In this article, we discuss 10 best stocks for dividends. You can skip our detailed discussion on the best dividend stocks and their historical performance, and go directly to read 5 Best Stocks for Dividends.
The irregular patterns of the stock market have agitated investors this year as they look for safe investment options. The idea of dividend investing picked up steam as these stocks offer steady income to shareholders and provide a hedge against inflation. In comparison, growth-focused technology stocks are sensitive to rising interest rates, which is evident from a 31.7% drop in the tech-heavy NASDAQ this year so far.
Dividend-paying companies perform better during inflationary periods as these companies have strong free cash flow generation and hold solid balance sheets. According to a report by iShares by BlackRock, the free cash flow yield of high dividend-paying companies stood at 5.9%, compared with 4.7% for the S&P 500 from December 2015 to December 2021. The report further mentioned that dividend stocks outperformed the broader market by over 20% from December 2021 to May 2022. Some of the best dividend stocks that are grabbing investors’ attention include The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG) as these companies have raised their dividends for decades and have solid free cash flow to cover their payments.
Analysts also stressed the significance of dividend stocks in these times. Thomas Hubber, a portfolio manager at T. Rowe Price Dividend Growth Fund, talked to Barron’s about dividend investment in September. He said that dividend growers offer protection against inflation and rising interest rates because they offer regular means of income to shareholders. Similarly, senior index analyst at S&P Dow Jones Indices Howard Silverblatt spoke about growing payouts in his interview with the same magazine. He asserted that the S&P 500’s overall dividend payments are expected to rise 10% this year, which would be the first double-digit increase since 2015.
Historical analysis of dividend stocks has shown that these companies have outperformed non-dividend paying companies during bear markets. According to a report by RBC Global Asset Management, dividend growers and initiators fell by 12.5% from 1978 to 2021, compared with a 30.7% decline in non-dividend companies. Overall, dividend stocks returned 13.8% during the same period versus a 12.2% return of non-dividend payers.
Our Methodology:
For this list, we selected dividend stocks with strong dividend growth history, which is rewarding for investors in the current economic landscape. We also considered the cash flow generation and overall balance sheets to provide an in-depth analysis of these shortlisted best dividend stocks. The stocks are ranked according to their dividend yields as recorded on September 27.
10 Best Stocks for Dividends
10. The Sherwin-Williams Company (NYSE:SHW)
Dividend Yield as of September 27: 1.15%
The Sherwin-Williams Company (NYSE:SHW) is an Ohio-based manufacturing company that specializes in the production of paint and coating material. In July, Deutsche Bank maintained its Buy rating on the stock with a $275 price target. The firm mentioned that the company is managing supply chain and raw material challenges efficiently.
Though The Sherwin-Williams Company (NYSE:SHW) missed earnings estimates on various accounts in Q2 2022, the company’s revenue grew by 9.1% year-over-year to $5.8 billion. The company’s operating cash flow for the quarter came in at $613.4 million, up from $26.3 million in the previous quarter. Its free cash flow stood at roughly $484 million. The company paid $1.0 billion to shareholders during the first six months of the year in dividends and share repurchases.
The Sherwin-Williams Company (NYSE:SHW) currently pays a quarterly dividend of $0.63 per share for a dividend yield of 1.15%, as of September 27. The company holds a 43-year track record of consistent dividend growth.
At the end of Q2 2022, 52 hedge funds tracked by Insider Monkey owned stakes in The Sherwin-Williams Company (NYSE:SHW), compared with 54 in the previous quarter. The collective value of these stakes is over $1.86 billion. Chilton Investment Company was the company’s leading stakeholder in Q2.
In addition to The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), The Sherwin-Williams Company (NYSE:SHW) is one of the best dividend stocks to consider due to its strong dividend growth history.
