In this article, we will take a look at some of the best stocks for a dividend stock portfolio.
There is a common misconception that dividend stocks are primarily suited for those nearing retirement. However, this is not the case. Both experienced and retail investors have long favored dividend stocks, as they provide a steady stream of income. Unlike growth companies, dividend-paying firms distribute a portion of their profits to shareholders. While dividend investing may seem simple, successfully implementing this strategy requires thorough research and careful analysis.
Financial advisor Michael Dinich discussed dividend investing in an interview with Business Insider. Here are some comments from the analyst:
“While low-cost index funds provide easily diversified exposure to the market with minimal effort, selecting individual dividend payers demands continued research to find suitable candidates.”
He further highlighted that dividend stocks serve as a reliable income source, which can either be reinvested to compound returns or used as cash for various financial needs. This makes them particularly valuable for younger investors, offering both market exposure and a consistent income stream. His insights align with the broader impact of dividend income on market returns over extended periods. According to a report by S&P Dow Jones Indices, from 1926 to July 2023, dividends contributed 32% of the monthly total return of the broader market, with the remainder driven by capital appreciation.
READ ALSO: Top 10 Dividend Stocks To Buy According To Hedge Funds
A study by WisdomTree emphasized the strong income potential of dividend-paying stocks. The report suggested that focusing on dividends can significantly boost investors’ dividend earnings and improve the trailing 12-month dividend yield. This approach is especially beneficial during periods of low yields and market uncertainty. Investing in dividend-weighted indexes may provide a reliable strategy for generating income in such challenging conditions.
For the past two years, dividend stocks have underperformed the broader market, largely due to increased investments in the AI sector. However, analysts remain optimistic about dividend growth, particularly as more technology companies introduce dividend policies to attract investors. According to a report by S&P Global, total US dividends are expected to rise by 7% in 2025, reaching $784 billion. In recent years, and continuing into the current fiscal year, key contributions to dividend growth have come from sectors such as energy, pharmaceuticals, financial services, banking, and REITs. The report also highlighted that the media and entertainment sector experienced a significant surge in total dividend payouts in 2024, climbing by 140%, largely driven by the dividend policies of two major companies. This upward trend is expected to continue in 2025, with the sector projected to see an 18.6% increase in dividend growth, leading the market once again.
While regular dividends are projected to increase, variable dividends are set to decline by approximately 50%, with estimates placing the total for 2025 at $13.5 billion. Across all US sectors, variable dividends are expected to shrink, as persistent inflation and higher interest rates have limited the additional cash flow available for distribution. In view of this, we will take a look at some of the best stocks to buy for a dividend stock portfolio.
Our Methodology
For this list, we first used a stock screener to pick companies that have raised their dividends for at least 10 consecutive years or more. From that list, we narrowed down our options to companies with dividend yields of around 2%, as of February 25, demonstrating robust financial standings and consistent cash flow, which are indicative of their ability to sustain reliable dividends for passive income. From these companies we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of over 1,000 hedge funds and their holdings as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 65
Lockheed Martin Corporation (NYSE:LMT) is an American defense and aerospace manufacturing company that specializes in advanced technology systems, services, and products. Since the beginning of 2025, the stock has declined by more than 7% following a mixed earnings report. Investor concerns grew further as LMT lowered its profit forecast for 2025, now expecting earnings per share between $27.00 and $27.30, falling short of the anticipated $27.92. A key factor behind the weaker outlook was a delay in the deployment of a technology upgrade for the F-35 fighter jet.
In the fourth quarter of 2024, Lockheed Martin Corporation (NYSE:LMT) reported revenue of $18.6 billion, marking a 1.3% decline compared to the same period last year. Despite this, in 2024, it invested over $3 billion in strengthening national security through research and development, along with capital expenditures designed to support its customers’ objectives. These initiatives aimed to foster innovation and modernize operations using advanced digital and manufacturing technologies. The company’s solid and consistent performance also enabled it to return more than 100% of its free cash flow to shareholders throughout the year.
Lockheed Martin Corporation (NYSE:LMT) showcased solid cash generation in fiscal year 2024. The company reported $7 billion in operating cash flow, while its free cash flow for the year reached $5.3 billion. In addition, it distributed $6.8 billion to shareholders through dividends and stock buybacks. It currently offers a quarterly dividend of $3.30 per share and has a dividend yield of 2.94%, as of February 25. It is one of the best stocks for a dividend stock portfolio as the company has been growing its payouts for 22 consecutive years.
9. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 66
Texas Instruments Incorporated (NASDAQ:TXN) is a Texas-based semiconductor company that specializes in analog and embedded chips. While its analog and embedded chips may not attract as much attention as those from other major semiconductor companies, they play a vital role in the industry. These chips convert analog signals into digital ones, a fundamental technology that enables advancements such as artificial intelligence (AI). The stock has surged by nearly 22% in the past 12 months.
Texas Instruments Incorporated (NASDAQ:TXN) manufactures over 80,000 products, catering to more than 100,000 customers. Although its primary focus is on the industrial and automotive sectors, its chips are also widely used in enterprise systems, communications equipment, and personal electronics.
Texas Instruments Incorporated (NASDAQ:TXN) has carved out a distinctive position in the industry. Under the leadership of former CEO Rich Templeton, the company became a powerhouse in dividend growth, increasing its payout at a compound annual rate of 24% from 2004 to 2023. In fiscal year 2024, the company maintained a strong cash position. Its operating cash flow over the past twelve months totaled $6.3 billion, while free cash flow for the same period reached $1.5 billion. In addition, the company returned $4.8 billion to shareholders through dividends in the fourth quarter of 2024. It has raised its dividends for 21 years in a row, which makes TXN one of the best stocks for a dividend stock portfolio. The company’s quarterly dividend comes in at $1.36 per share and has a dividend yield of 2.72%, as of February 25.
8. Medtronic plc (NYSE:MDT)
Number of Hedge Fund Holders: 67
Medtronic plc (NYSE:MDT) ranks eighth on our list of the best stocks for a dividend stock portfolio. The multinational medical device company has a diversified business, offering a wide range of devices across four key sectors: medical-surgical, neuroscience, cardiovascular, and diabetes.
In fiscal Q3 2025, Medtronic plc (NYSE:MDT) posted revenue of $8.3 billion for the third quarter, reflecting a 2.5% increase from the same period last year. However, this figure fell slightly short of Wall Street’s consensus estimate of $8.33 billion. The company reported diluted earnings per share (EPS) of $1.01 under generally accepted accounting principles (GAAP). Meanwhile, adjusted EPS rose 7% year over year to $1.39, surpassing analysts’ expectations of $1.35.
Approximately 50% of Medtronic plc (NYSE:MDT)’s revenue is generated in the US, which remains the most profitable healthcare market globally. The remainder comes from international operations, including emerging markets that have the potential for faster growth in the years ahead. The company’s main revenue streams come from its cardiovascular, neuroscience, and surgical divisions, while its diabetes segment contributes a smaller portion. This diversified business model provides stability. Notably, when numerous medical procedures were postponed or canceled during the early years of the pandemic, it marked the first time since the mid-1980s that Medtronic’s trailing 12-month sales declined by 10%.
Medtronic plc (NYSE:MDT) showed a strong cash position in its earnings report. In the first nine months of its fiscal year, the company generated an operating cash flow of over $4.5 billion, and its free cash flow came in at $3.1 billion. Due to this strong cash position, the company was able to raise its dividend payouts for 47 years straight. The company offers a quarterly dividend of $0.70 per share and has a dividend yield of 3.09%, as of February 25.
7. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 67
McDonald’s Corporation (NYSE:MCD) is an American multinational fast food chain. The company’s latest quarterly earnings fell short of investor expectations. It posted a revenue of $6.4 billion in the fourth quarter of 2024, down 0.2% from the same period last year. The revenue also missed analysts’ estimates by over $88 million. The company reported a modest 0.4% increase in same-store sales worldwide, reflecting the performance of locations that have been open for at least a year. However, its US segment, which is considered a key market, experienced a concerning 1.4% decline in same-store sales. These figures suggest that the company’s growth momentum has slowed and that it is facing challenges in maintaining strong sales performance.
One factor contributing to the disappointing quarter was an E. Coli outbreak that affected specific menu items, including the popular Quarter Pounder. However, while this played a role, it is important to recognize that the challenges extended beyond just the fourth quarter.
