In this article, we discuss the best stocks for a dividend stock portfolio.
Investment trends have been shifting steadily in line with market movements. Technology stocks have become the focal point, outpacing all other asset classes. Moreover, dividend stocks are gaining traction with investors due to their capacity to provide steady income. While these stocks are trailing behind the broader market, the inclusion of major tech companies in the dividend space has sparked enthusiasm among financial experts regarding the future of dividend investing. Retail investors are also on the lookout for reliable income sources, reinforcing this trend. According to a report by JPMorgan Chase, non-professional investors now account for a larger portion of the US options market than ever before, with a particular focus on short-term trades and a preference for technology stocks. In June, retail traders set a new record by contributing 18.3% of all options activity. Over 60% of their trades involved contracts set to expire within a week or less, with tech options being the most popular choice in individual stock trades.
A Forbes report highlighted that retail trading hit a peak in 2023, making up around 23% of the trading volume during one week early in the year. This demonstrates that the influence of retail investors extends beyond the meme stock craze. The report, which also referenced data from the Federal Reserve System, noted that despite recession concerns, median net worth jumped 37% between 2019 and 2022, marking a record increase. As a result, more people became active in the stock market.
Retail investors, much like experienced investors, are increasingly drawn to dividend stocks due to the growing interest in them. When investing in dividend stocks, investors tend to favor high-quality companies—those with a strong history of regularly raising their dividends. Experts have observed that the Dividend Aristocrats index, which tracks firms with a minimum of 25 consecutive years of dividend growth, has delivered better performance than the broader market over time. Dan Lefkovitz, a strategist for Morningstar Indexes, also favored dividend stocks in the current market environment. Here are some comments from the analyst:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Despite underperforming last year, global companies still delivered record dividends to shareholders. Income investors worldwide saw a particularly strong second quarter in 2024. According to the latest Janus Henderson Global Dividend Index report, payouts increased by 5.8% on a headline basis, reaching an all-time high of US$606.1 billion. The underlying growth was even more robust at 8.2%, once the impact of exchange rates, especially the weak Japanese yen, was factored in. Following this strong performance and accounting for the significant contributions from new dividend payers this year, Janus Henderson has upgraded its 2024 dividend forecast. The global dividend distribution is now projected to reach US$1.74 trillion, reflecting a 6.4% underlying growth compared to 2023 (up from the previously expected 5.0%) and a headline rise of 4.7% (up from 3.9%). With this, we will discuss some of the best dividend stocks for a dividend stock portfolio.
Our Methodology:
For this list, we carefully examined popular Reddit trading forums such as r/dividends, r/WallStreetBets, r/stocks, and r/trading, where everyday investors discuss and exchange investment ideas. After conducting comprehensive research and analysis, we selected 20 dividend stocks that were getting a lot of attention on Reddit as of September 21. From this group, we chose 15 stocks that had the most hedge fund investors, as tracked by Insider Monkey, during the second 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).
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8. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 44
United Parcel Service, Inc. (NYSE:UPS) is an American multinational shipping and supply chain management company that offers various related services to its consumers. The company has struggled to adjust to a shifting business landscape, marked by lower shipping demand and growing inflationary pressures. It failed to meet high-growth expectations as market analysts observed a drop in package volumes. Furthermore, rising fuel and labor costs put pressure on profit margins, negatively affecting earnings. In the second quarter of 2024, the company generated $21.8 billion, which fell by 1.07% from the same period last year. Its operating profit also declined by 30% YoY at $1.9 billion.
Analysts are reconsidering their outlook on the company due to its current challenges. ClearBridge Investments also decreased its position in United Parcel Service, Inc. (NYSE:UPS) in the second quarter of 2024 and made the following comment in its Q2 2024 investor letter:
“Our industrials holdings weighed on relative performance as we are more exposed to transports such as “less than truckload” provider XPO and parcel delivery company United Parcel Service, Inc. (NYSE:UPS), which are struggling with weak volumes during the post-COVID freight recession. With industry volumes down to pre-COVID levels and strong pricing power in the LTL space in particular, we believe that the next upcycle will prove to be very strong for earnings. As a result, we added to XPO in the quarter while reducing our position in UPS on concerns that industry capacity remains excessive. Meanwhile, we have less exposure to electrical equipment stocks, which have been rewarded by views that they will benefit from the buildout of AI data centers.”
