Bill Patalon has the 2022 outlook on the best dividend stocks to buy.
High Dividend Stocks
Despite all the talk about rising interest rates, owning high dividend stocks is still the best way to add income to your portfolio for the foreseeable future.
While we hear talk on a daily basis about inflation and higher interest rates, we have seen only a slight move up on the rates on 10-year treasury bonds. While the move from 0.50% to the current 1.58% yield roiled markets, it's not going to put much more cash in the pockets of income investors.
The sparkling 2.2% on the 30-year bond does not do much for those needed to earn a decent rate of their retirement cash.
On the other hand, the high dividend stocks we're going to show you yield over 7%. That's more than triple the rate you'll get from even the best government bonds.
The combination of low starting rates and the real possibility of inflation and higher rates on the horizon is a new problem. Income investors will have to deal with something they have not faced in well over a decade. The last time we saw a significant move higher in rates was back in 1998, when rates moved from 4.6% on the 10-year to almost 7% in early 2000.
The possibility of losing principal due to interest rate risk is something no income investor has dealt with in over 20 years.
We haven't seen inflation rates of 4% since 1990.
It is a whole new ball game for income investors, and most have never played this version of the game. That's why we're going to walk you through it and show you some of the best dividend stocks to buy now.
High dividend stocks are simply the best way to add income to your portfolio in this low interest rate, growing inflation environment.
And we'll do even better than give you high-yield dividend stocks. We're looking at a specific group of dividend-payers called business development companies (BDCs).
You may recall that BDCs are investment funds that lend money to companies from expansions, financing merger and acquisitions transactions, and other corporate uses. Most BDCs lend in the middle market of corporate America, where most companies have not yet gone public.
If interest rates go up, businesses that are borrowers of a BDC will see the rate on their loan go up.
Since business development companies pass through the interest payments, we should see our dividends go up as well.
That will protect us from interest rate risk.
Here are our top dividend stocks right now…
This High Dividend Stock Pays 8.9%
Bain Capital Specialty Finance Inc. (NYSE: BCSF) is an excellent example of a BDC that offers a nice combination of yield and rate protection. Over 97% of the loans made by Bain Capital Specialty are floating rate. At the current rate, Bain Capital Specialty shares are yielding 8.97%.
This BDC is affiliated with Bain Capital, a leading global alternative asset manager with over $130 billion in assets under management. The managers of the BDC can draw on the lending expertise of Bain Capital Credit, which manages $48.4 billion in assets in credit-related products.
Bain Capital Specialty is also joining up with another alternative asset manager, Pantheon Group, to expand into the direct lending markets in Australia and Europe.
Bain Capital Specialty Finance shares are currently selling at a 4% discount from the net asset value of the loans in the portfolio. You can buy high yields, interest rate protection, expert credit managers, and a measure of international diversification at a discount to the value of the current portfolio.
The Best Dividend Stock to Buy Now
Oaktree Specialty Lending Corp. (NASDAQ: OCSL) is another BDC that can offer investors the combination of an above-average yield and protection from rising interest rates. Oaktree shares are yielding 8.12% right now, and almost 90% of the portfolio loans have floating rate provisions.
Oaktree Specialty Lending is managed by an affiliate of Oaktree Capital Management, a credit manager with over $253 billion in assets. Oaktree is best known for its work in distressed debt and high yield markets, so it knows a thing or two about evaluating loans and measuring credit risk.
Oaktree's philosophy of investing in credit markets was developed by one of its founders, the legendary debt investor Howard Marks, who suggests that the BDC should place the highest priority on preventing losses rather than merely searching for prospective profits.
Oaktree Capital is known as a go-to company for many middle-market borrowers, which often creates first look opportunities at potential loan deals of Oaktree Specialty Lending.
Shares of Oaktree Strategic Lending are currently trading at about a 5% discount to the portfolio's value. This creates another opportunity to get world-class management, high yields, and protection against rising rates at a sale price.
A Top Dividend ETF to Buy Now
The Global X Nasdaq 100 Covered Call ETF (NASDAQ: QYLD) tracks the performance of the CBOE Nasdaq-100 BuyWrite V2 Index and is a dividend ETF that deserves a place in your portfolio. And for good reason too.
QYLD is an ETF designed to maximize passive income by doing the hard work of writing covered calls all while investing in the largest companies in the Nasdaq.
But there's a catch… QYLD doesn't offer significant capital appreciation.
Again, the ETF is designed to maximize passive income, specifically dividend payouts. So, the fund cut this to focus on paying double-digit dividends.
Don't let that scare you away, though.
When stocks trade sideways or drop, owning an income-generating ETF like QYLD will add stability to your portfolio. QYLD's total return was 20.99% compared to the S&P 500's 10.4%.
With a Morningstar rating of 4 out of 5 and an expense ratio of 0.6% – meeting the criteria of being lower than 1% – QYLD is a strong ETF to invest in.
