With the market not far off all-time highs, you might think it’s not the best time to go looking for the best dividend stocks to buy. You’d be wrong.
Just because dividend yields market-wide are off versus a year ago doesn’t mean dividend stocks any less attractive for long-term investors. Indeed, dividend stocks never go out of style for patient investors.
Be that as it may, yields on the best dividend stocks in the S&P 500 aren’t what they once were. Sure, companies are increasing their dividend payments, but share-price gains are offsetting any bump to dividend yield. Just look at the dividend yield on the S&P 500. It’s down to 2.12% today vs. 2.2% a year ago — not large on the aggregate, but it’s not the right direction, either.
In a way, the thirst for yield only makes the search for the best dividend stocks even more important. The key is to get the largest yield possible with the least amount of risk.
Large caps — preferably blue chips — with ample yields and a long history of rising payouts will serve your equity income portfolio well if given enough time. Although current yields may be underwhelming, they won’t stay that way on your own personal costs basis if you hang on through hike after hike.
The trick is to find the best S&P 500 dividend stocks and hang on. Here are the top names in the index.
Top S&P 500 Dividend Stocks to Buy #10: Procter & Gamble (PG)
PG Dividend Yield: 3.1%
It doesn’t get more blue chip than Procter & Gamble Co (NYSE:PG). This component of the Dow Jones Industrial Average has paid rising dividends since the 19th century. That gives investors confidence that the payouts will keep coming no matter what.
Admittedly, Procter & Gamble isn’t running completely unimpeded. Its fiscal fourth-quarter earnings report saw earnings and revenues decline thanks to hiccups in the beauty, home care and other divisions.
Still, PG is getting its house in order. It’s in the midst of a $10 billion cost-cutting program, which is something that is always music to the market’s ears. It’s also returning billions of dollars to shareholders via stock buybacks.
Happily, defensive names like Procter & Gamble are in vogue these days. PG stock is up 10% for the year-to-date vs. a gain of less than 5% for the broader market.
Top S&P 500 Dividend Stocks to Buy #9: Wells Fargo (WFC)
WFC Dividend Yield: 3.2%
OK, Wells Fargo & Co (NYSE:WFC) might not be the most popular name after its jaw-dropping accounts scandal, but so what? It’s still a quality business with a quality stock.
Wells Fargo’s reputation took a hit, and now Congress is doing its typical bluster — this time over senior management.
But, as bank crises do, this will blow over. Shares in WFC went to $46 from $51 on the news. That has the dividend up to a very attractive level. True, banks are constrained when it comes to formulating their capital plans. But — again — the scandal doesn’t have anything to do with capital requirements.
When you can get one of the nation’s top banks on sale, you go for it.
Top S&P 500 Dividend Stocks to Buy #8: Cisco Systems (CSCO)
CSCO Dividend Yield: 3.4%
CSCO is following the same playbook as every other legacy tech name. It’s making the long, painful and slow transition to cloud-based services and away from hardware. The arrow hasn’t always been pointed up, but Cisco has been regularly topping Wall Street’s earnings and revenue targets.
Cost cuts also increase investor confidence in this company.
Cisco has been a total-return machine so far this year, with price appreciation of nearly 15% on top of the healthy dividend. With cloud-based services still ramping up, you can expect more of the same.
Top S&P 500 Dividend Stocks to Buy #7: Boeing (BA)
BA Dividend Yield: 3.4%
It’s in fashion to worry about Boeing Co (NYSE:BA), but the company isn’t that troubled. Boeing beat analysts’ profit estimate over the summer and the cash-flow picture continued to strengthen.
In a tip to the benefits of diversification, margin growth in the company’s defense business is making up for some of the drag coming out of the commercial segment.
Right now, Boeing is duking it out with Lockheed Martin Corporation (NYSE:LMT) over a combat jet deal in Denmark — a rare challenge in the international defense world.
BA stock is still off for the year-to-date with an 11% decline. That underperforms the broader market by a wide margin, but it also has the dividend yield flying high. Gushers of cash flow ensure that the payouts will keep coming.
Top S&P 500 Dividend Stocks to Buy #6: Pfizer (PFE)
PFE Dividend Yield: 3.5%
Mega-Pharmaceutical company Pfizer Inc. (NYSE:PFE) is on a mergers and acquisitions bender that promises long-term price appreciation to go along with a steady dividend stream.
PFE’s $14 billion acquisition of Medivation bolsters the long-term bull case on Pfizer stock. The pharmaceutical giant is building up its oncology portfolio in a big way. It already has a hit with Ibrance, a breast cancer drug on the cusp of becoming a blockbuster, and MDVN complements that nicely.
