Annual dividend: $1.52 per share
Best European Dividend Stocks 2022
BAE Systems (BAESY)
The U.K. defense contractor benefits from current geopolitical tensions that are fueling interest in its next-generation Tempest fighter jets among European customers. Already well-known for its Typhoon fighter planes and work on the F-35 fighters, BAE System has hiked dividends 5% annually over the past three years. BAESY shares yield 3.6% or more than two times the yield of the U.S. industrial sector. A forward price-to-earnings multiple of 14 represents a 15% discount to peers.
- Dividend yield: 5 percent
- Annual dividend: $1.83 per share
The French drug maker enjoys a wide moat thanks to its blockbuster drug Dupixent and is strengthening its best-in-class drug pipeline via acquisitions. Recent deals include Amunix, which adds 20 new drug candidates to the oncology pipeline, and Origimm, which is developing the healthcare industry's first vaccine candidate against acne vulgaris – a condition affecting millions of teenagers and adults. Sanofi grew dividends 4% in 2021 and 3% annually over the past five years. SNY yields 3.5%, which is roughly twice that of the healthcare sector, and its 12.3 forward P/E is almost 35% below the sector average.
- Dividend yield: 3.5 percent
- Annual dividend: $1.82 per share
Legal & General (LGGNY)
The U.K. pension specialist has tapped into Europe's aging population to generate 11% annual EPS and dividend growth over the past decade. The company is one of Europe's largest asset managers, thanks to its mature life insurance, pension, and annuities segments, and is making big investments in housing and infrastructure that should pay off handsomely in the future. LGGNY shares yield an eye-popping 8.1% and are priced at a lowly 7 times earnings estimates – a roughly 35% discount to financial peers.
- Dividend yield: 8.1 percent
- Annual dividend: $21.06 per share
London-based consumer goods giant Unilever boasts a powerful brand portfolio and the advantages of significant scale and sustainable cash flow. Its brands – which include Dove soap, Knorr sauces and seasonings, Lipton tea, and Hellmann's mayonnaise – are household names. Unilever grew dividends by 5% last year and at a 7% annual clip over the past five years. Yield is generous at 4.2%, and UL shares trade at 18 times profit estimates – a slight discount to the consumer staples sector but a 10% discount to its own historical valuation.
- Dividend yield: 4.2 percent
- Annual dividend: $1.93 per share
Are these the best dividend stocks?
The stocks above may have high yields, but that doesn't necessarily mean that they're the best dividend stocks for any investor. The ideal portfolio varies from person to person, based on individual goals and timelines for those goals. Besides, many investors are better off buying index funds rather than individual stocks.
A high dividend yield can also indicate many things, and not all of them are good. As stated previously, falling stock prices can increase dividend yields, and some companies go into debt by overspending on their dividend. The over-spenders may eventually be forced to cut their dividends if they become unsustainably expensive.
If you're looking for dividend stocks with a low risk of cutting their dividends, check out the dividend aristocrats — a group of S&P 500 stocks that have increased their dividends every year for at least 25 years.
Remember, dividends are nice, but they aren’t the only factor to consider when buying a stock. Ideally, a dividend stock is financially strong and growing—continued stability and growth signals that the company’s dividend is sustainable over the long term and likely to be increased regularly.
Experienced third-party financial analysts selected the stocks above, but they may not be right for your portfolio. Before you purchase any of these stocks, do plenty of research to ensure they align with your financial goals and risk tolerance.
Why buy dividend stocks?
Stocks that pay dividends can provide a stable and growing income stream. Investors typically prefer to invest in companies that offer dividends that increase year after year, which helps outpace inflation.
Two key advantages of investing in dividend stocks include generating a passive income and dividend reinvestment.
- Passive Income: Companies that pay dividends typically issue them quarterly, creating a reliable stream of passive income that investors can spend how they please. Dividends also have the added advantage of offsetting share price depreciation.
- Dividend Reinvestment: Investors can reinvest dividends they receive back into the company to acquire more shares. This is called a dividend reinvestment plan (DRIP). Participating in a DRIP allows the investor to take advantage of compounding returns—a proven strategy to build long-term wealth.
Which Stocks Pay Dividends?
Stocks that commonly pay dividends are more established companies that don’t need to reinvest all of their profits. For example, more than 84% of companies in the USA 500 or US Tech 100 currently pay dividends.
