In this article, we will discuss some of the best income dividend stocks.
When it comes to income investing, dividend stocks are often the first choice for investors. These stocks offer regular payouts to shareholders, which are seen as a way to steadily increase income over time. This approach is backed by data. A report from Hartford Funds revealed that dividends have accounted for 39% of total returns on average since the 1940s. The report also highlighted that stocks with high dividend payouts have not only outperformed other dividend-paying stocks but have done so with lower volatility.
Income factor plays a crucial role in investing, as it can significantly boost overall returns, helping investors achieve the portfolio growth needed to meet their financial objectives. A study by Eagle Investment Management highlighted the income potential of dividend-paying stocks. The study compared the returns of a hypothetical $1,000,000 investment made on December 31, 2012, in the Dividend Aristocrats Index—composed of companies that have consistently raised their dividends for 25 years—with the broader market, assuming dividends were reinvested. According to the report, by 2022, the $1,000,000 investment in Dividend Aristocrats would have generated $93,212 in income, compared to just $55,726 from the market. This stark difference emphasized the greater income potential of dividend aristocrats over the broader market. Although this is a historical example, it underscores the importance of not only prioritizing dividends but also focusing on their growth to enhance a portfolio’s income stream over time.
Also read: 12 Best REIT Dividend Stocks To Buy for 2024
Dividend investing is not a quick path to success; it requires patience and a long-term approach. Over time, high-yielding dividend stocks tend to outperform those that don’t pay dividends. According to the French Data Library, while non-dividend-payers may lead the market in certain years, they generally fall short in the long run. Dividend-payers, especially those with higher yields, have consistently outperformed non-payers and even the broader market. The report, which examined returns from 1927 to 2023, found that non-dividend-payers delivered an annualized return of 8.7%, while high-yield stocks returned 10.9%. In comparison, the overall market returned 9.7% during the same period.
The report outlined several reasons why dividend-paying stocks tend to outperform others. According to the report, investing in dividend-payers helps filter out the most speculative stocks, as these companies are usually well-established and confident in their cash flow, allowing them to return cash to shareholders. Moreover, dividend-payers are more commonly found in the value segment of the market, and stocks with lower prices and expectations have historically performed well. Dividend payers often build a loyal shareholder base, as investors relying on income from their holdings are less likely to sell due to negative news. Lastly, committing to paying dividends fosters discipline within companies. Executives, tempted by the prospect of using excess cash for acquisitions or speculative projects, are instead compelled to act cautiously and prioritize maintaining dividend payouts. For this reason, investors tend to focus on companies with a proven history of strong dividend growth and high yields. In this article, we will further take a look at some of the best income stocks to buy according to analysts.
Our Methodology:
To compile this article, we screened for stocks known for their consistent dividend track records and sustained shareholder payouts over an extended period. This group reflects stability and long-term performance in dividend payouts. From this list, we further refined our selection criteria by identifying stocks with a projected upside potential of over 10% based on analyst price targets. The stocks are ranked according to their upside potential, as of December 13. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 2024.
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).
16. McDonald’s Corporation (NYSE:MCD)
Upside Potential as of December 13: 10.2%
McDonald’s Corporation (NYSE:MCD) is an American multinational fast food company. The company has been grappling with difficulties for a while, stemming from war-related boycotts and an E. coli outbreak linked to its restaurants. This outbreak, which reportedly involved contaminated onions in its burgers, resulted in over 90 illnesses and one fatality. However, the company remains a potential long-term investment, as improving economic conditions could drive higher demand and bolster future sales. In the past 12 months, the stock has surged modestly by nearly 1%.
During the third quarter of 2024, McDonald’s Corporation (NYSE:MCD) generated $6.87 billion in revenue, reflecting a 3% increase compared to the same quarter in the previous year. Over the past twelve months, systemwide sales to loyalty members across approximately 50 loyalty markets surpassed $28 billion, with nearly $8 billion achieved in the latest quarter alone. These figures suggest that the company remains stable and retains opportunities to enhance its performance further.
Carillon Tower Advisers highlighted the company’s performance in its Q3 2024 investor letter. Here is what the firm has to say:
“McDonald’s Corporation (NYSE:MCD) performed well as it met the expectations of investors looking for improvements in relative market share trends. The company’s introductions of menu items at premium- and medium-price tiers are picking up pace, allowing it to capture value more effectively.”
On September 26, McDonald’s Corporation (NYSE:MCD) announced a 6% hike in its quarterly dividend to $1.77 per share. Through this increase, the company stretched its dividend growth streak to 48 years, which makes MCD one of the best dividend stocks on our list. The stock’s dividend yield on December 13 came in at 2.39%.
At the end of Q3 2024, 60 hedge funds tracked by Insider Monkey held stakes in McDonald’s Corporation (NYSE:MCD), compared with 67 in the previous quarter. The overall value of these stakes is more than $2.3 billion. Among these hedge funds, Adage Capital Management was the company’s leading stakeholder in Q3.
