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The Fed's dovish policy might be helping the economy, but it's leaving income investors out in the cold. If you're looking for retirement income or just some extra cash to pad your portfolio, the top dividend stocks can more than make up for low interest rates and weak bond yields.
Our best dividend stock to own offers a dividend higher than 11%. That's five times higher than the average S&P 500 yield of 2%. But it's just one of several dividend stocks out there that can provide both appreciation and long-term income potential.
The Fed will meet next week to discuss the state of the U.S. economy and interest rates moving forward. After three consecutive rate cuts in 2019, most investors don't anticipate that the central bank will slash the benchmark rate in December.
That said, an ongoing, worldwide flight to safety has pushed bond yields to historical lows. The 10-year U.S. bond is now sitting under 1.8%.
The new reality of lower-for-longer interest rates places a greater emphasis on dividend stocks and income investing. If investors can no longer rely on U.S. Treasuries to provide a steady source of income, they'll turn to safe, reliable dividend stocks that can outperform in any market.
Today, we're discussing five of the best dividend stocks to boost your income and provide stability in the coming years.
Top Dividend Stocks, No. 5: McCormick & Co.
Open your pantry, and you're likely to see a canister of McCormick & Co. (NYSE: MKC) spices.
This staple company has been adding spice to cooks' lives for more than a century - since 1889. Now, with a boost to its dividend, it's providing a kick to its investors' portfolios.
Last week, the company increased its dividend by 9%, from $0.57 to $0.62. Best of all, the dividend (payable on Jan. 13) is set for shareholders of record Dec. 31.
Top Dividend Stocks, No. 4: Washington Real Estate Trust
If you're looking for protection in a low--interest rate environment with massive upside, look no further than the real estate markets.
We trust REITs because they provide rock-solid yields, favorable tax benefits, and inflation protection in real estate assets. We also favor REITs that cater to high-demand markets where cash flow swells and tenant churn remains low.
Washington REIT (NASDAQ: WRE) caters exclusively to the Washington D.C. metropolitan area with a mix of corporate and multifamily properties. The REIT trades at a low price/earnings ratio of just 7.29 and offers a dividend of 3.95%. That yield is more than two times the 10-year bond.
More importantly, the REIT has upside of $35 by the end of the first quarter 2020. You can capture double-digit gains and lock in a solid yield ahead of the new year.
Top Dividend Stock, No. 3: Becton Dickinson
Money Morning Chief Investment Strategist Keith Fitz-Gerald has long argued that the top stocks to own in times of market uncertainty have one thing in common: They all produce "must own" products that consumers will buy in any market condition. Medical supplies are a perfect example. When it comes down to choosing what to do with your hard-earned cash, medical treatment will largely beat out new shiny electronics or automobiles.
That's why Becton Dickinson and Co. (NYSE: BDX) has long been a staple of Money Map Report. And it got another boost this week after the company hiked its dividend from $0.77 to $0.79.
Becton Dickinson only has a dividend of 1.22%. However, it is a higher-growth stock with great downside protection. This one could gain as much as 12% over the next year.
Top Dividend Stocks, No. 2: Hewlett Packard
One of the biggest recent moves came from Hewlett Packard Inc. (NYSE: HPQ). The beaten-down tech giant hiked its dividend by 9.99%.
With a 3.5% dividend, the stock provides a combination of strong cash flow (thus a reliable dividend) and short-term upside to roughly $24 per share. In addition, the company has the support of numerous hedge funds that poured into the stock on speculation that the company could merge with Xerox Inc. (NYSE: XRX).
Currently, activist Carl Icahn has a more than 10% stake in HPQ and has lambasted the company's board for refusing to accept Xerox's bid. Expect Icahn and other hedge funds to put additional pressure on the company in the weeks ahead.
Our dividend stock picks so far offer a great combination of upside and portfolio protection. But we've saved the best for last. Here's our 11% dividend stock...
The Best Dividend Stock on the List
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Finally, let's dumpster dive for a combination of appreciation upside, deep value, and strong yield.
Armour Residential REIT Inc. (NYSE: ARR) is a mortgage REIT. It has a little more risk than traditional investments. But given its numbers, you'll find this one more opportunistic.
The company invests in mortgage-backed securities issued by Fannie Mae, Ginnie Mae, and Freddie Mac. It currently pays an 11.8% dividend and has a pretty simple strategy. The firm borrows cheap cash in the short term and buys longer-term, higher-yielding mortgage bonds.
Now, here's what is interesting. The REIT trades at a price-to-book value of 0.74. That means if the company went under tomorrow, the value of the stock would effectively be worth 35% more than its current value. While there might be some additional risk to the mortgage market, it's nice to know that this REIT has a floor given its low valuation compared to its rivals.
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