The following industry sectors maintain a regular record of dividend payments:
- Basic materials
- Oil and gas
- Banks and financial
- Healthcare and pharmaceuticals
Companies structured as master limited partnerships (MLPs) and real estate investment trusts (REITs) require specified distributions to shareholders. Funds may also issue regular dividend payments as stated in their investment objectives.
Startups, such as those in the technology or biotech sectors, may not offer regular dividends since these companies may be in the early stages of development and retain earnings for research and development, business expansion, and operational activities.
Many companies pride themselves on paying dividends regardless of market conditions or other factors. Many investors, particularly retirees, may try to invest primarily or solely in such dividend-paying stocks.
On average, dividend-paying stocks return 1.91% of the amount you invest in the form of dividends, which can provide a higher return than some high-yield savings accounts. Dividend stocks do not offer the same security of principal as savings accounts, though.
Dividends for Mutual Funds and ETFs
Because they often own dividend stocks, mutual funds and exchange-traded funds (ETFs) may distribute dividend payments to their shareholders. If you own an ETF or mutual fund, you’ll receive your portion of the fund’s dividend income based on the number of shares you own and the company’s representation in the fund. An S&P 500 fund, for example, might pay a dividend yield of 1.77% while some companies within the S&P 500, like Kohl’s, offer dividend yields above 13% (more on yields below).
Dividends and REITs
A real estate investment trust (REIT) owns or operates income-producing real estate. To be classified as a REIT, 90% of the taxable income these companies earn each year must be paid out in the form of dividends, and 20% of those dividends must be paid as cash.
These traits make REIT stocks attractive choices for investors who want reliable dividend income and high yields. REITs offer an average dividend yield of 3.8%, more than double what you might get from an S&P 500 fund. REITs focusing on certain sectors, like mortgages, may even offer higher yields.
Why Do Companies Pay Dividends?
Dividends are often expected by the shareholders as a reward for their investment in a company. Dividend payments reflect positively on a company and help maintain investors’ trust.
A high-value dividend declaration can indicate that the company is doing well and has generated good profits. But it can also indicate that the company does not have suitable projects to generate better returns in the future. Therefore, it is utilizing its cash to pay shareholders instead of reinvesting it into growth.
A company with a long history of dividend payments that declares a reduction of the dividend amount, or its elimination, may signal to investors that the company is in trouble. AT&T Inc. cut its annual dividend in half to $1.11 on Feb. 1, 2022, and its shares fell 4% that day.
However, a reduction in dividend amounts or a decision against a dividend payment may not necessarily translate into bad news for a company. The company's management may have a plan for investing the money such as a high-return project that has the potential to magnify returns for shareholders in the long run.
How to evaluate dividend stocks
An investor can use different methods to learn more about a company's dividend and compare it to similar companies.
This ratio measures the annual value of dividends received relative to a security's per share market value. Investors calculate the dividend yield by dividing the annual dividend per share by the current stock price. For example, if company XZY issues a dividend of $10 annually with a current share price of $100, it has a dividend yield of 10% ($10 / $100 = 10%). Those seeking high-yielding stocks can start their search by screening for issues with a divided yield above a certain percentage. Bear in mind that there are many other factors besides dividend yield that investors should consider before investing in a stock.
Dividend Payout Ratio
The DPR measures how much of a company's earnings are paid out to shareholders. Investors calculate the ratio by dividing total dividends by net income. For instance, if company XZY reported a net income of $50,000 and paid $15,000 in annual dividends, it would have a DRP of 30% ($15,000 / $50,000 = 30%). This means the company pays out 30% of its earnings to shareholders. Generally, a company that pays out less than 50% of its net earnings in dividends is considered stable and has the potential for sustainable long-term earnings growth.
Dividend Coverage Ratio
This ratio measures the number of times a company can pay dividends to its shareholders. Investors calculate the dividend coverage ratio by dividing a company's annual earnings per share (EPS) by its annual dividend per share. For example, if company XZY reported $10 million in net income with an annual dividend of $2 million to shareholders, it has a dividend coverage ratio of 5 times. ($10 million / $2 million). Typically, investors view a higher dividend coverage ratio as more favorable.