Then there’s the $5.2 billion acquisition of Anacor Pharmaceuticals, which landed Pfizer crisaborole — a non-steroid eczema treatment that’s being studied for efficacy against psoriasis.
Like a lot of defensive names, PFE is having a good year. Shares are up 6% for the year-to-date. The S&P 500 is ahead by only 4.5% so far in 2016.
Top S&P 500 Dividend Stocks to Buy #5: IBM (IBM)
IBM Dividend Yield: 3.6f%
International Business Machines Corp. (NYSE:IBM) is another classic tech name trying to get with the times.
Happily for shareholders, last quarter’s report showed good progress with its turnaround plan.
IBM beat Street forecasts on the top and bottom line thanks partly to its focus on new business areas. The legacy business continued to shrink, but that was partially offset by growth in the segment that includes things like Watson, security and cloud computing. Analytics, social and mobile are also some of the keys to IBM’s future.
Watson alone is a reason to love this company, with Deloitte estimating that the cognitive computing market could reach $50 billion in the next five years — in just the U.S.!
IBM stock is another total-return winner these days. It’s up 13% YTD on price alone. And the dividend has nearly doubled over the past half-decade.
Top S&P 500 Dividend Stocks to Buy #4: AbbVie (ABBV)
ABBV Dividend Yield: 3.6%
AbbVie Inc (NYSE:ABBV) stock is having a market-beating year with its gain of more than 7%, and the dividend only pads that lead. Slow-but-steady growth is a basic part of the equation.
AbbVie successfully completed the acquisition of Stemcentrx in June, which bolsters its portfolio of oncology treatments. In other fundamentally good news, the FDA recently approved Humira in non-infectious intermediate, posterior and panuveitis in adult patients. That makes it the only non-steroidal drug available for the disease.
With a long-term growth rate of more than 15%, the forward price-to-earnings multiple of 11 gives ABBV a compelling valuation.
And dividend growth is fantastic. AbbVie has only been around since 2013, and its payout has grown by more than 40% in that short time.
Top S&P 500 Dividend Stocks to Buy #3: Verizon (VZ)
VZ Dividend Yield: 4.49%
You can’t talk about dividend stocks without talking about the telecommunications sector. That’s why you have to look at Verizon Communications Inc. (NYSE:VZ).
Sure, Verizon is boring, but it’s supposed to be.
As much as traditional telecommunications is a poky business, VZ is making some interesting moves. Most famously it recently acquired the core properties of Yahoo! Inc. (NASDAQ:YHOO) to drive new revenue streams and position itself for the future. And a little further back, Verizon acquired AOL.
You might scoff at Verizon picking up has-been Internet properties, but they actually provide VZ with potential growth in digital content and advertising technology.
And lest you think defense is not cool, VZ stock is up 12% so far in 2016. If it can keep up its mojo, it will continue to be a total-return monster.
Top S&P 500 Dividend Stocks to Buy #2: AT&T (T)
T Dividend Yield: 4.8%
Speaking of total-return monsters, you have to give a shout out to AT&T Inc. (NYSE:T).
Verizon’s main competitor routinely offers one of the heftier dividend yields in the S&P 500. Even if this were just a list of the largest dividends in the index, T would warrant a spot.
But AT&T isn’t just a high dividend — it’s a high-quality dividend.
An earnings beat helped by its acquisition of DirecTV and advances in the wireless business was applauded by the market and analysts alike. After some upgrades, fully 15 of the 31 analysts covering the stock rate it a buy.
More impressively is that shares are having a huge year. T stock is up 17% YTD. That has weighed on the dividend yield, to be sure … but then, where else are you going to get that sort of return for this kind of risk?
Top S&P 500 Dividend Stocks to Buy #1: General Motors (GM)
GM Dividend Yield: 4.9%
The market is rightly worried about General Motors Company (NYSE:GM) hitting the peak of the latest car-buying cycle, but it’s overdoing its concerns. It feels like GM stock has been discounted for a worst-case scenario, if not more.
GM once again printed strong quarterly numbers back in July. It set a record for earnings and lifted its full-year guidance. Higher-margin pickup trucks and large SUVs helped pick up the slack, and Europe has even become a positive once more.
If we’re at the cyclical peak, don’t tell General Motors.
The market, however, remains unimpressed. The stock is off about 10% for the year-to-date. With a 4.9% dividend yield and a lowly valuation, this is a good time to buy more GM.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.