While many investors rely on share-price gains for profit, they aren't the only way to benefit from the market. Dividend stocks are one of the best ways to turn the stock market into a reliable source of personal income.
That's why we're looking at three of the best dividend stocks - one of the market's most reliable sources of wealth-building.
As Money Morning Chief Investment Strategist Keith Fitz-Gerald points out, you can think of the returns gained from dividend stocks as a whole additional stream of income.
"If you want income right now, quarter after quarter or even month after month, dividends can be extremely powerful income generators to secure your 'second salary.'"
Let's take a closer look at the benefits of dividend stocks and the three best ones to buy right now...
The Best Dividend Stocks Are a Safe Bet for Portfolio Growth
It's a common misconception that successful portfolio growth is dependent on selling stocks at higher share prices than you bought them.
While that certainly will make you money, consider some of the downsides. Add up brokerage fees, tax liabilities, and the losses incurred from a bad bet, and you could be looking at a net loss even on winning stocks.
Dividend stocks, on the other hand, do a great deal to mitigate the chances of loss and maximize your profit potential.
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In fact, according to a report from the Guinness Atkinson Fund, dividends gained from owning stock can account for up to 90% of your portfolio's returns over time.
Additionally, certain dividends are also taxed a lower rate, safeguarding a portion of your income. That's the case with qualified dividends - dividends earned from stocks you've held for at least 60 days before the ex-dividend date.
Instead of being taxed at the normal income rate, like short-term gains, qualified dividends are taxed at a significantly lower rate - up to nearly 50% less, depending on your tax bracket. With qualified dividends, you not only get reliable returns - you get to keep more while Uncle Sam gets less.
And as Keith notes, dividend stocks are perfect for protecting your portfolio from negative economic trends.
According the Keith, dividend stocks are "fantastic insurance against market corrections, and they're indispensable when the Federal Reserve is punishing savers and income investors by keeping interest rates near zero."
With such solid benefits, the only question is knowing which dividend stocks to buy. Keith points out that there are over 200 solid dividend stocks on the Nasdaq alone.
However, the Money Morning team has compiled a list of the market's best dividend stocks to buy. Not only do these stocks have great income potential - some have a yield of more than 15% - they also have great future growth potential.
And that's vital to ensure that they remain reliable dividend investments long into the future. As Keith puts it, "a company's ability to keep paying and increasing its dividend is just as important in the long term" as high yields are.
Here are our top three dividend stocks to boost your income and profit potential...
The Best Dividend Stock to Buy, No. 3: Lockheed Martin Corp.
The most important key to identifying great dividend stocks is finding companies that fall into the six "Unstoppable Trends."
The trick to making huge profits is to find "must-have" companies that fall into what Keith calls the six "Unstoppable Trends": medicine, technology, demographics, scarcity and allocation, energy, and war, terrorism, and ugliness (also known as "defense"). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
Lockheed Martin Corp. (NYSE: LMT), one of the world's largest and most profitable defense contractors, fits squarely into the "defense" trend, making it one of our favorite dividend picks.
And the numbers certainly back it up.
The company has an annual revenue of $47.2 billion and a profit margin of 10.37%, which means the company is raking in a profit of almost $5 billion a year. And last year, Lockheed announced that it was increasing its profit projection by another 5%.
These figures allow LMT to pay out a hefty dividend of $2.00 a share. That's $2 every quarter for just owning the stock.
And that's before the significant growth your shares will see in the market.
Analysts are projecting that LMT will jump to $457 a share. With a current market price of $356, that's almost a 30% gain.
While that's a great return, our next two picks are even better...