The best high dividend stocks to buy now are not necessarily those that simply have a big dividend yield. As the old saying goes, there are two ways to get your dividend to 5% — increase that dividend over time, or offer a 2.5% dividend and watch your share price get cut in half.
That is, of course, until the payout gets cut thanks to the same hard times that weighed on shares.
If you lose principal with your dividend investments, even a 5% payout annually won’t keep you whole. So the best high dividend stocks, then, aren’t necessarily companies that yield 7% or 10%, but rather those that yield in the ballpark of 3% to 5% and offer consistent share appreciation and steady dividend increases.
This is the methodology that I’ve followed as I’ve put together my list of the best high dividend stocks to buy now, and after reading through the details, most investors will agree: These stocks are some of the safest bets you’ll find in this risky and uncertain environment.
So what exactly are the seven best high dividend stocks to buy? Take a look:
Best High Dividend Stocks to Buy: Southern Co (SO)
YTD Return: -10% vs. -2% for the S&P 500
Market Cap: $40 billion
Dividend Yield: 4.9%
Southern Co (SO) is one of the best high dividend stocks to buy, but not simply because of yield alone.
Southern is one of the largest public electricity utilities in the U.S. But more than that, it’s also one of the most rapidly changing utility stocks out there.
SO stock used to rely heavily on coal-fired power plants, but has increasingly moved toward cleaner-energy sources including wind, solar and nuclear energy. There also is $1 billion allocated to energy efficiency through 2020 to make better use of the power on the grid already, according to a 2015 carbon disclosure report from SO.
That’s no easy task for any utility stock, let alone a $40 billion one like Southern Co.
Lest you think all this efficiency comes at the cost of share price performance and profits, however, take a look at the fact that revenue is expected to increase slightly this year and is scheduled for another single-digit uptick in 2016. Meanwhile, profits should be on the rise modestly as well.
This isn’t a screaming growth story, but it is a stable play for investors looking for certainty.
“Because interest rates are so low (for now), this is the ideal time for large, asset heavy companies like Southern Company to retool. And SO has taken great advantage by positioning itself for the future growth in demand from its current markets as well as it new markets.”
Yes, SO stock has lagged a bit in 2015. But you can be sure that the juicy dividend will keep rolling, given that it’s only about 73% of next year’s earnings and given that SO is basically a legalized monopoly as a huge regional utility.
Best High Dividend Stocks to Buy: Public Storage (PSA)
YTD Return: +30%
Market Cap: $42 billion
Dividend Yield: 2.8%
Self-storage company Public Storage (PSA) is one of the largest players in the space, and its unrivaled scale and tax-efficient structure as a real estate investment trust means huge and reliable dividends to shareholders.
That makes PSA a lock as one of the best high dividend stocks to buy now.
PSA boasts more than 2,200 storage facilities across the U.S. and Europe, and consumers are sure to recognize the firm’s distinctive orange facilities and signage. But it’s not just scale that matters — Public Storage is growing both the top and bottom lines at an impressive clip.
Consider that in fiscal 2011, PSA posted total earnings per share of $3.29 on the year. However, in fiscal 2016, PSA is expected to post a staggering $9.64 in EPS — a roughly 200% increase across just six years! That comes as revenue has soared, from $1.75 billion to a projected $2.4 billion in the same period.
How can this company pull off such amazing profits on more modest revenue growth? For starters, the company is amazingly efficient with a weighted average occupancy of 95.3% last quarter — up from an already impressive 94.7% previously.
Also, Public Storage is in the right place at the right time as many baby boomers are downsizing in the wake of the financial crisis and many millennials are reluctant to enter the market as homeowners … meaning that without property to store their copious possessions, many Americans are relying on storage facilities.
The monthly rent payments mean reliable revenue, and thus reliable dividend payments to shareholders.
Best High Dividend Stocks to Buy: Chevron Corporation (CVX)
YTD Return: -22%
Market Cap: $168 billion
Dividend Yield: 4.9%
Yes, it has been an ugly year or so for energy stocks. But Chevron (CVX), while it may not have a lot of growth in its future, is one of the most reliable names in energy … and also one of the biggest dividend payers in the space.
With a nearly 5% yield and dividends that have been paid since 1912, you’d be hard-pressed to find a better income investment in the space than CVX.
This attractive dividend play isn’t without future plans to mitigate the risk of low oil prices, however. Chevron has been aggressively investing in infrastructure to bring new fields online and keep operations efficient. In fact, even with crude oil prices crashing, Chevron announced a $35 billion capital spend earlier this year — 13% lower than 2014, yes, but still impressive.
And why not? CVX has about $40 billion in cash and investments on the books and had amazing operating cash flow of more than $31 billion in 2014.
Margins are admittedly weak, but the company is right-sizing itself for the age of cheap oil and investors have beaten down this megacap a bit unfairly. At current pricing, Chevron stock trades for less than 11 times forward earnings — and with a mammoth dividend, that’s a bargain.
