There are many flavors of income investing. Some folks focus on mature companies with elevated dividends. These provide more income now, but tend to lack growth and often end up cutting dividends during recessions. Other investors focus on fast-growing companies with small starting dividends. These tend to produce strong long-term returns, but they don’t provide a lot of income up front. So what are the best dividend stocks to buy for beginners?
Fortunately there’s a middle ground between the two dividend investing extremes. That happy medium is companies with above average current dividends that also have historically grown consistently for decades. Companies that managed to keep growing their dividend during the Great Financial Crisis, for example, are far more likely to make it through the novel coronavirus in fine shape.
A popular investing strategy is to buy Dividend Aristocrats. These are companies that have increased their dividend 25 years in a row or more. They are great income stocks to buy for beginners because they a known quantity. Companies capable of growing their dividend that long tend to be stable, strong, and have entrenched competitive advantages over rivals. They make a solid core for your investment portfolio.
InvestorPlace spoke with Zachary Cohle, assistant teaching professor of economics at Quinnipiac University, who had a crucial reminder for investors in these tricky times:
With uncertain in the economy, we always see wild fluctuations in the stock market. It is tempting to sell a stock quickly if the price starts to decrease. If you believe that the economy will grow in the next few years, then a properly invested portfolio will also grow. Continuously tinkering with your portfolio can often do more harm than good for your investment.
One way to make sure you have a properly-invested portfolio that doesn’t require too much tinkering is to focus on blue-chip stocks across a variety of industries. These seven dividend stocks to buy for beginners are a good starting point:
- Kimberly-Clark (NYSE:KMB)
- Texas Instruments (NASDAQ:TXN)
- People’s United Financial (NASDAQ:PBCT)
- General Dynamics (NYSE:GD)
- Emerson Electric (NYSE:EMR)
- First Of Long Island (NASDAQ:FLIC)
- Consolidated Edison (NYSE:ED)
Dividend Stocks for Beginners: Kimberly-Clark (KMB)
Dividend Yield: 2.8%
Years of Consecutive Dividend Growth: 47
One of the traits of a great dividend growth stock holding is that its products never go out of style. Our first pick of dividend stocks, Kimberly-Clark, certainly fits that standard. The company gained some publicity this spring as its most famous product, toilet paper, became a hot commodity. Its other offerings, such as diapers, soap, and baby wipes are similarly in demand regardless of how the economy is doing.
While the excitement has been around toilet paper lately, the real long-term growth driver is now in incontinence. Kimberly-Clark makes Depend and other products that are seeing increasing demand due to demographics. With lifespans rising around the world and retirees being an increasing proportion of the overall population, Kimberly-Clark has an under-the-radar growth opportunity here.
Regardless of which products are selling best at the moment, Kimberly-Clark is a rock solid dividend choice. The company has gradually grown earnings over the decades, and has turned that into nearly a half-century of consistent dividend growth as well. In a low-interest rate world, Kimberly-Clark’s near-3% starting dividend, with an annual increase, amounts to a fantastic alternative to most fixed income options.
Additionally, KMB stock has been stuck at technical resistance around the $140-$150 level since 2016. With the stock at $147 now, it looks poised for a breakout, which could give the defensive consumer products company a shot of trading momentum as well.
Texas Instruments (TXN)
Dividend Yield: 2.8%
Years of Consecutive Dividend Growth: 14
Next up on this list of dividend stocks is Texas Instruments. Texas Instruments just delivered another fantastic earnings report recently. It’s one more winning moment for a company that’s been on a massive streak for over a decade now. TXN stock has quintupled since the financial crisis. That’s not too crazy; many tech stocks are up big as of late.
However, Texas Instruments is a unique company because it’s a rock star dividend investment as well. Most growth companies nowadays pay no dividend, or only a tiny one. Texas Instruments, by contrast, gives you a competitive 2.8% dividend yield while also offering explosive growth: Texas Instruments has grown earnings by 16% a year over the past decade. That’s phenomenal for a large-cap company.
It’s shared the wealth with its stockholders as well. Texas Instruments has put up an incredible 22%/year compounded dividend growth rate over the past decade. What’s that mean for shareholders? Simply put, if you bought TXN stock a decade ago, it’s now paying 8% of your original investment back to you each and every year. That’s the sort of growth that will power up a beginner’s income portfolio for many years to come.
People’s United Financial (PBCT)
Dividend Yield: 6.5%
Years of Consecutive Dividend Growth: 27
I know many investors recoil at the idea of buying banks. Numerous banks failed in 2008, or at least had to cut their dividends. So why would a dividend growth investor give the sector a chance?
Because many banks are trustworthy. In fact, a number of them managed to grow their profits and dividends even during the Great Financial Crisis.
Connecticut’s People’s United is one such firm. The bank is one of the Northeast’s larger regional operations, as it has more than 400 branches. It’s also one of the industry’s most conservative. Up until 2020, some investors were criticizing People’s United for not taking enough risk. As such, underperforming other bank stocks.
However, the bank’s cautious outlook has now paid off in spades. The company’s ultra-conservative loan book continues to perform admirably during the coronavirus recession. This has allowed the bank to maintain is highly-attractive 6.5% dividend yield. While competitors are forced to pull back, People’s United should be able to make more loans and bring in additional deposits given its impeccable financial strength.
