In a world obsessed with capital gains, dividend stocks occasionally take a back seat to fast-moving momentum investments. Think about it: How many stories a day do you read about Facebook Inc (FB) or Alphabet Inc (GOOG, GOOGL) … and how many do you read about Clorox Co (CLX)?
But most investors worth their salt know that they’d only be hurting themselves by forgetting about dividend stocks. Because as explosive as high-growth stocks’ returns can be in quick bursts, dividend stocks and their regular payouts have managed to outperform their non-paying twins by a wide margin over the past few decades.
According to a new report by Ned Davis Research, between 1972 and 2014, dividend stocks have provided an average total return of over 9%. Those stocks that a bit stingy with their cash have only generated sub-3% returns in that time. Even the broader market underperformed the average of all dividend-paying stocks by 150 basis points in that time!
This period of time covers multiple recessions and recoveries, as well as various interest rate environments. So the proof is in the pudding: Dividend stocks are the way to go.
When you’re looking for dividend stocks to get behind, you want to make sure to go with a combination of current yield as well as the potential for dividend growth over the years. Not every high-yielding stock on the market today started as a big payer — in fact, most didn’t.
With that in mind, here are five can’t-miss dividend stocks to buy today:
Can’t-Miss Dividend Stocks to Buy: Medtronic (MDT)
MDT Dividend Yield: 1.8%
Historically, the healthcare sector has been a great place to find dividend stocks.
Medtronic (MDT) is a great example of this, albeit an unorthodox one.
While many of the most well-known dividends in the healthcare space come from the pharmaceuticals industry, MDT is a medical device-maker — and the largest one in the world, at that. Since producing a wearable pacemaker back in the 1950s, Medtronic has become a juggernaut in the field and now offers a variety of medical appliances that hospitals need every day.
That dominant position was reinforced by its recent buy-out of rival Coviden, which added a ton of “lesser” medical devices — things like urology products, IV tubing, traditional wound care items and syringes — to its mix.
Combine these steady-Eddie items with high-tech heart implants, and you have yourself one heck of the stock. The company has plenty of growth — revenues for the latest fiscal year jumped a whopping 42% — and the company has a long history of solid profitability, too.
More specific to income investors, MDT has rewarded shareholders with some big-time dividend growth over its history. This Dividend Aristocrat has paid a steadily rising dividend for more than 40 years at an impressive compound annual growth rate of 18%.
The current yield might not be impressive now, but your yield on cost will be as MDT continues upping the ante.
Can’t-Miss Dividend Stocks to Buy: Cisco Systems (CSCO)
CSCO Dividend Yield: 3.6%
It’s easy to overlook Cisco Systems, Inc. (CSCO). After all, the name conjures up visions of an old tech dinosaur left over from the dot-com boom-and-bust.
However, CSCO has turned into one of the best dividend stocks in the technology sector, and it still has some growth left in the tank, to boot.
Cisco’s bread and butter always was — and remains — networking equipment. And with more things becoming connected to the internet, its products still are plenty in demand.
However, CSCO is looking beyond traditional networking, and that’s where the company is starting to shine. The firm also has a host of software and services under its umbrella, which has Cisco delving in everything from cloud computing to cybersecurity — much higher-margin businesses.
As a result, investors get some massive cash flows that has helped fund a very generous dividend. CSCO has grown its payout by more than 250% since instituting a dividend only a few years ago. And in the meanwhile, the company is expected to grow profits by mid-single digits over the next couple of years.
Can’t-Miss Dividend Stocks to Buy: Aqua America (WTR)
AWK Dividend Yield: 2.2%
That dripping sound you hear could be steady stream of dividends pouring into your wallet if you bet on Aqua America (WTR).
Aqua America is one of the largest water utilities in the United States — it owns and operates water operations for more than 3 million residents across eight states — and benefits (and will continue to benefit) from rising demand and the need for clean water.
The key for Aqua America has been its strategy of smart acquisitions to grow its footprint. WTR will target smaller and struggling municipal water authorities — which simply don’t have the kind of money they need to improve their water infrastructure — and offer to buy them out. For Aqua America, it’s an easy way to add bolt-on assets and grow.
And grow it has. WTR continues to grow its revenues slowly but surely amid expansion and thanks to its regulated nature. Recent forays into non-regulated water assets — such as energy and chemicals — haven’t been as successful thanks to the energy bust, but you won’t hear investors complaining.
Meanwhile, Aqua America has increased dividends for 24 straight years, meaning it soon could be considered for inclusion in the Dividend Aristocrats.
This is one of the most boring but best dividend stocks you can own.
Can’t-Miss Dividend Stocks to Buy: Starbucks (SBUX)
SBUX Dividend Yield: 1.6%
Starbucks Corporation (SBUX) doesn’t yield much at current prices, but it’s still becoming a dividend champion in its own right.
As the largest purveyor of a legal addictive substance, SBUX is the undisputed king in coffee. That includes nearly 24,000 locations across the globe, from standalone stores to grocery store huts.
While the company isn’t the growth monster it once was, it still can pack a punch here and there. The latest quarter was a huge blowout for the firm across pretty much every metric — revenues, profits, you name it.
Driving that monster quarter was SBUX’s continued focus on breakfast and food offerings, the revamping of its loyalty rewards system and its continued focus on tech. The firm continues to see more and more people buy into its digital ecosystem that links Starbucks Cards, apps and various corporate partnerships.
As this drives growth, Starbucks continues to plow more money into its quarterly dividend. SBUX initiated dividends with a 5-cent payout in 2010, and just six years later, it throws out 20 cents regularly. For context, someone who bought in then at a split-adjusted $13 per share is earning more than 6% in dividends annually based on today’s payouts.
Can’t-Miss Dividend Stocks to Buy: 3M (MMM)
MMM Dividend Yield: 2.6%
Huge product catalog and wide moat? Check.
Very long term timeline for paying dividends? Check.
Plenty of opportunities for growth? Check.
Is there any question that 3M Co (MMM) is one of the market’s best dividend stocks to buy?
We tend to think of 3M for its most commercial-facing products, such as Post-it Notes, Command Hooks and Scotch tape. But MMM boasts a huge product catalog of more than 19,000 other products, from diamond drilling bits to food allergen testing supplies! That’s a product breadth that’s virtually unmatched, and that enables 3M to weather all sorts of economic conditions and business cycles. It also helps 3M plow through any global market malaise.
Most importantly, the dividend has benefited, too.
3M has paid a dividend every year since 1916, which means it survived the Great Depression, the Great Recession, and a bunch of minor flops along the way. And 3M has not only increased that payout for 58 consecutive years, but it still boasts a payout ratio of just more than 50% — giving it more than enough cushion to keep boosting it even more.
Among industrials, 3M has few rivals that can match its defensive and income capabilities.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.