The best dividend stocks are a prized commodity amongst income investors. Dividends exceeding the market average are one of the best ways to generate passive income on Wall Street. That said, it’s not enough to start positions in companies offering the highest yields; there’s a lot more that needs to be considered. At the very least, prospective investors need to consider numerous factors when determining the quality of high-yield dividend stocks: the company’s health, competitive advantage (moat), financial standing, track record, and industry—to name a few indicators.
Failure to account for every variable will expose investors to risk, which is why it’s so important to understand everything there is to know about high dividend stocks. So before you even think about the best high-yield dividend stocks in 2022, make sure you brush up on your fundamentals.
What Is A Dividend Stock?
A dividend stock is an equity traded on Wall Street, not unlike “growth” stocks. Much like their growth counterparts, dividend stocks are bought and sold on all major indices: the S&P 500, the Dow, the Nasdaq, and more. Dividend stocks and growth stocks share more similarities than differences. It is worth noting that dividend stocks do reward patient investors with one thing growth stocks can’t offer: a dividend yield.
As their names suggest, high dividend stocks pay large dividends to their shareholders, whereas “growth” stocks do not. That’s not to say dividend stocks can’t offer growth (they can), but rather that their dividend yield is coveted.
The dividend is a small payment on behalf of qualifying companies to shareholders. Investors will receive a small percentage of the stock’s value for each share they own in the form of a dividend. The yield of the dividend and how frequently it is paid will depend on the company. In return, the businesses behind the stock will typically receive tax breaks at the corporate level.
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What Is Dividend Yield?
Dividends are payments made on behalf of companies to shareholders (reflected as a percentage of the stock’s price). As such, dividends may be paid monthly, quarterly, biannually, or annually. In addition to the frequency, the companies offering dividends also determine how much they will pay each time. Consequently, some companies prefer to pay larger dividends less frequently, whereas others may pay smaller dividends more frequently.
It can be difficult to compare dividend stocks, especially when considering share price, payment frequency, and the forward dividend rate. Fortunately, a financial ratio allows us to make more accurate comparisons: the dividend yield. The dividend yield is a financial ratio that allows investors to compare dissimilar dividend schedules and amounts.
More specifically, a dividend yield takes the same concept as a dividend and extrapolates it over the course of a year. Always expressed as a percentage, dividend yields are simple financial ratios that tell investors how much each share of a dividend stock will pay in dividends relative to its price each year.
The Best Dividend Stock To Buy Right Now
Surprisingly enough, the best dividend stock to buy now isn’t exactly synonymous with income equities. In fact, the best dividend stock is perhaps more often associated with today’s high-growth tech companies. With that in mind, there’s one stock in particular that both income investors and long-term growth investors can get behind today: Microsoft Corporation (NASDAQ: MSFT).
As most people already know, Microsoft isn’t a new tech startup, nor is it associated with a high dividend yield. Instead, Microsoft combines the best of both worlds: the multinational technology corporation awards patient investors with a modest dividend payment and perhaps one of the most promising growth stories of our generation.
At its current price, Microsoft pays investors about $2.40 per share annually; that’s a yield of 0.88%. To put things into perspective, the S&P 500’s long-term average is 1.86%. Microsoft’s dividend yield is obviously below the market’s average, which begs the question: What makes it the best dividend stock to buy now? The answer is relatively simple: Microsoft simultaneously boasts an attractive valuation and the company looks to be in a great position to capitalize on a global economy which is growing increasingly dependent on its products and services.
Microsoft currently boasts a price-to-earnings growth ratio of 1.86x, which is one of the lowest valuations in the software industry; that means investors looking for growth may buy shares at a discount relative to the entire software industry. If that wasn’t enough, Microsoft’s 29.87x price-to-earnings is below the industry median of 32.95x.
Today’s valuation is the result of an inflationary environment, and not the company’s own performance. If for nothing else, Microsoft was trading at an all-time high of $349.67 as recently as the fourth quarter of last year. However, the Fed’s decision to increase interest rates is weighing heavily on the entire tech industry; that combined with the looming threat of a recession, supply chain issues, and the war in Ukraine has dropped the entire NASDAQ about 28% since the middle of November. Microsoft, on the other hand, has managed to outpace the entire index, dropping a more modest 19% over the same period of time.
In other words, Microsoft is only down on broader market weakness. Beneath the surface, however, Microsoft is firing on all cylinders. The latest tech selloff is starting to look like a great opportunity to buy Microsoft at a discount.
