Are you interested in finding the crème de la crème of high paying dividend stocks? The saying goes, "all dividend stocks are not created equal."
In this article, I've researched my top 20 stock picks that you can hold long-term in your portfolio and enjoy the monthly or quarterly dividends, along with the benefit of investing in quality companies.
As 2020 began to unfold, the stock market continued to rocket higher – even after the S&P 500 achieved an incredible 29% return in 2019. But will it continue?
And if it suddenly stalls out – or begins declining – where should you invest your money? There are many opinions and potential strategies regarding that question, but none offer guarantees.
However, one of the best long-term strategies for dealing with any type of market weakness is to shift your focus from growth stocks to income producing stocks.
That means high-dividend stocks. There are plenty of those available, and they represent some of the best-known companies in America.
We’ll get into why high-dividend stocks are a solid strategy in a flat or declining market later on. But in the meantime, let’s get to 20 stocks to invest in 2022 and beyond.
Summary of Best Brokers to Buy Dividend Stocks
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High-Dividend Stocks: 20 Stocks to Invest in 2022
Just so you don’t think we pulled these 20 stocks out of a hat, each is actually part of a list of elite dividend paying companies, commonly known as dividend aristocrats.
Historically, the list has comprised more than 50 companies.
The companies on the list share the following characteristics:
- They’re large, well-established companies with dependable performances, rather than high-flying growth companies.
- Most are recession resistant, maintaining profit margins in various economic markets and conditions.
- To qualify as a dividend aristocrat, a company must show a pattern of increasing its dividends for at least 25 straight years.
Each criteria is important, but the last is the most significant.
A company that increases its dividend steadily for at least a quarter century is one that’s demonstrated staying power.
They have a proven history of not only returning part of their profits to shareholders in the form of dividends, but also of regularly increasing them.
That stability also makes them something of a “port in a storm” during declining markets. A quick scan of the list makes the point that these are among the best-known companies in America.
That’s not a coincidence either. The most stable companies attain that status with enduring brand loyalty.
20 High-Dividend Stocks Worth Considering
There are various published list of dividend aristocrats, but we culled ours from 2020 Dividend Aristocrats List – What Companies Made This Year’s List? from Investor Junkie.com.
There are 57 companies on their list, and we selected the 20 companies with the highest dividend yields. They're listed in the table below in order of yield.
The information in the table below is as of January 10, 2021.
Rank by Dividend
Oil & Gas
People's United Financial
Electric & gas
Walgreens Boots Alliance
Federal Realty Investment Trust
Retail Space REIT
Leggett & Platt
Johnson & Johnson
As elite as the dividend aristocrats tend to be, no individual company is a permanent member. Companies are added to the list as they meet the criteria. Others are deleted if they fail to qualify.
For example, a company may be deleted if it fails to raise its dividend in one year, or if it cuts its dividend. Both scenarios are always possible.
Why High-dividend Stocks? 6 Reasons
There are at least six advantages to owning high-dividend stocks.
And while each may be compelling all by itself, taken collectively they make a strong case for making these securities a major part of your portfolio.
The income yield on high-dividend stocks is higher than on fixed income securities.
Let’s start with some statistics.
According to the FDIC, the current yield on 12-month certificates of deposit is an average of less than 0.50%, though some high-yield online banks are tipping the scale at nearly 2%.
Meanwhile, over at the US Treasury, returns on US Treasury securities are just 1.53% for one-year, 1.63% on a five-year, and a whopping 1.83% if you’re willing to tie your money up for a full 10 years.
But notice that the annual dividend yield on the stocks presented in the table above range from a low of 2.6% to a high of 5.4%.
The rates on both bank certificates of deposit and U.S. Treasury securities don’t come close to those returns. And there’s yet another advantage that high dividend stocks have over fixed income securities…
High income plus capital appreciation gives you income from two directions.
Not only do high-dividend stocks provide steady income that’s higher than what you can get on fixed income securities, but there’s also the potential for capital appreciation in the value of the stock itself.
According to the Motley Fool, total annual returns on the dividend aristocrats from 2009 through 2018 was 14.65%. That compares with just 13.44% for the S&P 500 index over the same space of time.
Since the average return on dividends from dividend aristocrats is well below 5%, that means that capital appreciation is counting for something more than 10% in annual returns.
The combination of steady high dividends and capital appreciation give high-dividend stocks a one-two punch few other investments can provide.
The retirement income advantage
The combination of high income and capital appreciation should be of special interest to retirees. One of the biggest concerns most retirees have is outliving their money.
That’s certainly a possibility when you must rely on fixed income investments that are only paying 1% or 2% per year.
