In this article, we will take a look at some of the best halal stocks that pay dividends.
Halal stocks are shares in companies that adhere to Shariah law. These companies operate in accordance with Islamic principles, avoiding industries such as alcohol, gambling, tobacco, and non-Islamic finance. They also maintain ethical business practices, ensuring their revenue sources are consistent with Islamic values. The S&P High Yield Dividend Aristocrats Shariah index tracks the performance of Shariah-compliant companies from the Composite 1500 that have a history of consistently raising their dividends for at least 20 years. These companies follow a managed dividend strategy, ensuring steady growth in dividend payouts.
When investing in halal stocks, it’s important for investors to carefully consider a company’s balance sheet. Companies with debt exceeding 33% of their market value are disqualified from halal investing, though this ratio can fluctuate for some businesses. According to a World Bank report, the Islamic finance industry has grown quickly in the last decade, with an annual growth rate of 10-12%. Currently, Sharia-compliant financial assets are valued at approximately $2 trillion, encompassing both bank and non-bank institutions, as well as capital markets, money markets, and insurance.
Also read: 10 Best Diversified Dividend Stocks To Buy Now
Halal investing is still a relatively new concept in the US, where Muslims make up around 1% of the population, as of 2020. In the past, older generations of Muslims typically focused on real estate and physical gold as investments or chose stocks recommended by friends and community members. The complexities of Islamic finance have led many to overlook it. However, this is beginning to change as technology advances and demographic trends shift. Financial educators, along with fintech startups, halal stockpickers, and specialized exchange-traded funds (ETFs), are helping fill the gap. In addition, the rise of zero-fee brokerages has made investing more accessible to Muslims who follow strict financial guidelines. These low-cost platforms have made it easier to serve clients who were previously overlooked or considered unprofitable. Omar Shaikh, director of Islamic Finance Council UK, made the following comment about this:
“Islamic finance as a sector is barely 30 years old, with the past 15 years seeing the most development. It takes time to educate and create awareness and as this has happened, more banks have focused on servicing the demand for halal investing. This in turn helps to create more products, which then creates more demand.”
Halal investing is experiencing growth despite limited awareness. A 2023 report by the General Council for Islamic Banks and Financial Institutions revealed that the global Islamic funds market has expanded by over 300% in the past decade, with nearly $200 billion in assets now managed worldwide. A Goldman Sachs report from December 2022 projected that by 2075, five of the world’s ten largest economies—India, Indonesia, Nigeria, Pakistan, and Egypt—will have Muslim populations exceeding 850 million people.
As the Muslim population grows, so does the demand for financial products tailored to their needs. According to the State of the Global Islamic Economy Report 2023 by DinarStandard, approximately $25.9 billion was invested in Sharia-compliant investments during the 2022-23 financial year, reflecting a 128% increase from the previous year.
Given this, we will take a look at some of the best halal dividend stocks to buy.
Source: Pixabay
Our Methodology:
To compile this list, we chose the top 10 stocks from the S&P High Yield Dividend Aristocrats Shariah Index. These specific companies are known for consistently providing substantial dividends to their shareholders and demonstrating robust financial stability. We ranked these holdings based on the number of hedge funds that had invested in them by the end of Q3 2024, using 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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Sysco Corporation (NYSE:SYY)
Number of Hedge Fund Holders: 32
Sysco Corporation (NYSE:SYY) is an American wholesale company that is involved in the marketing and distribution of food products, kitchen equipment, and related products. The company holds a strong position in the market and accounts for roughly 17% of the US food service sector, an industry valued at approximately $360 billion annually. Its extensive scale and diverse customer base, which includes restaurants, healthcare facilities, and educational institutions, form the foundation of its business model.
In recent years, Sysco Corporation (NYSE:SYY) has prioritized broadening its product range and strengthening its distribution network. Through strategic acquisitions, the company has enhanced its specialty segment offerings and increased its influence in the fragmented industry. This strategy has allowed it to solidify its competitive edge and improve operational efficiency, both of which are vital for sustaining and growing its market presence.
