Dividend stocks pay a portion of their earnings to shareholders. Payments are usually made on a regular basis, quarterly, monthly, or annually, and provide a steady stream of income. So they are a popular choice for investors looking for a more passive way to earn income.
And like any other asset, they can be classified by their risk profile. In general, the higher the yield, the greater the risk associated with a given dividend stock. This list favors a more moderate-risk investment style and features many dividend aristocrats. Dividend aristocrats are shares of companies that have increased their dividends for each of the past 25 years. They are among the most reliable ways of building wealth in the stock market, period.
Best Dividend Stocks: NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) stock is an investment in a leading Florida-based energy company. The company spans multiple related business segments. It operates one of the largest electric power companies in the world. That subsidiary, Florida Power & Light Company, focuses on generating, transmitting, and distributing electricity. It also operates one of the largest renewable energy businesses in the world, with a portfolio of wind and solar projects.
Investors can expect NextEra Energy to continue to grow its dividend by 10% annually through at least 2024, as outlined in its Jan. 25 Q4 earnings report. Over the last five years, NextEra Energy has grown its dividend at a rate of 11.6%, so investors should not be surprised at the news.
NextEra Energy’s utility business, Florida Power & Light, accounted for $4.071 billion of the company’s $6.164 billion in Q4 revenues. Its solar and wind business accounted for $2.093 billion in revenues during the same period. NEE stock represents a potent but reliable mix of growth and stability. Thus, it is among the best dividend stocks to buy.
Philip Morris (PM)
Investing in Philip Morris (NYSE:PM) stock might seem like a losing proposition. The company made its fortune selling cigarettes which continue to see falling demand. It might therefore seem like a case of trying to catch the proverbial falling knife.
But there are several reasons to consider Philip Morris, not least of which is its dividend yielding 4.98%. That is a relatively high yield in the world of dividends, but investors can rest assured that it’s quite safe, given that it hasn’t been reduced since 2008.
The interesting narrative in favor of PM stock is that the company is leading the shift away from cigarette sales and into smokeless tobacco and smoke-free products. Philip Morris intends to derive 50% of revenues from smoke-free products by 2025. Its competitors, Altria (NYSE:MO) and British American Tobacco (NYSE:BTI), currently depend on cigarettes for more than 80% of revenues.
The company controls 59% of the global smokeless tobacco market and looks to be leading the way into the next evolutionary iteration of the smoking market. That makes it among the best dividend stocks to buy in my book.
Best Dividend Stocks: Caterpillar (CAT)
Caterpillar (NYSE:CAT) stock represents a leading global manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company serves industries including construction, energy, transportation, and mining.
There’s really a lot to like about Caterpillar in relation to its dividend. It’s very dependable, having last been reduced in 1992. Its payout ratio of 0.37 lends further credence to the idea that it will continue to be dependable as the ratio is well within the healthy/ideal range. And Caterpillar’s dividend has grown at a rate of 8.6% over the past five years, largely in line with expected stock market growth rates.
Caterpillar is also seeing a period of strong demand currently, with sales increasing 20% this quarter YoY. Sales increased by $1.74 billion this quarter, partially due to higher prices. However, sales volumes increased by $1.56 billion, meaning inflation was not the driving factor alone. The strong dollar resulted in a $523 million reduction in sales as sales made in other currencies had to be remunerated in more expensive USD.
Albemarle (NYSE:ALB) stock is most noted for lithium and bromine production. But the company is involved in the production of a wide range of chemical products that include other catalysts and polymers. Its association with the rapidly growing EV market has garnered lots of attention for the stock, and rightly so: Albemarle is a large-scale producer in a lithium market expected to grow at an annual rate of 12% between 2022 and 2028.
In addition to the secular growth trends favoring ALB stock as an investment, it also includes a very reliable dividend with an ultra-low payout ratio. That dividend was last reduced in 1994 and sports a payout ratio of 0.12. That means Albemarle pays about 12% of earnings to investors in the form of dividends, which is very low.
ALB stock has roughly $25 of upside above its current price of $289 based on analysts’ consensus prices. However, some believe it could rise as high as $497.
Aflac (NYSE:AFL) sells various insurance products across the U.S. and Japan. The company is probably best known for its supplemental life and health insurance products and is considered a blue-chip stock with stable prices and a reliable dividend that hasn’t been reduced since 1983.
Aflac’s reliability serves the company’s stock well, as recent earnings prove. Although the company’s total revenues decreased by 11.8% in 2022 from 2021, share prices are relatively steady. In fact, Aflac’s revenues decreased by 26.2% in Q4 on a YoY basis. However, share prices only declined a few dollars.
I’d argue that pieces haven’t dropped much because of Aflac’s blue-chip status but also because EPS estimates are rising for the coming quarters. A few months ago, it was expected that Aflac would provide a Q1 EPS of $1.34. That number now stands at $1.39. The same is true for Q2 EPS estimates which have risen from $1.36 to $1.42, making it among the best dividend stocks.
Chevron (NYSE:CVX) had an excellent 2022 that should pave the way forward for continued strength in its stock. The company’s Jan. 27 earnings report reflected a banner year for the company and the energy sector at large.
As one of the largest and highest-profile energy companies known for rewarding investors, Chevron’s earnings are highly important. The company uses those earnings to reward investors through stock buybacks and dividend payouts. So earnings, as opposed to revenues, are particularly relevant. Fortunately, both were exceptionally high throughout 2022 on record prices.
Chevron earned $35.47 billion in 2022, far more than the $15.63 it earned in 2021. Chevron paid $11 billion to shareholders in the form of dividends in 2022 and a further $11.25 billion in share purchases. The company reported $37.6 billion in free cash flow in 2022. That free cash flow can be invested in any way the company sees fit. Current speculation suggests that Chevron could soon acquire one of its European rivals because of their lower valuations coupled with Chevron’s strong free cash position.
Eli Lilly (LLY)
Eli Lilly (NYSE:LLY) stock remains in a strong position even as sales of its popular drug Mounjaro failed to meet expectations. In terms of dividends, Eli Lilly is rock-solid, having last reduced its dividend in 1986. So, as a reliable passive income source, LLY stock certainly has merits.
But most investors are currently interested in Eli Lilly’s shares because of the potential of Mounjaro, its diabetes drug that is also seeking FDA approval for weight loss.
Mounjaro was expected to account for $319 million of sales in Q4 but fell short with $279.2 million in sales. That disappointment caused a temporary decline in LLY shares. But shares quickly rebounded. There are a few factors at play here. One, Eli Lilly’s EPS of $2.09 beat the $1.78 expected on Wall Street. But more importantly, Mounjaro is still awaiting FDA approval for marketing as a weight loss drug.
The company expects to receive FDA approval for Mounjaro as a weight loss drug next year, and sales are expected to exceed $2 billion in 2023.
On the date of publication, Alex Sirois did not have (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 InvestorPlace.com Publishing Guidelines.
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