That said, United Parcel Service, Inc. (NYSE:UPS) is popular among the Reddit community because of its strong dividend history. In the past five years, the company has raised its payouts at an annual average rate of nearly 12%. Moreover, its cash position has also attracted the attention of retail investors. In the first six months of the year, the company reported an operating cash flow of $5.3 billion and its free cash flow amounted to $3.3 billion. Due to its strong cash generation, the company was able to raise its dividend payouts for 22 years straight. It currently offers a quarterly dividend of $1.63 per share for a dividend yield of 5.07%, as of September 21. It is among the best stocks for a dividend stock portfolio.
At the end of Q2 2024, 44 hedge funds tracked by Insider Monkey reported having stakes in United Parcel Service, Inc. (NYSE:UPS), up from 43 in the previous quarter. These stakes have a total value of more than $1.3 billion. With 2.6 million shares, Marshall Wace LLP was the company’s largest stakeholder in Q2.
7. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 49
Caterpillar Inc. (NYSE:CAT) is a Texas-based company that specializes in construction, mining, and other engineering equipment. The company has gained popularity among retail investors due to its broad range of businesses and consistent revenue growth. Since the start of 2024, CAT has surged over 26%, fueled by its engagement in emerging economic trends like the energy transition, which has positively impacted sales. Additionally, the company’s embrace of technology, including e-commerce and digital tools, has helped strengthen its stable revenue from services.
Caterpillar Inc. (NYSE:CAT) is also benefitting a lot from the housing market. Diamond Hill Capital also highlighted this in its Q1 2024 investor letter:
“Other top contributors included Allstate, Caterpillar Inc. (NYSE:CAT) and General Motors. Shares of heavy construction machinery manufacturer Caterpillar benefited from a positive US housing market, which despite rising interest rates, is seeing strong demand in the face of relatively short housing supply.”
Caterpillar Inc. (NYSE:CAT) has maintained a strong cash position over the years. In the second quarter of 2024, the company’s enterprise operating cash flow came in at $3 billion. It ended the quarter with $4.3 billion available in cash. The company returned $0.6 billion to shareholders through dividends during the quarter, showing its commitment to investors.
One of the best stocks for a dividend stock portfolio, Caterpillar Inc. (NYSE:CAT) has been growing its dividends for the past 30 years. In the past five years, it has raised its payouts at an annual average rate of over 8%. Currently, it pays a quarterly dividend of $1.41 per share and supports a dividend yield of 1.53%, as of September 21.
As of the close of Q2 2024, 49 hedge funds, up from 45 in the previous quarter, owned stakes in Caterpillar Inc. (NYSE:CAT), as per Insider Monkey’s database. These stakes have a consolidated value of $6.4 billion.
6. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 54
International Business Machines Corporation (NYSE:IBM) ranks sixth on our list of the best stocks for a dividend stock portfolio. The company is well-liked by Reddit users for its flexibility and ability to adjust when industries and market demands shift, demonstrating its ability to remain relevant in today’s market.
International Business Machines Corporation (NYSE:IBM) is now focused primarily on artificial intelligence (AI) and cloud computing. Under the leadership of CEO Arvind Krishna, who took charge in 2020 and shifted the company’s focus to these areas, IBM has seen steady revenue growth. The company stands out by providing a full technology stack through its Watsonx platform, coupled with consulting services for deploying and managing generative AI. Although its stock underperformed over the past decade, its strong presence in the AI space is fueling notable gains this year. The stock has surged by nearly 35% in 2024 so far.
In the second quarter of 2024, International Business Machines Corporation (NYSE:IBM) generated $15.7 billion in revenues, up 2% from the same period last year. The revenue also beat analysts’ expectations by over $147 million. The company also showed a strong cash position, with $6.2 billion in operating cash flow in the first six months of the year. During this period, its free cash flow came in at $4.5 billion. Following the results from the first half of the year, the company has raised its full-year projection for free cash flow, now expecting it to surpass $12 billion.
International Business Machines Corporation (NYSE:IBM) currently offers a quarterly dividend of $1.67 per share, having raised it by 0.6% in April this year. This marked the company’s 29th consecutive year of dividend growth, which makes it one of the best stocks for a dividend stock portfolio. It paid $1.5 billion to shareholders through dividends in the most recent quarter. The stock has a dividend yield of 3.07%, as reported on September 21.