In fiscal Q1 2025, Sysco Corporation (NYSE:SYY) reported revenue of $20.5 billion, which showed a 4.4% growth from the same period last year. The international segment continues to drive growth, reporting an 8.6% rise in operating income and a 12.1% increase in adjusted operating income for the quarter. Meanwhile, the specialty division remains a strong performer in the market, with the team-based sales approach gaining traction and building momentum. Notably, both revenue and profit growth rates saw an improvement in September.
Heartland Advisors highlighted SYY in its Q4 2024 investor letter. Here is what the firm said:
“Consumer Staples. Our 10 Principles of Value Investing™ require us to be patient and wait for a combination of factors to fall into place before committing to a stock. Among them are attractive valuations, sound finances, capable management teams, sound business strategies, catalysts for recognition, and positive earnings dynamics. Sysco Corporation (NYSE:SYY) is an example of our willingness to wait.
While we purchased shares of the nation’s largest food service distributor in the fourth quarter, we’ve been watching the company’s self-help strategy unfold for years. Recovering from an awful COVID-19-era operating environment, Sysco has been responding with sweeping improvements in its digital capabilities along with changes to sales management and cost containment. Recently, the company — which delivers ingredients and food products to restaurants while avoiding slower-growing grocery stores — has been making a push to grow its specialty platform, offering services such as pre-cut meat, pre-cut produce, and dry aged beef to help customers streamline their operations. When the company’s restaurant, hotel, and food service clients utilize Sysco’s specialty services, they tend to spend three times more than traditional broadline customers…” (Click here to read the full text)
Sysco Corporation (NYSE:SYY)’s cash position also remained strong, which has supported its dividends over the years. During the quarter, the company generated $53 million in operating cash flow and its free cash flow came in at $8 million, which was an improvement of $81 million in the same quarter last year. The company also returned $251 million to shareholders through dividends, which makes it one of the best halal stocks that pay dividends. Sysco Corporation (NYSE:SYY) has been rewarding shareholders with growing dividends for the past 54 years. The company offers a quarterly dividend of $0.51 per share and has a dividend yield of 2.78%, as of January 22.
At the end of Q3 2024, 32 hedge funds in Insider Monkey’s database owned stakes in Sysco Corporation (NYSE:SYY), compared with 37 in the previous quarter. These stakes have a total value of nearly $520 million.
9. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 34
Archer-Daniels-Midland Company (NYSE:ADM) is an American multinational food processing and commodities trading company. The company focuses on converting crops into a wide range of products, including food, animal feed, industrial materials, and energy. As a major participant in the global agricultural industry, it oversees an extensive network for sourcing, transporting, and processing various agricultural goods. Its activities involve managing complex supply chains while catering to the varied demands of the market.
In the past 12 months, Archer-Daniels-Midland Company (NYSE:ADM) has declined by over 2%. Moreover, the company also disappointed investors with its quarterly earnings results. In the third quarter of 2024, it reported $20 billion in revenue, marking an 8% decline from the same period last year and falling short of analysts’ expectations by $1.57 billion. Looking ahead, the company expects tougher market conditions in the coming year but is taking steps to improve performance and deliver value. Its focus remains on boosting productivity, enhancing operational efficiency, and maintaining a disciplined approach to capital allocation.
Despite these challenges, Archer-Daniels-Midland Company (NYSE:ADM) maintained strong cash flow generation. During the first nine months of the year, it recorded an operating cash flow of approximately $2.5 billion, up from $1.9 billion in the same period the previous year. It is one of the best halal stocks that pay dividends and the company holds a 51-year track record of consistent dividend growth. Currently, it pays a quarterly dividend of $0.50 per share and has a dividend yield of 3.96%, as of January 22.
As of the close of Q3 2023, 34 hedge funds in Insider Monkey’s database held stakes in Archer-Daniels-Midland Company (NYSE:ADM), down from 35 in the previous quarter. These stakes are worth $556.5 million in total. With over 2.2 million shares, AQR Capital Management was the company’s leading stakeholder in Q3.
