What makes a good dividend stock? Investors have different criteria; some income investors are blinded by high-paying dividend stocks, only wishing to ride the mouthwatering yield for a quarter or two.
But far more often income investors approach stocks with a long-term focus. With that aim in mind, the best dividend stocks to buy tend to be stable stocks that pay fairly regular, meaningful dividends with the potential to increase in the future. Briefly,
- A regular dividend is paid out consistently, generally quarterly. A strong record of dividend growth is also encouraging here.
- A meaningful dividend is a dividend high enough to compensate the investor for the risk he/she is taking in buying the stock. Here, stocks yielding a minimum of 3% are considered.
- And dividends with the potential to increase can be spotted by a stock’s payout ratio, which measures the percentage of net income a company pays out in dividends. The lower the payout ratio, the greater the capacity to increase the dividend in the future.
With that definition in mind, let’s look at the five best dividend stocks to buy now.
Best Dividend Stocks to Buy Now: #1 — Chevron Corporation (NYSE:CVX)
One of the last things income investors want is volatility, so considering the precipitous tumble in oil prices, readers might be scratching their heads over this pick. But even as oil prices slid by more than 50%, Chevron Corporation (NYSE:CVX) stock remained stubbornly resistant.
CVX stock is only off about 7% in the last year. The integrated titan of energy is far more diversified than its wildcatting peers, and because parts of Chevron’s business offset one another as oil prices swing (the refining segment actually makes higher margins as prices fall), CVX stock has seen only a fraction of the steep price declines.
That said, CVX stock has pulled back, and investors have an opportunity to snap up shares at a discount before oil prices rise again. Recently honored as the energy sector’s sole nominee in “10 for 10: Dividend Stocks for Every Sector,” by InvestorPlace‘s Dan Burrows, don’t expect Chevron’s stock to trade at these levels indefinitely.
Its 29 consecutive years of dividend growth also point to a company intent on consistently returning more and more money to the pockets of their shareholders. Sounds like a buy to me!
Best Dividend Stocks to Buy Now: #2 — Ford Motor Company (NYSE:F)
Ford Motor Company (NYSE:F) doesn’t have quite the dividend growth record that CVX does, but that’s largely because the auto industry was nearly obliterated in the wake of the financial crisis.
Going forward, F stock and its robust 4.1% dividend make it one of the more underrated dividend stocks to buy, especially considering Ford’s improved outlook for 2015. I argued as much earlier this month, when I made the bullish case for Ford stock after the automaker increased its quarterly dividend by 20%.
2014 was admittedly a tough year for F stock and its industry-leading F-series of trucks, which suffered inventory shortages as Ford struggled to bring the new-look aluminum vehicles to the masses. But the F-150 isn’t the only seller in the company’s lineup. As I noted earlier this month:
“The Ford Fusion and Ford Escape both broke sales records last year, proving that the brand itself isn’t going stagnant. In China, Ford’s sales rose 19% from the year before, and December sales growth in China clocked in at 13%.”
With the F-series production kinks worked out, an increased dividend and lower prices at the pump fueling demand for cars, F stock is poised for a good year in 2015.
Best Dividend Stocks to Buy Now: #3 — Pfizer Inc. (NYSE:PFE)
Pfizer Inc. (NYSE:PFE) stock has one of the top 25 market capitalizations in the world, making PFE uniquely insulated from severe downturns by mere virtue of its girth alone. It’ll never grow at a blistering pace — Pfizer’s fourth-quarter revenue was actually down 3.3% — but its hefty dividend and significant resources helped to earn it a spot on today’s list.
Hurt by a stronger dollar, PFE stock reported lower revenue and slightly lower earnings per share in the fourth quarter, though both numbers beat analyst estimates. If you’re a long-term investor, though, the quarter holds one particularly promising statistic — research and development expenses rose by 14% in the period.
It may sound odd to applaud rising costs, but R&D spending is the lifeblood of the pharmaceutical business. PFE owns one of the most compelling drug pipelines in the business — a breast-cancer treatment and a herpes vaccine are in the works — easily making it one of the best dividend stocks to buy now.
Consider the fact that PFE stock also just increased its dividend payout and Pfizer looks like even more of a no-brainer.
Best Dividend Stocks to Buy Now: #4 — Occidental Petroleum Corporation (NYSE:OXY)
Occidental Petroleum Corporation (NYSE:OXY), an oil and gas exploration company, is perhaps the company with the most uncertainty surrounding it on this list. That said, with a market value of $62 billion, a high dividend, consistent dividend growth and a solid payout ratio, OXY stock looks like a buy for a reason.
Unlike some competitors that are drowning in debt and struggling to repay it as oil stagnates at less than $50 a barrel, OXY doesn’t have a problem paying back debts even with today’s challenging industry economics. That liquidity “positions us well in this volatile price environment” according to one Occidental Petroleum official.
That said, OXY will suffer more than the major integrated oil and gas players, such as CVX, if oil prices remain subdued in the long term.
Conversely, OXY stock should benefit more rapidly from a rise in oil prices as well, so investors should figure out their own long-term views on energy before buying OXY.
Best Dividend Stocks to Buy Now: #5 — Exxon Mobil Corporation (NYSE:XOM)
Have you noticed that this list is fairly heavy on the energy sector? I have, too, but that’s simply because the ravaged stock prices in the area have sent dividend yields soaring.
The same is true for Exxon Mobil Corporation (NYSE:XOM) stock. Although XOM hasn’t really been “ravaged” — shares are off about 4% in the last 52 weeks — Exxon hasn’t exactly thrived in the energy meltdown, either.
This underperformance, combined with the lowest payout ratio on this list and the longest record of dividend growth, make XOM stock available at what amount to fire-sale prices. XOM trades hands at about 11.5 times earnings, and a mere 11.3 times trailing earnings when you take Exxon’s $5 billion cash pile out of the equation.
The stock was such a compelling value at the beginning of 2015 that InvestorPlace feature writer Dan Burrows named it one of just 3 Blue-Chip Dividend Stocks to Buy for 2015. A month later, XOM stock has more or less just gone sideways.
It’s still one of the best dividend stocks to buy in the stock market right now.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.