In this article, we will take a look at some of the best dividend stocks.
In 2024, several major tech companies surprised investors by announcing their first-ever dividend payments. Traditionally, technology firms reinvest billions annually to fuel growth, leading to the perception that they rarely distribute dividends. However, as more large-cap companies prioritize enhancing shareholder returns, a balanced approach—focusing on both income generation and stock appreciation—is increasingly becoming the norm. The market has been experiencing uncertainty in recent days, leaving investors concerned about its future direction. Given this unpredictability, a wise strategy is to consistently invest in high-quality dividend stocks when they are attractively priced, rather than attempting to time market fluctuations.
READ ALSO: Dividend Stock Portfolio For Income: Top 10 Stocks to Buy
An analysis of historical trends suggests that undervalued stocks have delivered stronger long-term returns. Research conducted by Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College highlighted that stocks with lower price-to-book ratios outperformed the broader market index between 1963 and 1990, according to Oakmark Funds. Their findings also noted that growth investors often favored companies with exciting prospects, while value investors focused on more traditional, overlooked stocks. In the long run, value investors tended to see better results.
During the high-inflation environment of 2022, value stocks declined by 7%, whereas growth stocks saw a steeper drop of 28.6%. Furthermore, value stocks in the US posted their strongest relative performance against growth stocks since the dot-com crash of 2000.
Analysts suggest that value stocks tend to hold up relatively well during economic downturns. During recessions, investors often become more risk-averse and seek out stable, resilient investments, which frequently include value stocks. A report by GMO examined the performance of undervalued stocks during US recessions since 1969, using valuation metrics such as price-to-book, price-to-earnings, Composite Value, and a combination of value models within their Opportunistic Value strategies. While the firm does not recommend constructing portfolios based solely on traditional price-to-book or price-to-earnings ratios, the report found that even these simple metrics have historically performed fairly well during recessions. Notably, all value models—except price-to-book—delivered stronger returns during recessionary periods (including the COVID-19 downturn) than in non-recession months over the past 55 years.
Dividend stocks have underperformed in recent years, largely due to the rising hype surrounding AI-related investments. Despite this, analysts continue to favor dividend stocks for their strong long-term potential. Morningstar’s chief US market strategist, Dave Sekera, recently shared insights on their future outlook and current valuation. Here are some comments from the analyst:
“I’m really thinking that dividend stocks are a good place to be in the first half of the year, where you can at least capture some of those high dividends for the next couple of quarters. I also like that those stocks are going to be lower in duration. So if we do have interest rates continuing to climb, those would perform better. And of course, then we also have the unknowns of exactly what a Trump presidency is going to bring here in the first quarter and even into the second quarter. So I think that there is probably more downside risks of the market in the short term than upside risk. So therefore, I like a lot of these dividend stocks, which of course are more often than not in the value category.”
In view of this, we will take a look at some of the best dividend stocks.
Photo by Karolina Grabowska from Pexels
Our Methodology
To create this list, we screened for dividend stocks with a forward P/E ratio under 25, as of February 26. Then, we picked companies from that list that have a reliable history of paying dividends consistently to their shareholders. We ranked the resulting list based on the number of hedge fund investors who held stakes in these companies, as per the Q4 2024 data from Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 88
Forward P/E Ratio as of February 26: 24.88
The Home Depot, Inc. (NYSE:HD) is an American multinational home improvement retail corporation that offers related products and services to its consumers. The company operates in over 2,300 locations across North America and is influenced by shifts in the real estate market. While the company is known for its consistent growth and strong profitability, it has faced challenges due to high mortgage rates. These higher borrowing costs have led to a slowdown in home sales and a reduced number of properties on the market, ultimately impacting consumer spending on home improvement projects. The stock has surged modestly by just 0.52% since the start of 2025.
That said, The Home Depot, Inc. (NYSE:HD) recently reported strong fourth-quarter earnings for 2024, with revenue reaching $39.7 billion—an increase of more than 14% compared to the previous year. Looking ahead to fiscal 2025, it expects total sales growth of approximately 2.8%, with comparable sales expected to rise by about 1% over the equivalent 52-week period. In addition, the company plans to open around 13 new locations and forecasts a gross margin of approximately 33.4%.
The Home Depot, Inc. (NYSE:HD) closed the quarter with more than $1.65 billion in cash and cash equivalents. Throughout fiscal 2024, the company generated nearly $20 billion in operating cash flow. This strong financial position has enabled it to maintain uninterrupted dividend payments for 152 consecutive quarters. Additionally, the company announced a 2.2% increase in its quarterly dividend to $2.30 per share, marking its 15th consecutive year of dividend growth. As of February 26, the stock carries a dividend yield of 2.36%.
9. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 91
Forward P/E Ratio as of February 26: 10.13
Merck & Co., Inc. (NYSE:MRK) is an American multinational pharmaceutical company, headquartered in New Jersey. The company offers innovative health solutions to its consumers. The stock has declined by nearly 10% since the start of 2025. The recent drop in stock price is primarily attributed to lower-than-expected revenue guidance for 2025. The company projected revenue between $64.1 billion and $65.6 billion, falling short of analysts’ expectations of $67.31 billion. Another factor impacting its outlook is the temporary suspension of Gardasil shipments to China, with deliveries expected to resume by mid-2025.
In the fourth quarter of 2024, Merck & Co., Inc. (NYSE:MRK) reported $15.6 billion in revenue, reflecting a 7% increase from the same period the previous year. The company has strengthened its leadership in specialty pharmaceuticals and oncology, with its flagship cancer treatment, Keytruda, playing a key role in transforming cancer care and driving substantial revenue growth. Strong market positioning has allowed Merck to generate significant cash flow, supporting shareholder returns. In fiscal 2024, Keytruda sales climbed 18% year-over-year, reaching $29.5 billion.
On January 28, Merck & Co., Inc. (NYSE:MRK) declared a quarterly dividend of $0.81 per share, which was in line with its previous dividend. Overall, the company has been growing its payouts for 14 consecutive years, which makes it one of the best dividend stocks on our list. The stock has a dividend yield of 3.62%, as of February 26.