Insider Monkey’s database of Q2 2024 indicated that 54 hedge funds owned stakes in International Business Machines Corporation (NYSE:IBM), up from 49 in the previous quarter. These stakes are worth $838 million in total. Among these hedge funds, Cliff Asness’ AQR Capital Management was the company’s leading stakeholder in Q2.
5. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 68
The Coca-Cola Company (NYSE:KO) is an American multinational beverage company. It is well-liked by retail investors due to its leadership position in the industry. In addition, its solid business model and consistent growth over the years have contributed to its popularity. The stock has performed well this year, rising by nearly 20%. It reached a record high on September 3, with the share price climbing to approximately $73.
Morgan Stanley predicts that The Coca-Cola Company (NYSE:KO) will continue its strong performance. Analyst Dara Mohsenian highlighted the company as a preferred choice, particularly over competitors dealing with slower organic sales growth. He noted that Coca-Cola’s solid fundamentals are distinguishing it from the rest, with expectations of strong, above-average long-term organic sales growth driven by international trends and its global presence. The firm named the company as its top choice, keeping an Overweight rating on the stock.
The Coca-Cola Company (NYSE:KO)’s cash position also makes it one of the most favored investment options. In the second quarter of 2024, the company reported an operating cash flow of $4.1 billion and its free cash flow for the quarter amounted to $3.3 billion. It expects to generate a free cash flow of $9.2 billion in FY24.
The Coca-Cola Company (NYSE:KO), one of the best stocks for a dividend stock portfolio, has raised its payouts for 62 years in a row. The company pays a quarterly dividend of $0.485 per share and has a dividend yield of 2.7%, as of September 21.
The number of hedge funds tracked by Insider Monkey owning stakes in The Coca-Cola Company (NYSE:KO) grew to 68 in Q2 2024, from 62 in the previous quarter. These stakes have a total value of nearly $32 billion. Warren Buffett’s Berkshire Hathaway was the company’s leading stakeholder in Q2.
4. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy, Inc. (NYSE:NEE) ranks fourth on our list of the best stocks for a dividend stock portfolio. Retail investors favor the company due to its strong business model. Over the past few decades, the demand for clean energy has steadily risen, and the company has consistently invested in expanding its capacity and operations to meet this demand. Analysts also believe that the company is well-positioned to benefit from the growing need for renewable energy, particularly from tech companies. These companies are working to meet their climate targets while also expanding their energy-hungry data centers.
According to the US Department of Energy, solar and wind energy accounted for just 13% of the electricity generated in the country in 2022, but this percentage is projected to grow in the coming years. Additionally, the overall demand for electricity in the US is on the rise. NextEra Energy, Inc. (NYSE:NEE) surged by nearly 35% since the start of 2024, surpassing the broader market, which gained over 20% during this period.
ClearBridge Investments also highlighted AI momentum in the energy sector in its Q2 2024 investor letter. Here is what the firm has to say about NextEra Energy, Inc. (NYSE:NEE):
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like renewable power producer NextEra Energy, Inc. (NYSE:NEE) that supply the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
On July 25, NextEra Energy, Inc. (NYSE:NEE) declared a quarterly dividend of $0.515 per share. The company has been rewarding shareholders with growing dividends for the past 28 years. The stock’s dividend yield on September 21 came in at 2.5%.
NextEra Energy, Inc. (NYSE:NEE) was a part of 73 hedge fund portfolios at the end of Q2 2024, up from 72 a quarter earlier, according to Insider Monkey’s database. These stakes have a total value of over $2.1 billion. Among these hedge funds, GQG Partners was the company’s leading stakeholder in Q2.
3. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 86
The Home Depot, Inc. (NYSE:HD) is an American multinational home improvement company that offers a wide range of related tools, construction products, and appliances. In the second quarter of 2024, the long-term factors supporting demand for home improvement stayed strong. However, growing macroeconomic uncertainty negatively impacted overall consumer demand, resulting in lower spending on home improvement projects. Despite these challenges, the company managed to navigate them effectively while ensuring strong performance.
Polen Capital also highlighted this interest rate sensitivity in its Q2 2024 investor letter. Here is what the firm has to say:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: The Home Depot, Inc. (NYSE:HD), Meta Platforms, and AbbVie. With Home Depot, much of the quarter’s weakness came in April, as a higher-than-expected inflation reading caused investors to question the likelihood of imminent rate cuts in 2024. Given Home Depot’s sensitivity to interest rates, as it relates to home improvement projects, the stock sold off in the period.”
