In just three short years, investors learned the extremes of volatility. The stock market swung wildly between the crushing pandemic collapse, followed by a raging bull market infused by stimulus check spending.
The subsequent hangover in 2022 saw the S&P 500 dip into a bear market on three separate occasions. While the stock market charged ahead again this year, it failed to hit the highs attained in 2021. Now the benchmark index is trending lower once more.
These roller coaster rides can be unnerving. However, savvy investors understand that top dividend stocks can help smooth out the volatility. Many studies show stocks paying dividends significantly outperform those that do not and do so with less risk.
The asset managers at Nuveen point to data from Ned Davis Research that found between 1930 and 2022, dividend stocks represented 41% of the market’s total return. The best performers were those that not only initiated a payout, but raised their dividends over time.
Even better considering the economic situation we find ourselves in in 2023, dividend growers handily outperformed all others during rising interest rate environments. For investors wanting to build wealth this year and beyond, the following seven dividend powerhouses are stocks you’ll want to buy now.
Exxon Mobil (XOM)
Integrated oil and gas giant Exxon Mobil (NYSE:XOM) understands the fallacy of the peak oil arguments. Alternative fuel sources can’t meet global energy needs and Exxon is meeting future demand with massive reserves.
It also just announced it was acquiring Pioneer Natural Resources (NYSE:PXD) in a $59 billion all-stock deal. The transaction will make Exxon the largest producer of oil and gas in the Permian Basin, which produces 40% of all U.S. oil.
Even Warren Buffett believes the Permian is the key to the future of oil. He’s been buying up Occidental Petroleum (NYSE:OXY) stock because it is “a bet on the fact that the Permian Basin is what it is cracked up to be.”
Particularly with events unfolding in the Middle East on top of what is going on in Ukraine, oil prices are rising. West Texas Intermediate is above $86 a barrel and Brent crude is over $90 a barrel. Analysts predict oil could hit $140 a barrel again while OPEC nations are cutting production. Saudi Arabia said it would extend its 1 million barrel a day production cuts through at least the end of 2023.
Exxon can remain profitable if oil falls to around $41 a barrel. These rising prices will push profits even higher. The oil titan pays a dividend that yields 3.3% annually. It’s raised the payout for 40 consecutive years. It made making the dividend payment a priority throughout the pandemic and investors will find Exxon will generate wealth for years to come.
American States Water (AWR)
Utilities are often viewed as the perfect dividend stock because of the regularity and surety of the payments. They are seen as lower-risk, defensive plays because they feature healthy cash flows and stable dividends. Especially during down markets, utilities keep right on paying shareholders. That’s why American States Water (NYSE:AWR) is an excellent choice for investors looking for safe, solid dividend income.
The utility provides clean water and electricity primarily to Southern California. It has routinely paid a dividend since 1931 for a total of 349 consecutive quarterly payments. After raising the payout 8.1% in August, it marks the 69th straight year of dividend increases. That makes it a Dividend King.
Putting a finer point on it, no other stock in the entire market has a longer record of raising its payout than American States Water. The utility serves over 1 million customers across nine states and serves 11 military bases under 50-year contracts with the U.S. government.
Still, in a high interest rate environment, utility stocks can lag as bonds look more attractive to conservative investors. Their high capital cost business models also mean profits are eroded as borrowing costs rise.
Yet over time, utilities tend to track the S&P 500, but often without the jarring highs and lows experienced. Because of the long-term nature of American States Water’s contracts, investors can rest assured the utility will continue on its existing growth trajectory.
Best known for its packaged meat products, Hormel (NYSE:HRL) owns a large portfolio of brand name products that includes Skippy peanut butter, Planters nuts, and Spam canned meat. The products typically hold the No. 1 or No. 2 market share position in their respective categories.
Yet its stock is down 30% year to date and shares tumbled hard the other day after Hormel disappointed the market with its three-year growth initiative plan. It plans to add $250 million in operating income by 2026, including 5% to 7% compounded annual organic growth.
The outlook fell short of expectations. A separate announcement by union workers saying they had negotiated the largest wage increase in company history further pressured the stock.
That just means the market gave investors a big discount. Hormel is a resilient business even in a recession because its products are supermarket staples. Inflation, including wage hikes, do trim margins, though it doesn’t undermine the business.
Hormel pays a dividend yielding 3.5% annually. The company has raised the payout for 57 consecutive years, with annual increases averaging almost 7.5% for the past few years. The stock trades at 18 times next year’s estimates and less than two times sales.
Because it generates healthy free cash flows ($842 million over the last 12 months) this dividend stock has the power to sustain its payout and grow the business.