That said, McDonald’s Corporation (NYSE:MCD) has grabbed investors’ attention due to its dividend policy and cash position. At the end of FY24, the company had over $1 billion available in cash and cash equivalents and its total assets amounted to nearly $12 billion. Moreover, it has been growing its payouts for 48 consecutive years, which makes MCD one of the best stocks for a dividend stock portfolio. The company pays a quarterly dividend of $1.77 per share and has a dividend yield of 2.28%, as of February 25.
6. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 70
Lowe’s Companies, Inc. (NYSE:LOW) is an American home improvement company, headquartered in North Carolina. The company is well-positioned due to three key factors driving its business: increasing home prices, personal income growth surpassing inflation, and the record-high average age of homes in the US. These trends are expected to support ongoing demand for the company’s products, as homeowners are likely to continue prioritizing home improvements and repairs. In the past 12 months, the stock has surged by nearly 5%.
Lowe’s Companies, Inc. (NYSE:LOW) offers a wide range of products and services, including hardware, tools, appliances, building materials, paint, plumbing supplies, and garden equipment. In January, the company announced that nominations are now open for Lowe’s Hometowns, a five-year initiative with a $100 million commitment to community revitalization. This year, the company plans to allocate $10 million to support 100 renovation projects, along with an additional 1,700 projects chosen by its employees. Furthermore, it has pledged $2 million to aid relief and recovery efforts for the Southern California wildfires, emphasizing its commitment to community support during crises.
Lowe’s Companies, Inc. (NYSE:LOW) has also built a strong reputation as a reliable dividend stock. Over the past five years, it has increased its dividend at an average annual rate exceeding 16%. With a track record of 59 consecutive years of dividend growth, it is one of the best additions to a dividend stock portfolio. The company’s quarterly dividend comes in at $1.15 per share and has a dividend yield of 1.9%, as of February 25.
5. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 73
NIKE, Inc. (NYSE:NKE) is an American apparel and footwear company. The company built a strong brand by featuring high-profile commercials and securing endorsements from top athletes, including basketball legend Michael Jordan. This brand strength translated into impressive sales, with footwear making up two-thirds of the company’s $23.9 billion in revenue for the first half of its fiscal year, which ended on November 30, 2024. In addition to footwear, the company also sells apparel and accessories such as bags, balls, bats, and gloves.
NIKE, Inc. (NYSE:NKE) faced challenges in the second quarter, particularly in China, where revenue declined 8% year-over-year. However, this drop was not as severe as analysts had projected, as they had expected a 10% decline. Meanwhile, gross margins dipped slightly to 43.6% from 44.6% in the previous year’s quarter. Despite these challenges, the company managed to cut operating expenses by 5%, which could allow it to reinvest in marketing efforts.
NIKE, Inc. (NYSE:NKE) also maintains a strong focus on shareholder returns, backed by a solid financial position. The company offers a quarterly dividend of $0.40 per share and has a dividend yield of 1.96%, as of February 25. In its most recent quarter, the company held $7.9 billion in cash and cash equivalents, marking a 1% increase from the previous year. It also returned $1.6 billion to shareholders through dividends and share repurchases. Nike has raised its dividend for 23 consecutive years, which makes it one of the best stocks for a dividend stock portfolio.
4. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 79
An American semiconductor company, QUALCOMM Incorporated (NASDAQ:QCOM) ranks fourth on our list of the best stocks for a dividend stock portfolio. In fiscal Q1 2025, the company reported revenue of $11.7 billion, which showed a 17.6% growth from the same period last year. For the third consecutive quarter, Qualcomm delivered double-digit revenue growth, achieving a new record for quarterly sales. Its chip division (QCT) saw a 20% increase in revenue, reaching $10.1 billion. Sales from handsets, including smartphones, rose 13% to $7.6 billion, while automotive revenue experienced a significant 61% jump to $961 million. Meanwhile, revenue from the Internet of Things (IoT) segment climbed 36% to $1.5 billion.
QUALCOMM Incorporated (NASDAQ:QCOM)’s solid financial position and strong research and development capabilities indicate potential for expansion into emerging high-growth sectors, such as robotics chips. With automation gaining traction across industries like manufacturing, logistics, and services, the robotics market is expected to grow rapidly, creating opportunities for the company. The company’s cutting-edge semiconductor designs, including its custom “Oryon” cores featured in the Snapdragon X Elite and Snapdragon 8 Elite, provide enhanced performance and energy efficiency—crucial attributes for real-time decision-making in robotics applications.