Buying High Dividend Stocks
Dividend stocks have remained one of the most reliable ways to collect steady income from the stock market. Many companies pay out dividends quarterly, which makes it an attractive income source, but there are also companies that pay monthly or annual dividends.
The best dividend paying stocks increase their dividend payouts as the company grows and profits increase. Investing in high-dividend stocks can be a consistent form of passive income that can prepare you for a comfortable future.
Ready to take advantage of the unique investment opportunity that high dividend stocks present? Keep reading to learn how they work and how to maximize your profits, then check out our collection of articles and resources below to learn about the latest in dividend stocks.
What Are Dividend Stocks and How Do They Work?
A publicly-traded company pays out dividends to shareholders after its board of directors meets to decide whether the company has made enough profit to warrant payment. The amount of total dividend payments compared to the company’s net income is known as the payment ratio.
Companies that pay out dividends can do so either in cash or stock:
- Cash dividends are regular cash payments to shareholders. The company agrees to pay a percentage of profits in cash to investors. How much each shareholder receives is based on the number of shares they own. For example, if you own 100 shares in Company X and they pay $8 per share, you’ll receive $800 in addition to whatever profits you’ve made off of rising share prices.
- Stock dividends are similar to cash dividends, but they pay shareholders in additional shares in the company. For example, if Company X chooses to pay an 8% stock dividend and you own 100 shares in the company, you will have 108 shares after the payout.
As stated above, dividend payments vary by company. Whether a company chooses to pay cash or stock dividends, payouts are still done monthly, quarterly, or annually, depending on what the board of directors chooses.
Although not all companies pay dividends, some of the biggest and most profitable companies in the world do offer dividends—providing a bonus for investing in certain blue-chip stocks. In fact, some of the best high dividend stocks are household names such as Qualcomm Inc. (NASDAQ: QCOM), International Business Machines Corp. (NYSE: IBM) and Target (NYSE: TGT).
Generating Income with Dividend Stocks
Dividend investing can be an excellent way of generating passive income. The more shares of dividend stocks you own, the more money can be made.
To successfully earn an income with dividend stocks, there are a few indicators to look for when deciding which company to invest in:
- Growth of the company’s income, which could be an indicator of increasing dividends.
- The dividend yield or payment ratio a company offers at the time of stock purchase.
- The company’s balance sheet which indicates whether the company is profitable or has a lot of debt to overcome.
Dividend Stocks: Short-term vs. Long-term Investments
If you’re looking to make a profit investing in dividend stocks, there are two ways to do it:
- Long-Term Dividend Investing: Investing in companies that pay dividends and holding them for many years allows investors to continue to share in the company’s profits as it grows. Holding on to shares means that the shareholder receives a steady source of income as long as he or she maintains ownership. Reinvesting cash dividends or keeping stock dividends gives the investor greater ownership of the company.
- Short-Term Dividend Investing: Some investors choose to buy a stock to receive dividends and sell shortly after payout. However, when stocks are held for less than a year, they are classified as short-term and can be subject to different taxation than long-term investments.
Dividends and Capital Gains Taxation
The amount of tax paid on dividend stocks depends on whether the investment is long-term or short-term. This goes for any stock you buy and sell, not just dividend stocks.
Short-term capital gains (earnings on shares held less than one year) are taxed as regular income.
On the other hand, long-term capital gains (earnings on shares held longer than one year) are only taxed based on net capital gains over the year. Net capital gains are determined by subtracting annual capital losses from annual capital gains.
Depending on your net capital gains, you could owe between 0% and 20% in federal income tax.
High dividend stocks could be your solution to making steady, passive income that sets you up for a comfortable, secure future.
Don’t forget to check out Money Morning’s resources to help you successfully invest in income stocks and keep checking back to the most important investing advice from our experts.
- The Best Dividend Stocks to Buy for 2022
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- 5 Best Long-Term Dividend Stocks to Buy Now
- Three Dividend Stocks to Buy Tomorrow (and One Trade to Line Your Pockets with Extra Income)
- 5 Best Dividend Stocks to Buy Now
- This Week's Best REIT to Buy Is a Great Dividend Payer
- 2 Top Real Estate Stocks Paying 8% Dividends Right Now
- 3 Strong Dividend Stocks to Buy Now
- The Carver Bancorp Stock Squeeze Is Over - Buy First Horizon Instead
- 3 Dividend Stocks with a 9% Yield or Higher Right Now
- Buy This $9 Small-Cap Dividend Stock Before It Gets to $60
- This $10 Dividend Stock Yields 9.62%
- This Top Dividend Stock Just Got Even Better
- Here's My Favorite Safe Dividend Stock Right Now
- The Best High-Yield Dividend Stock Pays 8% Now
- The Best Dividend Stocks Today Could Also Double Your Money
If dividend stocks provide investors with predictable income, then DRIP stocks offer significant long-term growth potential.
As a result, DRIP stocks allow you to own more shares of the company or fund over time, making them an excellent way to consistently grow your wealth by compounding your returns.