Leggett & Pratt (LEG)
Leggett & Pratt (NYSE:LEG) is arguably the biggest hidden gem on this list. It makes essential components people use every day though they likely don’t even realize it.
The company is one of the leading manufacturers of innerspring coils for beds and sofas, though automotive parts and flooring comprise substantial additional sources of revenue.
That means housing and car sales are going to be important drivers of growth. Both industries have been weak over the past year or so, but show signs of stabilizing.
New home sales jumped 5.8% in August (the latest data available) and even Warren Buffett is betting big on housing’s comeback. New car sales are up as well, with the Federal Reserve saying seasonally adjusted sales this month hit 16.2 million units, up from 15.2 million a year ago.
That allows investors to get this stock before the market catches on. Shares trade at less than 15 times earnings projections, at a fraction of sales, and for the bargain basement price of just 8 times free cash flow. Its dividend yields 7.4% annually, a rich reward for investors. The dividend has been paid every year since 1939 and been raised for 52 years straight.
Housing and autos will bounce back and Leggett & Platt will rise as well. Buying at these deep discounts is a smart strategy for those looking to amass generational wealth.
Realty Income (O)
Real estate investment trust Realty Income (NYSE:O) is also on sale because of real estate concerns. Instead of housing, though, it is for the commercial market. The discount on the REIT is another remarkable opportunity for investors.
While commercial real estate market is wavering, it doesn’t impact Realty Income. The REIT only rents out to strong, viable retailers and counts amongst its tenants the likes of Walmart (NYSE:WMT), Walgreens (NASDAQ:WBA), deep discounters such as Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR), and convenience store chain 7-Eleven.
These are not businesses in any danger whatsoever. In fact, the opposite. They are all expanding and the REIT had a 99% occupancy rate as of June 30.
Another benefit of Realty Income’s stock is that as a REIT it is required to pay out at least 90% of its profits as dividends. Its payout yields 6.1% annually, though the REIT pays its dividend monthly.
Realty Income has made 640 consecutive monthly payments and actually bills itself as “the Monthly Dividend Company.” It has increased its payout 122 times since going public.
Shares are down 23% in 2023 and with them trading at 13 times FCF, it makes a perfect entry point into Realty Income stock.
Target (NYSE:TGT) is yet another storied dividend payer whose stock is under pressure. If you’re sensing a theme, you’re right!
Buying dividend growers when their stocks are at a low point is a tremendous way to build long-term affluence. The income generated at least partially offsets any further deterioration in the stock price. The inevitable turnaround allows you to achieve capital appreciation and wealth-generating income streams.
The retailer needs no introduction, but its stock trades at only 12 times estimates, a fraction of sales, and at less than its projected earnings growth rate. Smart investors realize the unique discount opportunity this represents.
Target’s stock benefited from the stimulus-infused spending boom, but has struggled after the revenge shopping boom ended. With high energy costs, persistent inflation, and difficult job numbers, consumers are much more cautious about their spending.
A few self-inflicted wounds didn’t help matters either, but the retailer seems to have found its footing once more.
Despite depressed store traffic patterns, the market will react positively to any good news. Customer count increases, gross margin improvements, or any of the other metrics weighing on Target will unleash the stock.
In the meantime, investors benefit from its record of hiking its dividend for 54 years and counting.
Enterprise Products Partners (EPD)
Dipping back into the energy sector, Enterprise Products Partners (NYSE:EPD) is a dividend stock investors should quickly snatch up.
Unlike many of the others featured here, the midstream energy company’s stock is not ailing. It is up 14% year to date and is almost matching its 52-week high. As not previously, oil and gas are booming and the sector’s middleman is winning.
Enterprise Products Partners benefits no matter which way the market for oil and gas goes. Its customers sign long-term, fixed-fee, or take-or-pay contracts, so even if they don’t take any product because of depressed pricing, Enterprise still gets paid.
But pricing isn’t depressed as noted earlier and this boomlet will allow the midstream player to grow.
Its dividend certainly is. The pipeline and storage business has raised its payout every year for a quarter of a century. It’s currently yielding 7.4%.
Now, as a master limited partnership, Enterprise Products Partners might not be for everyone as there can be complex tax issues. Growth could also be spotty as demand for oil rises and falls. That doesn’t look like an issue currently and the runway seems to stretch out a long way.
Still, energy stocks are cyclical and Enterprise Products Partners has often lagged the S&P 500’s performance over the past decade. I believe it’s just coming into its own now and see the midstream player as a rich addition to an investor’s portfolio.
On the date of publication, Rich Duprey held a LONG position in XOM, AWR, LEG, and O stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.