In this article, we discuss the 10 best stocks to increase your dividend income.
Investors have long discussed whether a healthy business that pays a reliable dividend payout will also generate the highest capital returns over the long term. Value investors generally concur with this point of view while growth investors argue in favor of the opposite. According to a study of dividend paying stocks published by Hartford Funds, companies that grew or initiated a dividend have experienced the highest returns relative to other stocks since 1973. They have also experienced significantly less volatility.
Companies that pay dividends usually return the profit they have made to shareholders while those that do not pay dividends reinvest that profit for growth in the business. Stocks like Amazon.com, Inc. (NASDAQ:AMZN) Alphabet Inc. (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT) usually lie in the latter category. Even though these firms have been popular on Wall Street in the past few years, the Hartford Study claims that 84% of the total return of the S&P 500 Index since 1960 can be attributed to reinvested dividends.
A Brief History of Dividend Versus Growth Stocks
The study has outlined how dividend players performed over each decade going back to before the Great War. In the 1940s, 1950s, and 1960s, the dividend payouts of companies played a large role in their total returns. The average total return through these decades was around 10%. However, as the average total returns jumped from the 1960s onwards, the role of dividends started to diminish. During the 1990s, dividends were largely marginalized as companies preferred growth rather than focusing on returns to shareholders.
However, at the turn of the millennium, the dotcom bubble burst, forcing investors away from growth firms towards reliable dividend players. The benchmark index posted negative returns in the first decades of the new millennium. Per the study, between 1960 and 2021, the median dividend yield for the market was around 2.90%. The yield peaked in the 1980s and bottomed in the 2000s. After the 2010s, growth stocks once again became popular as the social media and ecommerce age dawned.
As inflation climbs and the Fed prepares a further rise in interest rates, investors at the stock market have once again shifted their focus towards dividend stocks to weather the upcoming storm.
Our Methodology
The companies that have a solid track record of dividend payouts were selected for the list. The business fundamentals and analyst ratings of these firms are also discussed to provide further context. Hedge fund sentiment was included as a classifier as well. Data from around 920 elite hedge funds tracked by Insider Monkey was used to quantify the hedge fund sentiment around each stock.
10. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 69
Dividend Yield: 2.59%
The Procter & Gamble Company markets consumer packaged goods. The company has an impressive dividend history stretching back over six decades. These payouts have also been growing for the past sixty-five years. In an industry where the median in this regard is just six years, the payouts attest to the earnings strength of the company.
In October, Bank of America gave bullish comments on Procter & Gamble despite the company’s weak EPS guidance. BofA expects strong profit growth for the company in the second and third quarters of fiscal 2023.
On April 22, Barclays analyst Lauren Lieberman maintained an Overweight rating on The Procter & Gamble Company stock and raised the price target to $176 from $167, backing the firm to deliver earnings that will set an extremely high bar for the industry.
As of the end of the third quarter, Ray Dalio’s hedge fund Bridgewater Associates is the biggest stakeholder of the company with an $835 million stake.
9. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 85
Dividend Yield: 2.58%
Johnson & Johnson makes and sells healthcare products. Johnson & Johnson has consistently increased its dividend for 60 years. It’s one of the best dividend kings in the market with long-term growth potential.
On April 20, Credit Suisse analyst Matt Miksic kept an Outperform rating on Johnson & Johnson stock and raised the price target to $205 from $200, noting that the med supplies and devices business of the firm was delivering better-than-expected growth.
At the end of the third quarter of 2022, 85 hedge funds in the database of Insider Monkey held stakes worth $7.3 billion in Johnson & Johnson.
8. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 68
Dividend Yield: 2.8%
Bristol-Myers Squibb Company (NYSE:BMY) develops and sells biopharmaceutical products. It’s one of the best blue chip dividend stocks as the company has upped its dividend consistently for over a decade now.
On April 5, the company announced that it had obtained approval from the European authorities for Opdivo, a drug used to treat a type of bladder cancer and a form of esophageal cancer. The EU approved the use for the drug for adults. The company has underlined that the drug is the “first adjuvant immunotherapy option approved for patients in the EU in this setting”. The approval is backed by results from a Phase-3 trail of the drug.
At the end of the third quarter of 2022, 68 hedge funds in the database of Insider Monkey held stakes in the company.
In its Q4 2021 investor letter, Saturna Capital, an asset management firm, highlighted a few stocks and Bristol-Myers Squibb Company was one of them. Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. We sold our positions in Bristol-Myers Squibb Company. We believe there are better opportunities than Bristol-Myers Squibb Company in pharmaceuticals.”
7. Iron Mountain Incorporated (NYSE:IRM)
Number of Hedge Fund Holders: 23
Dividend Yield: 4.8%
Iron Mountain Incorporated (NYSE:IRM) is a real estate investment trust that focuses on storage and information management services.
Earlier this month, Iron Mountain reaffirmed its full-year guidance even after its third-quarter revenue missed estimates.