The No. 1 consideration in buying a dividend stock is the safety of its dividend. Dividend yields over 4% should be scrutinized; those over 10% tread firmly into risky territory. Among other things, a too-high dividend yield can indicate the payout is unsustainable, or that investors are selling the stock, driving down its share price and increasing the dividend yield as a result.
How Do Dividends Affect a Stock's Share Price?
Dividend payments impact share price and the price may rise on the announcement approximately by the amount of the dividend declared and then decline by a similar amount at the opening session of the ex-dividend date.
For example, a company that is trading at $60 per share declares a $2 dividend on the announcement date. As the news becomes public, the share price may increase by $2 and hit $62.
If the stock trades at $63 one business day before the ex-dividend date. On the ex-dividend date, it's adjusted by $2 and begins trading at $61 at the start of the trading session on ex-dividend date, because anyone buying on the ex-dividend date will not receive the dividend.
This is not guaranteed but often the price adjusts by the dividend on the ex-dividend date.
How to invest in dividends stocks
Investing in a dividend stock is no different than investing in any other stock. You’ll need a brokerage account, which can easily be set up through an online broker like CAPEX.com, in order to place a trade. Once your account is set up and funded, you can choose which dividend stocks to invest in. Your broker may even be able to help you identify stocks with large payouts through its research offering. CAPEX.com integrated tools like Insider’s Hot Stocks and Daily Analyst Ratings can help traders shortlist stocks.
If you’re not quite sure which dividend stocks to choose, a dividend fund may be a better option for you. Mutual funds and exchange-traded funds (ETFs) focused on dividends hold a basket of stocks that pay dividends. Some of these funds focus on stocks with high dividend yields, while others look for companies that have consistently paid and grown their dividends over time.
By choosing a fund, you won’t have to worry about closely tracking the individual stocks in the portfolio because the fund’s diversification should shelter you from having too much exposure to a single stock.
Start dividend investing
Here is how to invest in dividend stocks with an international, highly regulated broker like CAPEX.com:
- Create an account. Regardless of your chosen assets and strategy, you need to register and complete the KYC process to verify your identity.
- Fund your account with fiat money. Before buying and trading any dividend stock, you need to fund your exchange account with U.S. dollars, Euros, or other currencies.
- Select your dividend stocks. Having a thorough understanding of how to invest in dividend-paying stocks will help you to make informed decisions when building your own income portfolio.
- Place buy order. Follow the steps required by the trading platform to submit and complete a buy order for one or more dividend stocks and dividend ETFs.
With CAPEX, you can invest in +5.000 stocks and 133 ETFs.
What is a dividend?
A dividend is a distribution of a portion of a company's earnings. Companies can choose to regularly reward their shareholders by paying dividends, usually in cash, although sometimes in stock. Companies that consistently generate more profits than management can efficiently reinvest in the business often choose to start paying dividends.
When are dividends paid?
There are four important dates to remember regarding dividends:
- Declaration date: The declaration date is the day the board of directors announces its intention to pay a dividend.
- Ex-dividend date: This is the day—determined by the stock exchange—on which any new purchases of the stock are not entitled to the approved dividends (they would be up for the next round of dividends).
- Date of record: This date always follows the ex-dividend date. It is the day upon which the stockholders must be on the company's record books in order to be eligible to receive that period's dividend. It's basically the ex-dividend date on the company's side, whereas the previous date concerns the exchange itself.
- Payment date: This is the date the dividend will be given to the shareholders of the company.
A vast majority of dividends are paid four times a year on a quarterly basis.
What is the ex-dividend date?
The ex-dividend date is extremely important to investors: Investors must own the stock by that date to receive the dividend. Investors who purchase the stock after the ex-dividend date will not be eligible to receive the dividend. Investors who sell the stock after the ex-dividend date are still entitled to receive the dividend because they owned the shares as of the ex-dividend date.
What are the Different Types of Dividends?
Companies typically pay one of three types of dividends:
- Regular dividend: This type is the most common. Companies that pay a regular dividend generally pay them consistently over time, in part by setting the dividend amount to ensure that it's sustainable in both good and bad years. Regular dividends are usually paid quarterly, although they can also be paid monthly, biannually, or annually.