Recessions are a great opportunity for the nation’s most rock solid banks. And for investors. as we can now get a bank which has increased dividends annually dating back to 1993 at a starting 6.5% yield. That’s a pretty incredible offer in a world where a bank certificate of deposit only yields 1%.
General Dynamics (GD)
Dividend Yield: 2.9%
Years of Consecutive Dividend Growth: 26
General Dynamics is a leading defense contractor. The company makes a wide variety of military products such as tanks, munitions, and submarines. It also has a commercial jet division focused on its luxury Gulfstream private jets. When you hear popular musicians bragging about taking a G-5 or a G-6, they’re referring to General Dynamics’ planes.
GD stock has come under pressure this year for two reasons. One, the aforementioned jet division could see weakness thanks to the coronavirus crisis. I suspect that private jet sales will be strong as the wealthy seek to socially distance themselves from commercial travelers. However, some analysts fear overall economic weakness will cause all air travel to remain depressed for an extended period.
Commercial jets make up about a quarter of General Dynamics’ business. So even if they are in a slump for an extended period, it’s not going to sink the overall company. However, traders are also concerned that a potential Biden presidency may reduce defense spending, thus hurting General Dynamic’s larger military division as well.
What we do know is that military spending tends to continue to grow over the long haul, regardless of political changes. And now, with U.S.-China tensions heating up, it’s hard to imagine that any military cuts would be too steep.
In any case, General Dynamics has managed to pull off consistently rising profits and in turn dividends for more than a quarter of a century. Buyers today get a 2.9% dividend yield and the prospect of significant increases going forward.
Emerson Electric (EMR)
Dividend Yield: 3.2%
Years of Consecutive Dividend Growth: 62
Emerson Electric is a textbook example of the old investing adage that “boring is beautiful.” Emerson Electric may not be a household name, but there’s a good chance its products are in your house. It makes all sorts of things such as wifi-enabled thermostats, gas valves for furnaces and water heaters, and various heating and air conditioning products. It has plenty of businesses outside the home as well including industrial products for food service, energy, and municipal water management.
While none of this is particularly exciting on its own, it adds up to a thrilling investment. Buyers of EMR stock 30 years ago have now earned a 1,200% total return on their investment. For beginning investors of dividend stocks, these are the sorts of winners that make a portfolio successful over the decades.
You may remember that past results are no guarantee of future returns — a worthy concern. So can Emerson keep on delivering?
The odds are good. That’s because Emerson has a wide moat around its business. Many of its fields are not especially competitive, having just a few major suppliers. This leads to sustained pricing power and high profit margins. The problem with a high-growth industry is that it attracts a million competitors trying to disrupt it. Whereas Emerson can keep selling its thermostats, gas valves, and other realted gear for decades to come, and reward investors with a large and growing dividend along the way.
First of Long Island (FLIC)
Dividend Yield: 4.8%
Years of Consecutive Dividend Growth: 28
Like with People’s United, First of Long Island is another conservative bank that has gotten caught up in the current rush out of the banking sector. FLIC stock is down 50% from its recent highs, moving the yield up to nearly 5% on this small-cap Dividend Aristocrat.
As you can tell from its dividend history, First of Long Island is built for the long haul. It continued increasing its dividends consistently even including during both 2001’s Sept. 11-induced recession and the Great Financial Crisis. Now folks have turned bearish on the Big Apple yet again due to the coronavirus. There’s some justification for that, at least if you’re thinking about Manhattan.
First of Long Island’s business is focused more on outer boroughs, however, along with the wealthy suburbs east of New York City proper. Thus, it’s much less levered to the high-priced housing and office buildings in downtown that media folks are fretting about. Expect shares to trade much higher over the next year as people figure out that First of Long Island’s business is still operating normally. Meanwhile, the 4.8% dividend adds some solid yield to a portfolio of dividend stocks.
Consolidated Edison (ED)
Dividend Yield: 4%
Years of Consecutive Dividend Growth: 46
Rounding out the list of dividend stocks, we have a power utility. These are core investments for many dividend investors, and with good reason. Electricity and water are two of life’s most essential services, and thus providers of them tend to have extremely stable and predictable profits and dividends.
Now, not every utility is a secure sleep-well-at-night holding. In recent years, wildfires and nuclear power plant cost overruns have stung investors sharply. However, if you stick to blue chip operators, utilities tend to be among the most reliable firms out there. And near the top of that list is Consolidation Edison.
ConEd provides power for New York City and surrounding areas. It also has a gas distribution business. In business since 1884, Consolidated Edison is one of the world’s oldest surviving utility companies. As a general rule of thumb in dividend investing, the longer a company has been in business, the better the odds are that it will continue prospering for awhile longer. Once you’ve made it through 136 years, as ConEd has, you’ve built up quite a track record of resiliency.
And now, thanks to the same New York City concerns I discussed with First of Long Island, ConEd is on sale. The stock is currently yielding 4%, which is near its highest payout over the past decade. With ED stock still down 15.6% year-to-date, there’s a rare opportunity to pick up this blue chip utility at a significant discount.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned TXN, FLIC, PBCT, EMR, and GD stock.