Not only is there no allowance for future growth or covering inflation, but you’ll most likely have to withdraw principal to survive, and not just interest.
That’s not the case with high dividend stocks. You can choose to withdraw the dividends from your investment accounts, and use those to pay living expenses.
Meanwhile, the value of the stocks can continue to grow in the future. This means you’ll be able to take advantage of the income, without disturbing the principal.
And as the value of your stock portfolio continues to grow, and dividends paid by those companies increase with that growth, your future income will also rise.
The combination of high current income and long-term capital growth is a real opportunity for retirees to earn generous income and not outlive their money.
Investing in some of the most iconic companies in America
If you scan the list of companies in the table above, you’ll see some of the most familiar names in American industry.
That includes AT&T, Exxon Mobil, Chevron, Walgreens, 3M, Genuine Auto Parts, Kimberly-Clark, Coca-Cola, Pepsi, and Johnson & Johnson.
These are absolutely not fly-by-night companies, or speculative upstarts by any means. They’re well-established companies, with deeply entrenched brand loyalty, and are even integral parts of American culture and history.
Though it’s often said past performance is not a guarantee of future returns, the likelihood of those future returns is much greater with better established companies.
High dividend stocks tend to cushion market in declines
No stock is immune from falling in value during a general market decline. But high-dividend stocks, because of the dividend, are likely to fall less than other stocks, particularly pure growth stocks.
During bull markets, investors tend to favor growth stocks. Since those companies typically reinvest profits into even more growth, they usually provide more long-term growth than high-dividend stocks.
But that dynamic reverses during a bear markets. When markets decline, investors become less concerned with growth, and more focused on capital preservation.
That’s when income becomes more important than ever.
The income generated by high dividend stocks minimizes price declines in two ways:
- You will continue to earn high dividend income, even if the value of the underlying stock declines. This will enable you to wait out the decline, while still getting the benefit from the dividend income.
- Former growth-oriented investors will shift into income investments, looking for similar protection. That shift may not prevent high-dividend stocks from declining in value, but will generally keep them from falling as far and as fast as growth stocks.
Neither advantage will completely protect you from declining stock values.
But they will minimize the damage, and at least give you the benefit of a steady income source during a time of financial turmoil.
Reinvesting your dividends will give you more dividend paying stocks
This is where we get into a little bit of math. Many companies have dividend reinvestment plans. Instead of taking your dividend income in cash, you instead use the proceeds to purchase more stock in the same company.
Let’s say you invest $10,000 in the stock of a company that pays a 5% annual dividend. Rather than taking the dividend as income, you instead reinvest it back into buying more stock each year.
Now if you’re investing in dividend aristocrats, you’ll be in companies that have an extremely long history of increasing their dividend each year.
Let’s see how that plays out over say, 30 years.
By reinvesting your annual 5% dividend each year for 30 years, your $10,000 initial investment will grow to $43,219. At that point, your investment will be paying you $2,165 in dividend income.
Now imagine you invested in 10 such stocks, with an investment of $10,000 in each. At the end of 30 years, your investment will have grown to $432,190. Your annual dividend income will be $21,650.
And we haven’t even factored capital appreciation into the equation. The possibility is real that your portfolio will be worth several times that much, as will your annual dividend income.
At that point, you may decide to begin taking your dividends as income for retirement.
That will not only provide a healthy supplement to Social Security benefits and other retirement income, but your portfolio will continue to grow, providing protection against inflation and higher future dividend income.
That’s what can happen when you decide to reinvest your dividend income for several decades, in favor of creating a strong income when you’re ready to retire.
Why Choose Individual High-dividend Stocks?
In the next section we’re going to discuss investing in high-dividend stocks through exchange traded funds. There are certainly advantages to going the fund route, especially if simplicity is a major goal.
But the advantage of individual high-dividend stocks is that you can choose the companies that:
a. Have the most attractive dividend yields, and
b. are companies (or in industries) that you feel have better long-term growth prospects.
You could also use individual high-dividend stocks as a way of increasing the returns on the fixed income portion of your portfolio. Now strictly speaking, high-dividend stocks aren’t true fixed income equivalents.
Unlike bonds, they don’t guarantee return of your invested principal if held until maturity.
And unlike bank investments, particularly certificates of deposit, neither your principal nor your return is FDIC insured, and therefore not guaranteed.
But since high-dividend stocks are primarily income generating vehicles, allocating a small percentage of your fixed income portfolio to several of the highest yielding stocks can increase the yield on your income generating portfolio, without dramatically increasing risk.
And while it is true that high dividend stocks, being stocks, can fall in a declining market, they can also provide capital appreciation in a rising market.