The Home Depot, Inc. (NYSE:HD) is popular among Redditors because of its strong dividend history. Over the past 5 years, the company has raised its payouts at an annual average rate of 12%. Moreover, it holds a 14-year streak of consistent dividend growth, which makes it one of the best stocks for a dividend stock portfolio. The stock supports a dividend yield of 2.31%, as of September 21.
The Home Depot, Inc. (NYSE:HD) is underperforming the broader market this year but the company is expected to rebound as consumer behavior typically follows cyclical trends. Companies that thrive during economic recoveries are often part of a substantial long-term growth trajectory. Furthermore, the company’s cash position remains robust, with nearly $11 billion in operating cash flow reported for the most recent quarter.
The Home Depot, Inc. (NYSE:HD) was a popular buy among elite money managers during the second quarter of 2024. As per Insider Monkey’s database of Q2 2024, 86 hedge funds held stakes in the company, growing from 70 in the previous quarter. These stakes have a total value of over $6 billion.
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 111
JPMorgan Chase & Co. (NYSE:JPM), an American multinational investment banking company, is popular among Redditors due to the potential for high interest rates to boost bank profitability. In times of elevated interest rates, banks can experience an increase in net interest income, leading to wider net interest rate margins. The stock has proven to be a profitable choice, delivering nearly 250% returns over the past decade, outpacing the broader market’s 187% return during the same timeframe.
JPMorgan Chase & Co. (NYSE:JPM) remains committed to substantial investments in its operations to drive long-term growth and profitability. It maintains a robust balance sheet, positioning itself to navigate different economic scenarios. In the second quarter of 2024, the company achieved revenue of $50.2 billion, reflecting a 22% increase compared to the same quarter last year. Additionally, it recorded a 15% rise in assets under management (AUM), totaling $3.7 trillion.
On September 17, JPMorgan Chase & Co. (NYSE:JPM) declared an 8.7% hike in its quarterly dividend to $1.25 per share. This was the company’s second dividend increase this year. It is one of the best companies for a dividend stock portfolio as it returned $3.3 billion to shareholders through dividends in the most recent quarter. JPM has a healthy dividend yield of 2.18%, as recorded on September 21.
Insider Monkey’s database of Q2 2024 indicated that 111 hedge funds held stakes in JPMorgan Chase & Co. (NYSE:JPM), compared with 112 in the previous quarter. These stakes have a consolidated value of nearly $7 billion.
1. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a California-based multinational semiconductor company that offers a wide range of semiconductor and infrastructure software products. The company has caught the interest of retail investors by offering network and data center solutions, as well as cloud-based tools through its subsidiary, VMware. Although around 60% of its revenue comes from semiconductor solutions, its infrastructure software segment is seeing significant growth. With a strong position at the intersection of AI and semiconductors, the company represents an attractive investment opportunity.
Broadcom Inc. (NASDAQ:AVGO) reported strong results in fiscal Q3 2024. The company generated $13.07 billion in revenues, which showed a significant growth of 47% from the same period last year. The results demonstrated ongoing strength in the company’s AI semiconductor solutions and VMware. Revenue from AI is projected to reach $12 billion for fiscal year 2024, fueled by Ethernet networking and custom accelerators for AI data centers. The transformation of VMware is progressing effectively, with its integration expected to drive adjusted EBITDA margins to 64% of revenue by the end of fiscal year 2024.
In addition to revenues, Broadcom Inc. (NASDAQ:AVGO) also maintained a strong cash position during the quarter. Its operating cash flow came in at $5 billion and its free cash flow amounted to $4.8 billion, which represented 37% of the revenue. During the quarter, it returned $2.4 billion to shareholders in dividends, which makes it one of the best companies for a dividend stock portfolio.
Broadcom Inc. (NASDAQ:AVGO) currently pays a quarterly dividend of $0.53 per share and has a dividend yield of 1.24%, as of September 21. The company has raised its payouts for 13 years in a row. Moreover, its 5-year average annual dividend growth rate comes in at nearly 16%.
The number of hedge funds tracked by Insider Monkey owning stakes in Broadcom Inc. (NASDAQ:AVGO) jumped to 130 in Q2 2024, from 115 in the previous quarter. These stakes have a total value of over $20 billion. Rajiv Jain’s GQG Partners owned the largest stake in the company in Q2.
Overall, Broadcom Inc. (NASDAQ:AVGO) ranks first on our list. While we acknowledge the potential for AVGO to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
