The 7 Best Dividend Stocks to Buy to Beat the Market


  • These are the best dividend stocks to buy to beat the market that also look undervalued.
  • Newmont Corporation (NEM): An investment-grade balance sheet and likely EBITDA margin expansion are key factors.
  • Lockheed Martin (LMT): A swelling order backlog that currently stands at $140 billion helps LMT stock look appealing.
  • AT&T (T): Deleveraging is a positive, and subscriber growth metrics have been encouraging.
  • Pfizer (PFE): A deep drug pipeline for sustained revenue growth is a plus.
  • Rio Tinto (RIO): Big investments in 2023 and 2024 will translate into revenue growth and higher cash flows.
  • Chevron Corporation (CVX): Low breakeven assets will ensure annual operating cash flow in excess of $40 billion.
  • Costco Wholesale (COST): This is the best pick among retail stocks for dividend growth and capital gains.
best dividend stocks - The 7 Best Dividend Stocks to Buy to Beat the Market

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In any market condition, it’s important to hold dividend stocks in one’s portfolio. These stocks provide regular cash inflow and, if valuations are attractive, meaningful capital gains. With market conditions remaining relatively bearish, some of the best dividend stocks trade at attractive valuations. These stocks can potentially deliver robust total returns.

I also want to point out that the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) has delivered annualized returns of 11.6% in the last 10 years. During the same period, the Vanguard Growth ETF (NYSEARCA:VUG) has delivered annualized returns of 12.8%.

It therefore makes sense to hold low-beta dividend stocks in the portfolio. This is particularly true at a time when macroeconomic headwinds are significant.

I also believe that the discussed dividend stocks are likely to outperform the index returns in 2023. Let’s talk about the reasons for considering these best dividend stocks.

Newmont Corporation (NEM)

Newmont logo on a mobile phone screen
Source: Piotr Swat/Shutterstock

Gold has been trending higher as inflation data indicates that this might be the end of aggressive contractionary policies. With the possibility of a recession in 2023, gold is an attractive investment theme.

Among gold miners, Newmont Corporation (NYSE:NEM) stock is worth considering at current levels. The 4.19% dividend yield has the potential to deliver capital gains besides visibility for dividend growth.

An investment-grade balance sheet and robust cash flows are key reasons to like Newmont. Additionally, the company has a strong asset base with 96 million ounces of proved reserves. This provides stable production visibility.

High financial flexibility is also likely to ensure that the reserve replacement is close to 100%. Additionally, Newmont expects its all-in-sustaining cost to decline in the next few years. As gold trends higher, there is significant room for EBITDA margin expansion.

Lockheed Martin (LMT)

A Lockheed Martin (LMT) Space Systems sign in Sunnyvale, California.
Source: Ken Wolter /

Lockheed Martin (NYSE:LMT) is also among the best dividend stocks to buy. The stock, which sports a 2.68% dividend yield, trades at an attractive price-to-earnings (P/E) ratio of 16.6. I expect the stock to remain in an uptrend besides the benefit of quarterly cash dividends.

Defense-sector spending will likely remain high in the coming years. Lockheed Martin is positioned to benefit as contracts increase from the U.S. and European countries. As of Q3 2022, Lockheed Martin reported an order backlog of $140 billion.

This provides clear cash-flow visibility. For the first nine months of 2022, the company reported free cash flow (FCF) of $4.9 billion. With the order intake remaining robust, LMT stock is also among the top dividend growth stocks.

When it comes to long-term growth, Lockheed Martin is investing in new technology. This includes hypersonics, directed energy and autonomy. Investment in innovation will ensure that Lockheed remains among the top defense players.

AT&T (T)

AT&T logo on wooden background
Source: Lester Balajadia /

AT&T (NYSE:T) is attractive for two reasons. First, the stock offers a dividend yield of 5.74% that seems sustainable. Further, T stock trades at a forward P/E ratio of 7.5. A meaningful rally is likely from undervalued levels.

The media division spinoff has allowed AT&T to focus on its core business. Importantly, the company has reduced net debt by $25 billion year to date through Q3 2022. With the company expecting $14 billion in free cash flow for the year, deleveraging will continue.