15. Oracle Corporation (NYSE:ORCL)
Upside Potential as of December 13: 10.7%
Oracle Corporation (NYSE:ORCL) is a Texas-based computer software company. The company reported strong earnings in fiscal Q2 2025. Its revenue of $14.06 billion showed a 9% growth from the same period last year. Cloud revenue, encompassing both Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS), reached $5.9 billion, marking a 24% increase in both USD and constant currency. Within this segment, cloud infrastructure revenue (IaaS) totaled $2.4 billion, reflecting a robust 52% growth in both USD and constant currency. Oracle Cloud revenue is projected to exceed $25 billion for the current fiscal year.
Mar Vista Investment Partners, LLC also highlighted Oracle Corporation (NYSE:ORCL)’s could business in its Q3 2024 investor letter. Here is what the firm said:
“Oracle Corporation (NYSE:ORCL) is seeing revenue acceleration as it benefits from several years of investing in cloud-based solutions, which are now driving demand. The company is seeing broad-based demand for multiple of its cloud offerings, including its Fusion ERP Suite, its NetSuite offering and the Oracle Database. In addition to those anchor products, Oracle is also gaining traction with its OCI Gen 2 platform-as-a-service offering, which is winning mindshare from leading cloud customers, including Open AI, due to its favorable performance and cost metrics. This OCI Gen 2 solution is well-positioned to become a viable hyper scaler offering, furthered by Oracle’s recently announced partnerships with Microsoft Azure, Google Compute Platform, and Amazon’s AWS, which have all agreed to host Oracle’s flagship database in their respective hyper-scaler cloud environments. We believe this could support a third leg of growth for Oracle as its large installed base of database customers shift from on-premises to cloud deployments. As database customers migrate to a Cloud subscription model, Oracle could increase database software support revenues by 3-to-5 times. We continue to believe Oracle is well-positioned to grow intrinsic value strong double-digits over our investment horizon.”
Renowned for its top-tier data center infrastructure vital to AI development, Oracle Corporation (NYSE:ORCL) is experiencing demand that far outpaces its supply. Its efficient operations have made it a favored partner for prominent AI start-ups, including OpenAI, Cohere, and Elon Musk’s xAI. Despite its efforts, the company is still struggling to meet this high demand, with 162 data centers either operational or under construction as of the first quarter of fiscal 2025. To address this, Oracle plans a significant expansion, aiming to increase the number of data centers to between 1,000 and 2,000 in the future. The stock is delivering solid returns this year, surging by over 67% since the start of 2024.
On December 9, Oracle Corporation (NYSE:ORCL) declared a quarterly dividend of $0.40 per share, which was consistent with its previous dividend. The company has never missed a dividend since 2009. These dividend payments are supported by its strong cash flow. Over the last 12 months, its operating cash flow was $20.3 billion and its free cash flow was $9.5 billion. The stock supports a dividend yield of 0.92%, as of December 13.
As of the close of Q3 2024, 91 hedge funds tracked by Insider Monkey held stakes in Oracle Corporation (NYSE:ORCL), compared with 93 in the previous quarter. The consolidated value of these stakes is more than $7 billion.
14. Union Pacific Corporation (NYSE:UNP)
Upside Potential as of December 13: 10.99%
Union Pacific Corporation (NYSE:UNP) is a Nebraska-based transportation company that operates railroads, connecting 23 states. Railroads offer an exceptionally efficient method for transporting goods over land, and Union Pacific plays a key role in moving a variety of bulk commodities. This diversified revenue base provides some balance to the company’s income, but its performance remains tied to economic cycles. When the economy is strong, demand for products like agricultural goods, industrial materials, and energy rises, boosting the need for the company’s services. Conversely, during economic slowdowns, demand for these goods typically declines. Despite this cyclical nature, railroads generally maintain high operating margins regardless of economic conditions.
In the third quarter of 2024, Union Pacific Corporation (NYSE:UNP) reported revenue of $6.01 billion, which showed a 1% growth from the same period last year. Freight revenue, excluding fuel surcharge income, experienced a 5% increase, driven by a 6% rise in revenue carloads. The company’s operating income reached $2.4 billion, reflecting an 11% growth.
Union Pacific Corporation (NYSE:UNP) also demonstrated a strong cash position. In the first nine months of the year, the company reported an operating cash flow of $6.7 billion, up from $5.9 billion in the prior year period. Its free cash flow for the period also jumped to $1.8 billion, from $955 million in the same period last year. The company has consistently remained committed to its shareholder obligation, paying uninterrupted dividends to investors for 125 years straight. It currently pays a quarterly dividend of $1.34 per share and has a dividend yield of 2.26%, as of December 13.
Insider Monkey’s database of Q3 2024 indicated that 78 hedge funds held stakes in Union Pacific Corporation (NYSE:UNP), compared with 82 in the previous quarter. The collective value of these stakes is over $4.48 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q3.