- Special dividend: This type of dividend is a one-time payment. A company might choose to pay a special dividend after a string of highly profitable quarters or because it sold an asset and doesn't have an immediate use for the money. Some companies pay special dividends because they have accumulated cash over time that the business doesn't need to sustain its operations. Companies often publicly announce special dividends to tell the market they plan to send cash to shareholders but that shareholders should not expect the payment to become a recurring event.
- Variable dividend: Companies that produce commodities such as oil and gas, timber, and mined materials sometimes opt to pay a variable dividend in addition to regular dividend payments. Variable dividends tend to be paid at consistent intervals but vary in amount depending on a company's earnings in the prior quarter or year.
What Is Dividend Yield?
Investors evaluate companies that pay dividends on the value of annual dividends paid relative to the price of the company's stock, which is known as the company's dividend yield.
The dividend yield is a way of understanding the relative value of a company’s dividend payment. Yield is expressed as a percentage, and it lets you know what return on investment you’re making when you earn a dividend from a given company.
Since dividends are paid as a set amount per share, it can be difficult to compare dividend payments across companies given their different share prices. Dividend yield provides a handy way to measure and compare which stocks pay the most dividends per dollar you invest.
How to Calculate Dividend Yield?
To calculate dividend yield, divide the stock’s annual dividend amount by its current share price.
Let’s say the stock ABC is trading at $20 per share, and the company pays a quarterly dividend of 10 cents per share. For the year, ABC’s dividend would be 40 cents. Divide 40 cents by $20 per share to arrive at a dividend yield of 2%.
Dividend yield lets you compare the value of dividends from different companies. Stock XYZ, for example, might pay a higher quarterly dividend than ABC of 20 cents per share, for a total annual dividend of 80 cents. Since shares of XYZ are valued at $75 per share, though, the dividend yield is only 1%.
The dividend yield you’d earn from owning shares of ABC is better than XYZ’s—at least until the shares’ values or dividends change.
What is a Dividend per share (DPS)?
As mentioned above, companies that can increase dividends year after year are sought after. The dividend per share (DPS) calculation shows the number of dividends distributed by the company for each share of stock during a certain time period. Keeping tabs on a company’s DPS allows an investor to see which companies can grow their dividends over time.
What is the Dividend payout ratio?
Advisors say one of the quickest ways to measure a dividend’s safety is to check its payout ratio, or the portion of its net income that goes toward dividend payments. If a company pays out 100% or more of its income, the dividend could be in trouble. During tougher times, earnings might dip too low to cover dividends. Investors look for payout ratios that are 80% or below. Like a stock's dividend yield, the company's payout ratio will be listed on financial or online broker websites.
What is a drip stock?
A dividend reinvestment plan (DRIP) is an option that some brokers offer to clients that allow them to automatically reinvest the value of the dividends paid to them by purchasing additional shares of the same stock.
For instance, if you were to have a DRIP account set up with a broker and they paid out a monthly dividend of £30, instead of that payment being allocated as cash into your brokerage account, it would be used to purchase additional shares within the same company.
Should you buy dividend aristocrat stocks?
Your long- and short-term objectives, as well as the kinds of companies you want to own, come into play.
For instance, if you're looking for immediate income, you may want to avoid companies with lower dividend payouts. If long-term growth is your focus, you may be better off buying dividend aristocrat stocks with higher growth prospects, even if they have lower dividend payouts.
Whether you're looking to pick individual stocks to suit your investing style and goals or for other reasons, such as socially responsible investing goals, Dividend aristocrat stocks can be an excellent starting point for finding the best-in-class dividend growth stocks.
Are dividend stocks a good investment?
Dividend investing is one of the most popular investment strategies. Dividend stocks have historically outperformed the S&P 500 with less volatility. That's because dividend stocks provide two sources of return: regular income from dividend payments and capital appreciation of the stock price. This total return can add up over time.
What is the downside to dividend stocks?
Because stock prices can and will go down. Sometimes by a lot. Creating investment losses even for a dividend stock investor. On the other hand, savings vehicles and bonds will typically hold their value better.
What is the best-paying dividend stock?
The best dividend stocks even raise their payouts over time as the companies and their profits grow. Reinvesting these dividends can help investors compound returns. Unfortunately, dividends are only as good as the companies paying them, making stock selection critical for dividend investors. Among the SP500 companies, Lumen Technologies Inc. Has a dividend yield of 9.1% (trailing 12 months, or TTM)
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