ClearBridge Investments mentioned The Sherwin-Williams Company (NYSE:SHW) in its Q2 2022 investor letter. Here is what the firm has to say:
“Rounding out our risk-focused stance, we believe the addition of Sherwin-Williams (NYSE:SHW), a manufacturer of paints and coatings for professional, industrial and retail customers, adds further resilience in the current inflationary environment. Paint is a relatively small part of total project input costs which can be passed through with price during inflation, and the company has a track record of successfully managing through periods of increased commodity costs. We are attracted to the company’s durability of growth by operating a strong franchise with both organic growth and consolidation amassing a strong portfolio of brands. We like Sherwin-Williams over competitors in the paint industry due to higher volumes, a domestically focused revenue base and strong relationships with the home builder and pro community. We believe the company will be able to keep pricing and expand margins as commodity pressures ease.”
9. Cintas Corporation (NASDAQ:CTAS)
Dividend Yield as of September 27: 1.19%
Cintas Corporation (NASDAQ:CTAS) is an American company that provides a wide range of products and services to different businesses. In its fiscal Q4 2022, the company generated strong cash with its free cash flow standing at over $475.7 million, compared with $213.3 million during the same period last year. Its operating cash flow also grew to $550.5 million, from $262 million in the prior-year quarter. During the quarter, the company paid $98.2 million to shareholders in dividends, which shows that its free cash flow can smoothly cover its dividends.
On July 26, Cintas Corporation (NASDAQ:CTAS) declared a 21% hike in its quarterly dividend to $1.15 per share. The company has raised its dividends every year since it went public in 1983. As of September 27, the stock’s dividend yield came in at 1.19%.
In August, Baird raised its price target on Cintas Corporation (NASDAQ:CTAS) to $475 with an Outperform rating on the shares, highlighting the company’s business scale which will benefit the company during times of economic weakness.
As of the close of Q2 2022, 32 hedge funds in Insider Monkey’s database presented a bullish stance on Cintas Corporation (NASDAQ:CTAS), the same as in the previous quarter. The stakes owned by these hedge funds hold a consolidated value of over $1.13 billion.
Cooper Investors mentioned Cintas Corporation (NASDAQ:CTAS) in its Q1 2022 investor letter. Here is what the firm has to say:
“During the quarter the Fund established a position in Cintas Corporation, a market leader in uniform rental services across North America (Mcap $44bn). This service provides workwear for large corporate and government clients, for example managing supply and laundry of uniforms for the nationwide employee base of customers such as Home Depot.
Uniform rental is a tough local business (Cintas has a million customers) but management have built a high quality business operating with stable and growing recurring revenues and have consistently delivered for shareholders. They have the scale and a superior service offering which drives a unique and attractive return profile, including mid-to-high single digit sales growth, 40% returns on tangible funds employed, and earnings per share that have risen for an impressive 50 of the last 52 years. (Click here to view the full text)
8. W.W. Grainger, Inc. (NYSE:GWW)
Dividend Yield as of September 27: 1.41%
W.W. Grainger, Inc. (NYSE:GWW) is an Illinois-based company that specializes in the distribution of different industrial products. The company offers a quarterly payout of $1.72 per share and has a dividend yield of 1.41%, as recorded on September 27. The company has been raising its dividends consistently for the past 52 years, which places it as one of the best dividend stocks on this list.
In Q2 2022, W.W. Grainger, Inc. (NYSE:GWW) generated over $250 million in operating cash flow, down from $269 million during the same period. The company remained committed to shareholder returns, paying $219 million in dividends during the quarter. At the end of June, it has over $262 million in cash and cash equivalents, up from $241 million six months ago.
Baird appreciated W.W. Grainger, Inc. (NYSE:GWW)’s track record for outperformance during recessionary periods in the past. Given this, the firm raised its price target on the stock in August to $600 and kept an Outperform rating on the shares.
At the end of June 2022, 30 hedge funds tracked by Insider Monkey owned stakes in W.W. Grainger, Inc. (NYSE:GWW), compared with 33 in the previous quarter. These stakes hold a collective value of $304.6 million. Citadel Investment Group owned the largest position in the company in Q2.