QUALCOMM Incorporated (NASDAQ:QCOM)’s cash position came in strong in the most recent quarter. It had over $3.1 billion available in cash and cash equivalents and its operating cash flow came in at nearly $4.6 billion. During the quarter, it also returned $942 million to shareholders through dividends. The company pays a quarterly dividend of $0.85 per share for a dividend yield of 2.11%, as recorded on February 25. It has been rewarding shareholders with growing dividends for the past 20 years.
3. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 81
NextEra Energy, Inc. (NYSE:NEE) is an American renewable energy company that generates, transmits, and sells electricity. On February 14, the company revealed a 14% hike in its quarterly dividend, bringing it to $0.5665 per share. This marks the company’s 29th consecutive year of dividend increases. The steady dividend growth is supported by robust cash flow, with NextEra generating over $13.2 billion in operating cash flow during fiscal 2024. Moving forward, the company intends to raise its dividend per share by approximately 10% annually through at least 2026, using its 2024 payout as a reference point. With a dividend yield of 3.18%, as of February 25, NEE is one of the best stocks for a dividend stock portfolio.
NextEra Energy, Inc. (NYSE:NEE)’s primary business revolves around its regulated utility operations, which provide a stable and predictable foundation. Like other regulated utilities, its Florida-based operations hold a monopoly in the regions they serve, though any capital investment plans or rate adjustments must receive government approval.
Another key segment is its clean energy division, which generates consistent cash flow through long-term contracts. With strong demand for renewable energy, NextEra Energy, Inc. (NYSE:NEE) is rapidly expanding this segment. Management anticipates installing up to 46.5 gigawatts of renewable energy by 2027, a significant increase from the current 36 gigawatts. This growth suggests the business could nearly double in size within a few years.
2. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 88
The Home Depot, Inc. (NYSE:HD) is an American home improvement company, headquartered in Georgia. The company is engaged in the sale of building materials and home improvement products. It recently announced solid earnings for the fourth quarter of 2024, with revenues amounting to $39.7 billion, up over 14% from the same period last year. For fiscal year 2025, the company expects total sales growth of around 2.8%, with comparable sales expected to rise by approximately 1% over the comparable 52-week period. It also plans to expand its footprint by opening about 13 new stores. In addition, the company projects a gross margin of roughly 33.4%.
The Home Depot, Inc. (NYSE:HD) ended the quarter with over $1.65 billion available in cash and cash equivalents. For FY24, the company generated nearly $20 billion in operating cash flow. This cash position has allowed the company to pay regular dividends for 152 quarters straight. It also announced a 2.2% hike in its quarterly dividend to $2.30 per share, which was the company’s 15th consecutive year of dividend growth. As of February 25, the stock has a dividend yield of 2.29%.
At the end of Q4 2024, 88 hedge funds tracked by Insider Monkey held stakes in The Home Depot, Inc. (NYSE:HD), up from 82 in the previous quarter. These stakes are collectively valued at over $7.7 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q4.
1. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 88
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based pharmaceutical industry company. It prioritizes investing in the development of new molecular entities while also acquiring companies to strengthen its research and development efforts. This strategy helps the company maintain a competitive edge, driving continuous innovation and reinforcing its leadership in the pharmaceutical industry. The stock has surged by over 15% in the past 12 months.
In the fourth quarter of 2024, Bristol-Myers Squibb Company (NYSE:BMY) reported revenue of $12.34 billion, which showed a 7.5% growth from the same period last year. Revenue from the company’s Growth Portfolio saw a notable 21% increase, reaching $6.4 billion. This growth was largely fueled by strong demand for key medications, with Reblozyl, Breyanzi, and Camzyos experiencing year-over-year increases of 71%, 125%, and 101%, respectively.
Bristol-Myers Squibb Company (NYSE:BMY) ended the year with over $10.3 billion available in cash and cash equivalents. It is one of the best stocks for a dividend stock portfolio as the company has been making regular dividend payments for the past 93 years. In addition, it has raised its payouts for 16 consecutive years. The company offers a quarterly dividend of $0.62 per share and has a dividend yield of 4.26%, as of February 25.
Overall Bristol-Myers Squibb Company (NYSE:BMY) ranks first on our list of the best stocks to buy for passive income. While we acknowledge the potential for BMY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BMY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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