Microsoft’s latest quarterly report suggests that business is booming despite trading at its lowest point in about 10 months. Thanks to heavy investments in its cloud-based services, Microsoft was able to beat both sales and earnings estimates in the first quarter of 2022. According to the report, revenue rose 18% and earnings reached $2.22 a share, bringing net income to a total of $16.7 billion.
Investors have gotten used to Microsoft beating analysts’ estimates, but it is encouraging to see cloud-based systems lead the way. At the very least, Azure and internet-based versions of Office are in their infancy. As Microsoft’s primary cloud offerings, Azure and Office products are expected to grow almost exponentially along with the entire cloud industry.
According to ReportLinker, “the global cloud computing market size is expected to grow from USD 445.3 billion in 2021 to USD 947.3 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 16.3% during the forecast period.”
Microsoft expects its own cloud services to grow over the next two quarters, forecasting a 46% growth in both the second and third quarter. If Microsoft can meet its own expectations, the company should be able to capture a large enough market share to make today’s share price look like a significant discount.
To be clear, Microsoft is facing many of the same headwinds as the rest of the tech sector, but the company’s outlook is better than ever. Volatility is expected in the near term, but Microsoft’s current share price looks like a bargain for both income and growth investors. Consequently, Microsoft is the best dividend stock to buy because of its growth potential.
10 Best Dividend Stocks In 2022
There are a number of high-yield dividend stocks investors should consider in 2022, but here’s a list of some with the most promising futures:
Walker & Dunlop, Inc. (NYSE: WD)
Chevron Corporation (NYSE: CVX)
Abbott Laboratories (NYSE: ABT)
Brookfield Renewable Partners L.P. (NYSE: BEP)
Enbridge Inc. (NYSE: ENB)
STORE Capital Corporation (NYSE: STOR)
Devon Energy Corporation (NYSE: DVN)
Kinder Morgan, Inc. (NYSE: KMI)
CareTrust REIT, Inc. (NASDAQ: CTRE)
AbbVie Inc. (NYSE: ABBV)
1. Walker & Dunlop, Inc.
Walker & Dunlop is a financial service provider that originates, sells, and services a wide range of loans. In particular, Walker & Dunlop has developed a reputation for specializing in multifamily and other commercial real estate financing products and services. The company’s clientele consists primarily of owners and developers of real estate in the United States. In fact, Walker & Dunlop is now officially the top multifamily lender in the United States.
As the top multifamily lender in the country, Walker & Dunlop is not only expected to benefit from an influx of mortgage refinancing in the coming years, but it’s also one of the best dividend stocks to buy right now. As loans mature and borrowers refinance, Walker & Dunlop will be able to take advantage of a higher-yield environment. With an incoming wave of maturities incoming, Walker & Dunlop looks more than capable of maintaining and increasing its current 1.79% dividend yield.
In addition to serving as a high-yield dividend stock, Walker & Dunlop’s 16.48x price-to-earnings ratio appears to be higher than the broader mortgage finance industry. However, in a market where everything is overvalued, this company’s valuation makes it look like a bargain with plenty of room to grow. Investors who get in now may gain access to one of the best dividend stocks and a lot of growth potential.
2. Chevron Corporation
Chevron engages in upstream and downstream activities which find, develop, market, sell, and produce crude oil and natural gas. Their position as an industry leader has granted them a market cap of nearly $324 billion and facilitated a dividend yield of 3.35%. Still, many feel the oil industry is at risk of losing ground to the renewable energy sector. While the narrative may be true, the transition will take a long time, making oil and natural gas invaluable in the meantime.
In fact, industry leaders in the oil and gas sector should be able to produce attractive returns for shareholders for years to come—despite the growing push to renewables. In particular, Chevron is generating more cash than at any other point in the company’s history. Thanks—in large part—to lower operating costs, more production, and efficient capital practices, Chevron is now increasing its revenues more than ever. There is no need for oil prices to go higher in order to generate more cash, which is great news for investors. At the very least, the dividend appears well protected. Even if the price per barrel increase significantly, Chevron believes it can generate enough cash flow to fund operations and pay dividends simultaneously.