Oil may not come back to $100 anytime soon, or even anytime in the next decade. But investors looking for the best dividend stocks to buy can be sure Chevron will be around and keep the payments coming.
Best High Dividend Stocks to Buy: Altria Group Inc (MO)
YTD Return: +164%
Market Cap: $112 billion
Dividend Yield: 4%
Altria (MO) is the brand behind Marlboro cigarettes and wineries including Chateau Ste. Michelle, among many others.
While this sleepy consumer staple firm doesn’t have a ton of growth potential, the sheer consistency of earnings makes MO stock one of the best high dividend stocks to buy now. Altria has seen year-over-year EPS expansion in six of the past seven quarterly reports, and longer-term, earnings have jumped from $1.64 in fiscal 2011 to a projected $3.05 next fiscal year. That’s roughly double the profits for shareholders in six years’ time.
Most recently, Altria reported in-line earnings that were up almost 9% year-over-year. The company also issued strong guidance, hinting that these trends will continue.
Even though the merger between Reynolds American (RAI) and Lorillard (LO) has made it past regulators and will place a bit of competitive pressure on Altria, it’s hard to argue against the Marlboro brand — or the juicy 4% dividend.
Shares of MO stock have consistently outperformed, with 125% gains in the last five years to more than double the performance of the S&P 500 in the same period.
There’s no reason to start betting against Altria now.
Best High Dividend Stocks to Buy: Telefonica S.A. (ADR) (TEF)
YTD Return: -19%
Market Cap: $59 billion
Dividend Yield: 7.5%
Global telecom powerhouse Telefonica (TEF) may not be as well-known, but it is a powerful dividend payer with a much brighter future than these languishing U.S. players.
With roots as a Spanish telephone company, TEF now has operations across Western Europe and Latin America. The dividend yield is a bit more volatile than domestic telecoms, since it’s paid twice a year and one of those chunks is significantly bigger, but based on previous payouts, the yield is a hefty 7.5%.
What makes Telefonica attractive, however, is that emerging-markets footprint. Trouble overseas have weighed on sales and earnings lately, however TEF is set to bounce back with 12% EPS growth in fiscal 2016 on low single-digit revenue expansion.
Furthermore, Telefonica is looking at a possible IPO for its high-growth Mexican operations as a way to raise capital and keep the company moving forward. This is another reason investors can be optimistic in this high dividend stock to buy now.
There is stability in U.S. telecoms, to be sure, but they are awfully sleepy and don’t offer much upside. So why not get a big dividend and potential growth in Telefonica instead?
Best High Dividend Stocks to Buy: JPMorgan Chase & Co. (JPM)
YTD Return: +3%
Market Cap: $241 billion
Dividend Yield: 2.7%
As the U.S. Federal Reserve toys with the idea of raising rates at its upcoming policy meeting, investors everywhere are looking to see which sectors may benefit and which ones may fall behind. There are some gray areas, but when it comes to banks the answer is black and white — higher interest rates mean better margins on loans, and the case is decidedly bullish.
But which banks are best?
Despite a better track record, however, JPM stock is trading at parity with these other banks at about 10.5 times forward earnings. It trades for a small premium above its book value, but that’s still an attractive valuation for this megabank
Furthermore, its dividend is less than a third of total earnings, meaning that if the Fed raises rates on hopes of a strengthening economy, there is almost no way they will not approve continued dividend increases for this stable bank.
In fact, Charles Sizemore recently noted:
“Earlier this year, JPMorgan CEO Jamie Dimon indicated that he wanted to see JPM’s dividend payout ratio rise to about 50% of income. Between steady earnings growth and a boost to the payout ratio, investors could be looking at a doubling of the dividend in relatively short order.”
If you believe that rates are moving higher and lending is going to heat up thanks to economic recovery, you want to be in banks. And given the already decent dividend and hopes of future increases, JPM remains one of the best high dividend stocks to buy now.
Best High Dividend Stocks to Buy: Johnson & Johnson (JNJ)
YTD Return: -3%
Market Cap: $285 billion
Dividend Yield: 2.9%
Consumer healthcare and pharmaceutical king Johnson & Johnson (JNJ) is the last of the best high dividend stocks to buy now.
The reasons are obvious, with the blue-chip leader one of the most reliable dividend payers on the planet. For 52 years, in fact, JNJ has increased its dividend at least once a year — and despite this, the payout is still less than half of FY2016 earnings.
Great stability from its consumer arm via Band-Aid and Tylenol brands compliment robust pharmaceutical operations that offer future growth potential, making it more of a hybrid healthcare company than a true staples play like Procter & Gamble (PG) or others in the space. In fact, the company just acquired development-stage Novira Therapeutics in bid to continue its focus on high-margin prescription drugs and drive future growth.
That growth hasn’t always been reliable, as JNJ stock hit a snag a few years back and fell out of favor with investors.
But now that it’s trading for under 16 times next year’s earnings even after snapping back about 25% from its recent 52-week low this fall? Well, momentum is looking as good as the dividend here and investors can have confidence in this dividend stock across 2016 and beyond.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.