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Earnings season can be one of the most profitable times of the year for traders. But it can also be one of the most painful if you're on the wrong end of a trade.
But instead of chasing an earnings season pop, we're bringing you the three best dividend stocks to buy for spectacular returns whether or not a stock goes up or down.
You see, many investors spend earnings season looking for that elusive earnings season rocket – that one stock that's going to jump on better-than-expected earnings. But investors chasing these elusive gains can end up burned.
It doesn't have to be that way…
It's a common misconception that being successful in the stock market is completely dependent on buying stocks at lower prices and selling them at higher ones.
While this strategy will generate returns, there are plenty of downsides. Add in the cost of tax liabilities, brokerage fees, and the losses suffered from the occasional bad bet, and there's a high chance of having a net loss in your portfolio.
On the other hand, dividend stocks are perfect for mitigating your losses and maximizing your profit potential.
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.
Let's take a closer look at the benefits of dividend stocks, as well as the three best dividend stocks to buy for earnings season…
Dividend Stocks Are the Best Protection for Portfolio Growth
As Money Morning Chief Investment Strategist Keith Fitz-Gerald points out, dividend investing is one of the most reliable sources for wealth-building.
"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,'" he says.
This is because dividend investments offer great protection from both market downturns and the tax man.
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You see, certain dividends are taxed at a much lower rate than other gains, thereby protecting a portion of your income. This is 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 the tax man gets less.
As Keith notes, dividend stocks are the perfect insurance against market downturns. According to Keith, dividend stocks are "fantastic insurance against market corrections, and they're indispensable when the U.S. Federal Reserve is punishing savers and income investors by keeping interest rates near zero."
The only real question about dividend stocks is knowing which ones to buy for the best gains. As Keith points out, there are over 200 great dividend stocks on the Nasdaq alone.
In order to help readers buy only the best dividend stocks, the Money Morning team has compiled a list of most promising dividend stocks to buy. These stocks have spectacular growth potential – plus, some pay out a whopping yield of up to 15%.
With strong growth potential and dividend payouts, these stocks will be able to provide investors with reliable returns for many years to come, no matter what they do after an earnings report.
Here are our top three dividend stocks to buy right now…
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, is a solid "defense" trend company and one of our favorite dividend stocks.
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 increased its profit projection by another 5%.
These numbers allow LMT to pay out a hefty dividend of $2.00 a share. That's $2 per share every quarter for just owning the stock.
And that's before the significant growth of LMT's market value…
Analysts are projecting that LMT will jump to $457 a share. With a current market price of $352, that's almost a 30% gain in just 12 months.
While that's a great return, our next two picks are even better…
The Best Dividend Stock to Buy, No. 2: Arlington Asset Investment Corp.
Arlington Asset Investment Corp. (NYSE: AI) focuses on the management and purchase of government debt.
With congress adding more money to the national debt than ever, it's an incredibly lucrative business. AI has almost $5 billion in its portfolio and a net profit margin of 38.8% – over 46% higher than the industry average.
Thanks to these profits, AI pays a huge dividend yield of 17.17%.
Keith sees AI as a company with great long-term prospects – something that should help the company to grow its already large dividend.
"This stability is exactly what you'd expect from a business gathering income through U.S. government-backed mortgages," Keith says. "It may not be the most exciting field, but it sure pays the bills, as you'll see from this company's quarterly dividend income stream."
With AI's dividend up 92% since 2010, Keith is onto something with this play.
However, even with those outstanding financials, our top pick has even better returns for investors.
Here it is…