That’s something pure fixed income investments don’t typically provide. Now let's look at some criteria to help you select high-dividend stocks.
Keep a Close Eye on Earnings Per Share (EPS)
When selecting individual high-dividend stocks to invest in, you’ll need to closely monitor the company’s EPS before investing, and even after.
The EPS of a company is a strong indication of its ability to continue paying its dividend at the current level.
For example, if a company is paying a dividend of $4 per year, and its EPS is $5, it will be able to pay the full dividend out of earnings.
If the situation is reversed however – the dividend is $5 and EPS is $4 – it could indicate a dividend cut is on the way. A company could have a below par year, and the low EPS may be a temporary factor.
For that reason, you’ll need to pay close attention to both the current EPS and future projections.
If the current EPS is insufficient to cover the annual dividend, and the situation looks to be similar in the near future, it may be a sign it’s time to bail out of that stock.
If it’s a dividend aristocrat, it may even be eliminated from the list if it’s unable to continue increasing its dividend. EPS certainly isn’t the only number to keep an eye on, but it is especially important with high-dividend stocks.
However, you should also keep a close eye on earnings and revenue growth. Both are indications of the company’s ability to continue increasing its dividend going forward.
As well, both matter with any stock you’re considering investing in, or already holding in your portfolio.
Warning: Never Choose a Stock Based on Dividend Yield Alone
Throughout this guide we’ve emphasized selecting stocks from the dividend aristocrats, and that’s not just because it’s a convenient source of-high dividend stocks.
Each of the companies on that list must meet certain very specific criteria.
Perhaps most important is the fact that each company on the list has a history of increasing their dividend each year for at least the past 25 years.
That advantage is not to be underestimated.
You should never invest in a stock based primarily on its dividend yield. The fact is there are numerous companies that pay dividend yields higher than the highest paying companies among the dividend aristocrats.
But that doesn’t mean those companies are investment worthy. The very high dividend yield, something like 8% or 10%, could be an indication of trouble. In many cases, a yield that high is accidental.
Or more specifically, it’s due to a decline in the stock value. For example, let’s say a company is paying a 5% dividend.
But a spate of bad news hits, like low earnings, declining revenues, or a class action lawsuit, and the value of the stock plummets.
If the stock price falls by 50%, the effective dividend yield will double from 5% to 10%. If the company can survive its difficulties – without cutting its dividend – it can turn into an excellent investment.
But there’s a strong element of speculation in that kind of stock.
Should they be unable to turn things around, there’s a better than even chance they’ll be forced to cut their dividend due to financial difficulties. And when that happens, the stock price is likely to fall even more.
A worst case scenario…
That could set up a classic “catch a falling knife” conundrum, in which the company experiences a succession of dividend cuts and stock price declines.
In a worst-case scenario, the company could even eliminate its dividend. That’s one of the ways a well-priced stock turns into a penny stock, and even ends up being delisted on the exchange it trades on.
That’s why selecting companies with a long history of paying and increasing dividends is so important to a high-dividend strategy. No matter how attractive they may seem, excessive dividend yields often indicate big troubles ahead.
What are the Risks of High-dividend Stocks?
Given all the advantages of high-dividend stocks, does it makes sense to invest your entire portfolio in them?
After all, they provide income – like interest-bearing investments – and offer the potential for capital appreciation over the long-term, similar to other stocks.
As good as all that seems, high-dividend stocks do have certain risks:
Just like any other company, a dividend aristocrat can run into trouble
If you’ve been following the stock market for several years, you know that no stock is ever completely safe.
Even high-dividend stocks can see their share prices plummet from lackluster earnings reports, credit agency downgrades, new and aggressive competitors, regulatory changes, litigation, and even macro events, like natural disasters or geopolitical problems.
A high-dividend company can cut its dividend
As discussed earlier, cutting a dividend would get a stock deleted from the dividend aristocrats list. But it can and does happen in the real world.
And since the price of high-dividend stocks is intimately connected with dividend yield, a cut in that dividend could send the stock price plummeting.
Part of the issue would be the actual dividend cut. But the bigger impact may come from the sudden realization that the company’s long-term fortunes may have a reversed.
Interest rate risk
Nearly all financial instruments are impacted by interest rates. As a general rule, when interest rates fall, the value of financial assets increase. But when they rise, the opposite occurs, and asset values fall.
Interest rate risk is most closely associated with bonds, because when rates rise, it makes the interest paid on an existing issue less attractive.
The value of the bond will fall until the effective yield on that security more closely matches the new higher rates.
But the same is true of stocks. Since stocks compete with bonds for investor capital, higher interest rates on bonds often causes stock values the fall.
But the reaction can be even more acute with high-dividend stocks.