Third Avenue Management mentioned W.W. Grainger, Inc. (NYSE:GWW) in its Q1 2022 investor letter. Here is what the firm has to say:
“Held in the Fund since 2019, Grainger plc (“Grainger”) is a UK-based real estate operating company that is the leading owner, manager, and developer of multi-family properties in the supply-constrained markets of the UK (where the multi-family business is more commonly referred to as the private-rental sector or “PRS”). At the end of the 2021 calendar year, the company owned a portfolio of 7,100 PRS units that were 95.0% leased with two-thirds of the value in the greater London area and the remaining one-third in the other UK regions. (Click here to view the full text)
7. Archer-Daniels-Midland Company (NYSE:ADM)
Dividend Yield as of September 27: 1.96%
Archer-Daniels-Midland Company (NYSE:ADM) is an American multinational food processing company that operates over 270 food processing plants across the globe. The company was a part of 42 hedge fund portfolios in Q2 2022, the same as in the previous quarter, as per Insider Monkey’s data. The stakes owned by these hedge funds have a consolidated value of nearly $659 million.
In the second quarter of 2022, Archer-Daniels-Midland Company (NYSE:ADM) generated $531 million in operating cash flow and $248 million in free cash flow. It ended the quarter with $906 million in cash and cash equivalents, up from $869 million during the same period last year. The company’s revenue for the quarter came in at $27.2 billion, showing a 19% year-over-year growth.
Archer-Daniels-Midland Company (NYSE:ADM) has been making uninterrupted dividend payments to shareholders for the past 90 years and has raised its payouts consistently for the past 49 years. This makes the company one of the best dividend stocks on our list. As of September 27, the stock’s dividend yield stood at 1.96%.
In August, Wolfe Research initiated its coverage of Archer-Daniels-Midland Company (NYSE:ADM) with an Outperform rating and a $117 price target. The firm appreciated the company’s highly competitive dividend growth.
Diamond Hill Capital mentioned Archer-Daniels-Midland Company (NYSE:ADM) in its Q1 2022 investor letter. Here is what the firm has to say:
“ADM is a leading agricultural processor that also operates a global nutrition business focused on the development of ingredients and flavors for food and beverages, supplements and more. The company’s recent operating results have benefited (unfortunately) from the war in Ukraine as grain prices and agricultural markets globally experienced strong price increases. ADM is positioned well to benefit from the volatility due to its stable North American agricultural base.”
6. McCormick & Company, Incorporated (NYSE:MKC)
Dividend Yield as of September 27: 1.96%
McCormick & Company, Incorporated (NYSE:MKC) is a Maryland-based food company that manufactures and distributes different food products to manufacturers and food service businesses. In September, Barclays kept an Equal Weight rating on the stock with an $82 price target, highlighting the company’s recent quarterly earnings.
In Q2 2022, McCormick & Company, Incorporated (NYSE:MKC) reported $136.5 million in operating cash flow, down from $144.2 million during the same period last year. However, the company’s free cash flow grew to $78.6 million, from $67 million in the prior-year quarter. It had $325.8 million available in cash and cash equivalents and its total current assets amounted to over $2.3 billion.
McCormick & Company, Incorporated (NYSE:MKC) currently pays a quarterly dividend of $0.37 per share, with a dividend yield of 1.96%, as of September 27. The company has been raising its dividends consistently for the past 36 years, coming through as one of the best dividend stocks. It can be a good addition to dividend portfolios alongside The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG).
At the end of Q2 2022, 33 hedge funds tracked by Insider Monkey owned investments in McCormick & Company, Incorporated (NYSE:MKC), with a total value of over $1.48 billion. Some of the biggest Wall Street names owned stakes in the company in Q2, including Ian Simm, Jim Simons, and Cliff Asness.
Click to continue reading and see 5 Best Stocks for Dividends.
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Disclosure. None. 10 Best Stocks for Dividends is originally published on Insider Monkey.