For the past eleven years, the company has consistently paid a dividend to shareholders. On February 24, it declared a quarterly dividend of $0.6185 per share, in line with previous. It also beat market estimates on revenue for the fourth quarter of 2021 by $10 million. The guidance for 2022 was also strong with revenues expected to be around $5.275 billion against estimates of $5 billion.
On April 12, Stifel analyst Shlomo Rosenbaum kept a Buy rating on Iron Mountain Incorporated stock and raised the price target to $62 from $52, noting that there was “increased optionality” around mergers and acquisitions to increase the revenue growth trajectory.
6. Arbor Realty Trust, Inc. (NYSE:ABR)
Number of Hedge Fund Holders: 13
Dividend Yield:11.23%
Arbor Realty Trust, Inc. (NYSE:ABR) is a New York-based real estate investment trust. It distributes at least 90% of taxable income to shareholders.
Earlier in November, the stock jumped after the company raised its quarterly dividend by a penny to $0.40 per share following strong third quarter results. The company’s EPS in the quarter came in at $0.56, crushing the estimates of $0.36 consensus.
In mid-February, the firm declared a quarterly dividend of $0.37 per share, an increase of close to 3% from the previous dividend of $0.36. The two business segments that the firm operates in include structured loan origination and agency loan origination. The shareholder return of the company is one of the best in the real estate market over the past five years.
On April 25, Piper Sandler analyst Crispin Love initiated coverage of Arbor Realty Trust, Inc. stock with an Overweight rating and a price target of $20, highlighting the diversified revenue model, industry tailwinds in the multifamily bridge space, and an attractive valuation as some of the catalysts for the shares.
At the end of the third quarter of 2022, 13 hedge funds in the database of Insider Monkey held stakes worth $99 million in Arbor Realty Trust, Inc., the same as in the previous quarter worth $68 million.
In addition to Amazon.com, Inc., Alphabet Inc., and Microsoft Corporation, Arbor Realty Trust, Inc. is one of the stocks that hedge funds are buying amid rising market uncertainty.
5. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 20
Dividend Yield: 11.09%
BHP Group (NYSE:BHP) is a diversified metals and mining firm. On April 6, the company announced that it had secured enough renewable energy supply to power three nickel mine operations in Australia from 2024. For two of these operations, the power supply comes from a wind energy deal with Enel Green Power of Italy. Last year, the company had signed an agreement with EV maker Tesla to supply the latter with nickel from mining operations in Western Australia.
On April 21, Citi analyst Ephrem Ravi upgraded BHP Group stock to Buy from Neutral and raised the price target to GBP 3,200 from GBP 2,750, noting that the cash flow generation of the firm was up strongly and backing it to continue outperforming the market.
In its Q1 2021 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and BHP Group was one of them. Here is what the fund said:
“Our purchase of Australian mining company BHP Group is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP Group from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
4. Genco Shipping & Trading Limited (NYSE:GNK)
Number of Hedge Fund Holders: 16
Dividend Yield: 21%
Genco Shipping & Trading Limited engages in the ocean transportation of dry bulk cargoes. On March 8, the company declared a quarterly dividend of $0.67 per share, an increase of close to 350% from the previous dividend of $0.15 per share. The board of directors of the firm have also approved a new dividend policy heading into 2022. Under the policy, the quarterly payouts will be calculated using a new formula that includes dividends from 2021 and estimates for earnings in 2022.
On February 24, Genco Shipping & Trading Limited posted earnings for the fourth quarter of 2021, reporting earnings per share of $1.99, beating estimates by $0.05. The revenue over the period was $183 million, up 91% year-on-year.
3. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Dividend Yield: 9.26%
Vale S.A. (NYSE:VALE) makes and sells steel products.
On March 3, HSBC analyst Jonathan Brandt upgraded Vale S.A. stock to Buy from Hold and raised the price target to $21.50 from $17.25, noting that the metal prices were on a path to be stronger for longer given supply issues and higher inflation.
2. Chimera Investment Corporation (NYSE:CIM)
Number of Hedge Fund Holders: 14
Dividend Yield: 14.22%
Chimera Investment Corporation (NYSE:CIM) operates as a real estate investment trust.
In early January, Barclays analyst Mark DeVries raised the price target on Chimera Investment Corporation stock to $14 from $11 and kept an Underweight rating, backing a strong economy and housing market to drive solid fundamentals for the firm.
At the end of the third quarter of 2022, 14 hedge funds in the database of Insider Monkey held stakes in the company.
1. Two Harbors Investment Corp. (NYSE:TWO)
Number of Hedge Fund Holders: 28
Dividend Yield: 16.95%
Two Harbors Investment Corp. (NYSE:TWO) is a real estate investment trust that focuses on residential mortgage-backed securities. The company has a solid dividend history stretching back more than ten years. The industry median in this regard is just five years.
On April 25, JPMorgan analyst Richard Shane maintained a Neutral rating on Two Harbors Investment Corp. stock with a price target of $5, noting that a reduction of central activity in the activity in the mortgage backed security market should accelerate the normalization process for the real estate sector.
You can also take a peek at 12 Best Environmental Stocks to Invest In and 10 Best Nickel Stocks to Buy Now.
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This article is originally published at Insider Monkey.