Since much of the attraction of high-dividend stocks is the yield, an increase in interest rates can cause the value of the stock to decline significantly.
Even with High-dividend Stocks it’s Important to Diversify!
Apart from the specific risks associated with high dividend stocks, proper diversification is also a potential issue.
If you favor income producing assets – which makes perfect sense if you are retired – you may be tempted to hold most or even all your portfolio in high-dividend stocks.
But if you do, you may be guilty of putting all your eggs in one basket.
While high-dividend stocks, especially dividend aristocrats, do offer the prospect of capital appreciation over the long-term, they often underperform growth stocks in stronger markets.
For example, when you look at the full list of dividend aristocrats, missing are the so-called FAANG stocks – Facebook, Apple, Amazon, Netflix, and Google – that have provided such handsome returns in many portfolios.
While the dividend aristocrats have certainly performed well during the bull market that began in 2009, they haven’t captured the stellar returns provided by highflying growth stocks.
But that’s not the only limitation. By investing your money entirely in high-dividend stocks, you may be failing to diversify in other important areas.
For example, while high-dividend stocks do provide steady income, they don’t offer the safety of typical interest-bearing investments, particularly certificates of deposit and short-term U.S. Treasury securities.
Notice also that the entire list of high dividend stocks is US-based
By limiting yourself to high-dividend stocks, you may be missing out on strong opportunities in international stocks, particularly emerging-market companies.
The latter may be very unlikely to pay dividends at all, yet they may have some of the best returns over the very long term.
There’s also the inflation factor. Right now, inflation is tame, at least based on the consumer price index numbers issued by the Bureau of Labor Statistics.
But high or increasing inflation can often wreak havoc with stocks, and paper assets in general. For that reason, too heavy a concentration in high-dividend stocks could work against you in a more inflationary environment.
If you do plan to invest primarily in high dividend stocks, be sure to include energy and real estate stocks in the mix. They’ll provide some of the best protection you can get against rising price levels.
But apart from those sectors, you may want diversify at least a small portion of your portfolio into other asset classes, like precious metals and commodities.
High-dividend stocks are an excellent core holding. But you’ll still need to add a mix of other asset classes to adequately diversify your portfolio.
Can I Invest in the Full List of Dividend Aristocrats through a Fund?
If you prefer not to invest in individual stocks, you can instead invest in high-dividend stocks through exchange traded funds.
There are even ETFs that invest specifically in the dividend aristocrats, as well as broader categories of high-dividend stocks.
An example is the ProShares S&P 500 Dividend Aristocrats ETF.
The fund includes all 57 companies representing the full list of dividend aristocrats, and had an average dividend yield of 2.49% as of September 30, 2019.
The advantage of investing through an ETF is that you don’t have to spend time choosing the stocks you will invest in, or managing your portfolio.
You can simply invest a flat amount of money in the fund, and have it represent a corner of your portfolio. The disadvantage is that you’ll be buying the entire portfolio of dividend aristocrats.
Notice that the average dividend yield for the ProShares S&P 500 Dividend Aristocrats ETF is just 2.49%.
Compare that with the list of the top 20 performers we’ve included in the table above, and you’ll see they pay dividend yields ranging from a low of 2.6% to a high of 5.4%.
You certainly can invest through a fund, but you’ll improve your dividend yield by investing instead in the highest paying individual stocks.
With $0 minimum balance
at Webull website
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at M1 Finance website
With $0 minimum balance
at Betterment website
Final Thoughts on High Dividend Stocks
We’re certainly not recommending you invest your entire portfolio into high-dividend stocks.
But after reading this guide, it’s likely you’re convinced that high dividend stocks should occupy a significant percentage of your portfolio.
You may even want to consider high-dividend stocks as the primary position in your portfolio.
That will give you the perfect blend of income and growth over the very long term – as well as at least some protection against general market declines.
But if you choose to go that route, be sure to diversify beyond high-dividend stocks alone.
You’ll want to have at least small portions of your portfolio invested in high growth stocks (for greater growth potential), international stocks – should there be a shift in favor of those markets compared to the US market – as well as alternative investments, like real estate and precious metals.
You should also have a certain amount of truly safe investments, like short to medium term CDs and U.S. Treasury securities.
At a minimum, those investments will provide you with the cash you’ll need to take advantage of bargain priced stocks after a major market decline.
And some of those bargain priced stocks might even be high-dividend stocks.
Imagine adding discount pricing to the existing benefits of high-dividend income and future capital appreciation?
There’s no question, high-dividend stocks deserve a place in your portfolio – especially if you’re a retiree.
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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He and his wife are “empty nesters” living in New Hampshire.