The business metrics also look encouraging for AT&T. The company continues to add 5G wireless and fiber subscribers. Increased 5G penetration is likely to translate into higher average revenue per user. For Q3 2022, AT&T reported the best revenue growth in wireless services in more than a decade.

I must also mention that the company reported capital expenditure of $5.9 billion for Q3 2022. With an annual investment visibility of $20 billion, revenue growth is likely to be supported in the coming years.

Pfizer (PFE)

blue Pfizer logo on the windows of a corporate building PFR stock
Source: photobyphm /

Pfizer’s (NYSE:PFE) stock has been in a correction mode, and the key reason is lower revenue visibility from the Covid-19 vaccine. However, at a forward P/E ratio of 9.8, the stock seems seriously undervalued. PFE stock also offers an attractive dividend yield of 3.56%.

If we look beyond near-term concerns, there are several reasons to like Pfizer. The company has a product pipeline of 112 drugs, and as these candidates are commercialized, revenue growth is likely.

Further, Pfizer has boosted its financial flexibility with significant free cash flows from vaccine sales. This cash is being deployed to accelerate the product pipeline.

At the same time, Pfizer has been active on the inorganic growth front. The company is targeting $25 billion in risk-adjusted revenue from new business deals by 2030.

Recently, Pfizer announced that it will sell its full portfolio of drugs to low-income countries at no profit. The company establishing a presence in these markets could be potentially rewarding in the long term.

Rio Tinto (RIO)

the rio tinto (RIO) logo on a building during daylight
Source: Rob Bayer /

Among industrial commodity dividend stocks, Rio Tinto (NYSE:RIO) is worth buying. The 8.95% dividend yield stock has trended higher by 35% in the last six months. However, the stock still trades at an attractive forward P/E ratio of 11.39.

Rio Tinto reported free cash flow of $7.1 billion for the first half of 2022. With an annualized FCF potential of $14 billion, the business is a cash-flow machine. This has translated into a quality balance sheet that ensures sustained dividends.

It’s worth noting that Rio has guided for annual capital expenditure of $9.5 billion for 2023 and 2024. This excludes any potential mergers and acquisitions. With Rio focused on base metals like copper and lithium, the outlook is positive. These metals will remain in demand with a continued push toward green energy. As an example, Rio is already positioned to be the largest supplier of lithium in Europe in the next 15 years.

Chevron Corporation (CVX)

a Chevron gas station
Source: Trong Nguyen /

Chevron Corporation (NYSE:CVX) is possibly among the best dividend stocks for the long term. Chevron was among the few companies that managed to generate positive operating cash flows (OCFs) when oil plunged in 2021. With low breakeven assets, the company is positioned to deliver robust cash flows.

Just to put things into perspective, Chevron reported operating cash flow of $13.7 billion for Q3 2022. On an annual basis, the OCF potential is in excess of $40 billion. The company has ambitious plans to invest $15 billion to $17 billion annually in the next few years.

Even after these investments, there is ample cash flow for dividend growth and share repurchases. Furthermore, Chevron reported a net-debt ratio of 4.9% as of Q3 2022. Strong financial flexibility allows Chevron to make significant investments in the lower carbon business.

Chevron also has a strong asset base, and the reserve replacement has been healthy. This ensures long-term cash-flow visibility and shareholder value creation.

Costco Wholesale (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.
Source: ilzesgimene /

Retail stocks have been depressed in 2022, with inflation playing the spoilsport. However, amid the challenges, Costco (NASDAQ:COST) has traded sideways in the last 12 months. A dividend yield of 0.75% might not sound attractive. However, I expect COST stock to trend higher, and there is dividend growth visibility.

For the first quarter of 2023, Costco reported revenue growth of 8.1% to $53.44 billion. The key point to note is that the U.S. is staring at a potential recession. With retail spending being a key growth driver, policies are likely to be directed toward boosting spending. This will benefit Costco.

It’s worth noting that Costco has 66.9 million household members. This translates into $4.3 billion in annualized membership fees. With continued expansion and high renewal rates, I expect the recurring revenue to swell. This will have a positive impact on free cash flows.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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