You can pat yourself on the back if you plan to load up your portfolio with dividend-paying stocks — because they’re surprisingly strong wealth builders. (If you haven’t planned to do so, you can start now!)
Dividend payers are no slouches. They are not sleep stocks suitable only for grandparents. Lots of high-yielding growth stocks pay dividends — like Apple and Nvidia – and although their dividend yields can be low at times, they can also be fast growing. When you factor a growing dividend into the total returns of slower-growing blue-chip companies, they become much more compelling.
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To appreciate the power of dividends, check out the eye-opening numbers below, adapted from a Hartford Funds report:
|
Dividend-Payment Status |
Average annual total income, 1973-2023 |
|---|---|
|
Dividend growers and starters |
10.19% |
|
Dividend payers |
9.17% |
|
No change in dividend policy |
6.74% |
|
Non-dividend payers |
4.27% |
|
Dividend eliminators and eliminators |
(0.63%) |
|
Equal-weighted S&P 500 index |
7.72% |
Data source: Ned Davis Research and Hartford Funds.
Here are four dividend payers to consider for your long-term stock portfolio:
1. Pfizer
Pfizer (PFE 0.11%) is a more familiar name than it was a few years ago, before people started lining up to receive Pfizer vaccines for COVID-19. But demand for vaccines is now down, which has taken some of the wind out of Pfizer’s sails. However, there is a lot to like about this company.
Its COVID-19 vaccine and related Paxlovid treatment still generate more than $8 billion a year, and the company has a significant portfolio of drugs in development and on the market. It has also expanded through acquisition, such as how it greatly expanded its oncology business by buying Seagen. He also notes that companies in the health care realm are more defensive than many others, since health spending is less optional during economic downturns.
What is Pfizer’s dividend? Well, recently it gave a fat 6.6%! And better yet, its shares seem attractively valued, with a recent price-to-earnings (P/E) ratio of 8.7, well below the five-year average of 10.7.
2. Medtronic
Medtronic (MDT 0.17%)a giant in medical devices, is another solid dividend payer with a recent yield of 3.2%. That payout has grown at an average annual rate of about 5% over the past five years — and Medtronic has increased its payout for 46 years.
The stock has not been growing rapidly in recent years, but as with all good dividend payers, investors are paid to wait for the arrival of stronger years. There is good reason to hope for that as well, since Medtronic has many new products in the pipeline, some of which may be blockbusters. The company recently had more than 190 active clinical trials, and has invested $2.7 billion in research and development for fiscal 2024.
In addition, Medtronic’s business is quite defensive, with those who need devices not so likely to return. Medtronic’s stock price seems quite reasonable at recent levels, even with its forward P/E of 14.7 well below the five-year average of 17.6.
3. Realty Income
Income Realty (O 0.45%) it is a company that not everyone may know, but those who know it are often impressed. It is a real estate investment trust (REIT) – a company that owns a lot of real estate, charging its tenants rent. REITs are required to pay out at least 90% of their taxable earnings as dividends, so they are often good dividend payers.
Realty Income, unlike most dividend payers that pay quarterly, pays its dividend monthly. In its third quarter earnings report, it announced its 108th consecutive dividend increase. The company recently owned 15,450 properties in 90 different industries leased to more than 1,500 customers in all 50 US states and a handful of countries in Europe.
Real estate income is also growing well, with third quarter income up 28% year over year. This is a dividend payer worth considering.
4. Schwab US Dividend Equity ETF
Finally, consider the Schwab US Dividend Equity ETF (SCHD 0.77%). It is an exchange-traded fund (ETF), which is a fund that trades like a stock market. It has a solid performance record, with average annual gains of around 11% over the past five and 10 years – while providing growing dividends. It recently yielded about 3.5% and held shares in about 100 companies.
Buying into a good dividend-focused ETF can save you from having to research and choose individual dividend payers, hoping they will be great for many years.