Monday’s 2% plunge in stocks reminded investors that choppy waters are ahead.
But owning the best dividend stocks can offer stability when things get bumpy.
In 2013, JPMorgan Asset Management compared the performance of companies initiating and growing their payouts between 1972 and 2012 to publicly traded companies that didn't pay a dividend over the same stretch.
Tom Gentile has three top dividend stocks to buy and one trading strategy to boost your income from them.
There’s no better time than now to invest in dividend stocks.
And some of the best dividend stocks that beat the S&P 500’s average yield of 2.00% can be found in the healthcare sector.
Global dividends fell by 12.2% in 2020 after the pandemic forced businesses and corporations to make a total of $220 billion in dividend cuts between the second and fourth quarters of 2020.
Since then, dividend payments jumped 26% to $471.7 billion.
And dividends paid to investors are expected to pay out $1.39 trillion by the end of the year.
We only have to look at one sector to find the best combination of yields and strong balance sheets.
The conventional wisdom on dividend stocks usually holds they come in just two polar-opposite categories - amazing and terrible.
The thinking goes that there's an elite group of blue-chip "dividend aristocrats," who up their payouts quarter after quarter for years on end... and then there's everything else. This includes ho-hum stocks that pay a few cents on the dollar while tying up lots of those dollars, and companies sporting insane payout ratios paying unsustainably high dividends.
But when you've been around the block as often as I have, you know it's not that black-and-white. Are there lousy dividend payers? Absolutely. But folks who stick with mainstream thinking on dividends are missing out on a lot.
Because the truth is that outside of the aristocrats, there are plenty of stocks that offer both a great sustainable dividend and long-term appreciation.
And that's the kind of dividend stock I've got picked out for you today.
It's a real estate investment trust (REIT) focusing on one of 2021's hottest sectors. It's up more than 17% for the year, and it's currently paying a dividend more than four times the S&P 500 average. The next payout comes early next month, so move quickly.
Here's the ticker...
The arrival of COVID-19 in 2020 shook up the real estate investment trust (REIT) industry, but two companies weathered the storm and are now paying 8% dividends.
Once it became clear that the Fed and Congress would do everything in their power to keep the economy moving down recovery road, these powerful dividend stocks bounced back even stronger.
When we see market prices correct like they did earlier this week, it is always nice to know you have strong dividend stocks with rapid growth in your portfolio.
Appreciation can be taken back in the blink of an eye, but a dividend is yours to keep forever once it hits your account.
And if you buy great dividend stocks when the market is ugly, lower prices can help you lock in a higher yield.
But not all dividend stocks need to have high yields to make them noteworthy buys. AT&T (NYSE: T), Enterprise Products Partners (NYSE: EPD), and Brookfield Renewable Corporation (NYSE: BEPC) are all excellent long-term investment.
Carver Bancorp stock popped 300% last week after a short squeeze forced the stock higher.
Now that shares have pulled back to around $20 while short interest is still high, is CARV still a buy?
The squeeze has likely run its course and this isn't a very strong stock to own.
Instead, we'll show you an easier way to make money right now.
Income investors continue to struggle under current market conditions.
Many thought inflation fears would push some yields higher, but it simply has not happened.
The yield on the 10-year Treasury Bond is back under 1.5%.
It shows no signs of leaping higher anytime soon.
For higher cash yields, income-focused investors will have to think outside the box.
Too many investors read "cheap" and think "risky," but that's not the reality of stocks.
In fact, some of the market's best "cheap stocks" are like a license for you (and your grandchildren) to print money.
Shah Gilani's going to name one that pays a 4.4% dividend and could ultimately jump from $9 to $185.
More than 2.25 million Americans became millionaires in 2020, thanks to powerful bull runs in stocks, real estate, crypto, and other assets.
All that new money needs to go somewhere, and Shah Gilani’s picked what he thinks will be the best stock to play that trend.
But that’s only one of the reasons the stock pays a 9.6% dividend… .
On Monday night, telecom giant Verizon confirmed that it’s selling its Yahoo! and AOL media holdings to private equity firm Apollo Global Management.
Verizon’s willingness to sell while taking a $4 billion-plus hit shows its eagerness to get out of the media and digital advertising space and re-focus on where the growth really is: 5G.
Here’s what you need to know… .
Lots of investors love to own "dividend stocks" like TLT and PTTRX for the seemingly high yield; they're hugely popular.
But, if you look closer, you'll see that yield comes at the cost of share price performance.
That "high yield" can drag your whole portfolio down.
Chris Johnson's used his screener to find 15 of the safest dividend performers out there, plus one you must own.
High-yield dividend stocks offer investors refuge in volatile markets like this one.
Stocks are near record highs, while inflation fears and a sputtering economy threaten to wipe out these gains.
Adding a dividend paying stock to your portfolio can help minimize the risk.
The trouble is, they’re harder than ever to find.
At Money Morning we’ve done the in-depth research to find dividend stocks paying healthy yields.