In this article, we will take a look at some of the best dividend stocks.
The year 2024 was exceptional for US stocks, with the broader market climbing over 23% and the tech-focused NASDAQ gaining 29%. These impressive results were driven by the “Magnificent 7” group of stocks, which rose nearly 67%, alongside several other large-cap stocks. It marked the second consecutive year of over 20% gains for the broader market, a feat not seen since the late 1990s. Analysts and investors are optimistic about the market’s future, as 2024 demonstrated remarkable strength, suggesting the positive trend could continue. However, despite the current upbeat outlook, investor sentiment could shift quickly due to factors such as global tensions, economic developments, or unforeseen events.
No matter how the market trends, investors tend to gravitate towards safe stocks that offer stability, particularly during challenging times. Among these secure investment choices, dividend stocks are especially favored. These stocks are typically issued by companies with a reliable history of consistent dividend payments, often from well-established sectors such as utilities, consumer goods, or healthcare.
Also Read: 10 Best Dividend Kings Stocks to Invest in Now
Historical analysis consistently shows that dividend stocks tend to outperform other asset classes across various market cycles. A report by T. Rowe Price highlighted that since 1926, dividends have accounted for nearly one-third of the total equity returns for US stocks. From 1980 to 2019, a period marked by a significant decline in interest rates, dividends contributed to 75% of the returns from the broader market. The report further mentioned that dividends become especially valuable in a low-interest-rate environment, offering a steady cash flow when other fixed-income options are less attractive. Once companies start paying dividends, they rarely stop, and most increase their payouts over time. Paying dividends can make a stock more appealing to investors, potentially boosting its value. Over the last decade, dividends for the benchmark index have grown annually, with an average compound growth rate of just over 7%. In strong markets, dividends have enhanced total returns, while in years with low or negative returns, such as 2020 and 2022, dividends played a larger role in total returns, helping to bolster portfolio resilience.
Regarding the safety of dividend stocks, analysts recommend that investors prioritize dividend growth rather than chasing yield traps. Dan Lefkovitz, a strategist with Morningstar’s Index team, stressed the importance of focusing on dividend growth, highlighting that it is a distinct strategy from high-dividend investing. He explained that dividend growth reflects a company’s strong competitive position and positive future prospects. A dividend growth portfolio tends to align more closely with the overall market in terms of sector distribution and growth versus value characteristics, such as price-to-earnings ratios. While it has a value-oriented approach, it is more balanced and core-focused compared to a high-dividend portfolio.
Companies with a history of consistently raising their dividends have typically outperformed those that don’t pay dividends, all while experiencing less volatility. While dividends are not guaranteed and can fluctuate, especially in the current environment, they have played a substantial role in enhancing overall equity returns over the years. In this list, we will take a look at some of the best safe dividend stocks for 2025.
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Our Methodology:
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 to find stocks with sustainable payout ratios popular among hedge funds. Our focus was on companies that consistently distribute dividends to their shareholders. From this initial selection, we narrowed down the list to include only those companies with a 5-year average payout ratio below 60%, indicating a robust cash position. Subsequently, we identified the top 10 companies meeting these criteria and arranged them in ascending order of the number of hedge funds that held stakes in each of them.
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).
12. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 60
5-Year Average Payout Ratio: 55.3%
Cisco Systems, Inc. (NASDAQ:CSCO) is an American multinational technology company that specializes in networking hardware, software, and telecommunications equipment. The company reported strong earnings in fiscal Q1 2025, with revenues of $13.8 billion. Though the revenue fell by 6% on a YoY basis, it beat analysts’ expectations by $70.5 million. The company’s net income for the quarter came in at $2.7 billion. Its financial standing remained solid, and it also showcased impressive progress in its developments. The company successfully acquired DeepFactor, Inc., a private enterprise focused on cloud-native application security, along with Robust Intelligence, Inc., a private firm offering AI security solutions. In the past 12 months, the stock has surged by over 16%.
In its recent quarterly earnings, Cisco Systems, Inc. (NASDAQ:CSCO) pointed out that its clients are focusing on essential infrastructure investments to advance AI development. The company highlighted that its broad range of offerings gives it a distinct advantage to benefit from this trend. Its revenue, gross margin, and earnings per share all exceeded expectations, landing at the upper end or surpassing the guidance range, which reflects significant operating leverage.
Cisco Systems, Inc. (NASDAQ:CSCO) also demonstrated a strong cash position, which is sufficient to fund its dividend payments. In the most recent quarter, the company generated an operating cash flow of $3.7 billion, up 54% from the same period last year. The company ended the quarter with $18.7 billion available in cash and cash equivalents. Moreover, it also paid $1.6 billion to shareholders through dividends. The company pays a quarterly dividend of $0.40 per share and has a dividend yield of 2.72%, as of January 13. It is one of the best dividend stocks on our list as the company maintains a 17-year streak of consistent dividend growth.
At the end of Q3 2024, 60 hedge funds tracked by Insider Monkey owned stakes in Cisco Systems, Inc. (NASDAQ:CSCO), compared with 61 in the previous quarter. These stakes are worth over $3 billion in total. Among these hedge funds, Arrowstreet Capital was the company’s leading stakeholder in Q3.