While the crisis in Ukraine is nothing short of tragic, it has highlighted the world’s problematic consolidation of Russian oil dependancy. Now that the West is sanctioning Russian gas and supplies are smaller than they once were, oil prices are increasing. As a result, Chevron’s free cash flow looks even better than it was just a few short months ago. On the other hand, investors view Chevron as one of the best dividend stocks to buy now because of the company’s ability to distribute cash. With years, if not decades, of tailwinds, Chevron could be a winner today and for years down the road.
3. Abbott Laboratories
Widely recognized as one of the world’s largest pharmaceutical companies, Abbot Laboratories discovers, develops, manufactures, and sells a variety of healthcare products globally. With a firm grasp on the forefront of the industry, Abbot Laboratories has seen its share price increase upwards of 179% in as little as five years, firmly entrenching it as one of today’s best dividend stocks.
In its latest quarter, Abbott saw encouraging growth from all of its individual segments: diagnostics, medical devices, nutrition, and established pharmaceuticals. In particular, however, Abbott’s medical device division was responsible for 64.1% of the company’s overall sales growth; that’s impressive considering it only made up about 32.7% of its revenue in the fourth quarter.
All things considered, Abbot Laboratories has done well for the better part of a decade. However, shares are now trading about 18.3% below their 52-week high in December of last year. On the surface, the drop appears to be related to a departure from COVID-19 stocks and towards value stocks in today’s inflationary environment. If, for nothing else, nothing seems wrong with the company; people seem to be giving up on it too soon.
At the very least, Abbot Laboratories is much more than a COVID-19 play. The company expects to increase its research and development investment to $2.7 billion in 2022, which should help them cater to the world’s aging population and take advantage of several lucrative tailwinds.
Financially sound and well-positioned in a multi-billion dollar industry, Abbotts’ 1.60% dividend yield isn’t only safe, but it’s also in a position to grow. At its current valuation, the company’s expected tailwinds should enable it to grow its dividend in the high single digits, at least for the foreseeable future.
4. Brookfield Renewable Partners
Brookfield Renewable Partners is an extension of Brookfield Asset Management and a company that looks positioned to benefit from a “greener” future. As the company’s name suggests, Brookfield Renewable Partners owns and operates renewable energy infrastructure. With most already moving on from fossil fuels, Brookfield Renewable is expected to pick up a lot of the slack. In doing so, Brookfield has one of the safest, most diversified portfolios of clean energy assets. As the world shifts away from carbon fuels, there’s no reason to think Brookfield Renewable Partners won’t take its place as the green industry leader.
With multiple contracts signed for decades down the road, its dividend is very safe and expected to grow. At 3.09%, BEP’s dividend yield is enough to place it in the “best high-yield dividend” discussion, but the real potential is in the company’s growth. Few renewable energy companies look better positioned to power a greener world than BEP, and the company’s dividend should only strengthen as it contributes more to the world’s power grid. Brookfield has a proven track record; one investors can feel confident in investing in for decades.
In a recent report, Brookfield Renewable Partners announced it expects to grow funds from operation per unit by as much as 10% 2026. Growth will be facilitated by a combination of development and acquisition. As an extension of Brookfield Asset Management, Brookfield Renewable Partners has a large purse to tap into in order to grow and meet the world’s demand for greener energy. The company is run by proven leaders who have nothing but make investors happy for decades, and if they are able to meet projections, BEP could easily be one of the best dividend stocks of 2022.
5. Enbridge Inc.
As a Dividend Aristocrat, Enbridge shouldn’t need an introduction. For years, Enbridge has been at the forefront of the oil and gas sector and continues to lead the way in each of the segments it operates in: liquids pipelines, gas transmission, and midstream, gas distribution and storage, renewable power generation, and energy services. Nonetheless, the market has been unkind to Enbridge because of the transition to green energy.
Many investors are worried about Enbridge’s future, but they shouldn’t be. The demand for transporting oil and gas isn’t going away anytime soon. More importantly, the company already has reliable, long-term contracts in place that will make shareholders happy for holding onto one of the best dividend stocks in the market. Enbridge’s 5.83% dividend yield looks great and should continue looking great for years to come as one of the safer oil and gas holdings to add to a portfolio.
Despite its high-yield dividend, Enbridge’s dividend looks more than secure. In particular, the company produces very stable and predictable cash flow. The overwhelming majority of Enbridge’s revenue (98%) comes from cost-of-service agreements and long-term contracts with high-quality customers. Most of the business partners Enbridge works with have investment-grade credit ratings, which means the company’s revenue is about as secure as anyone in any industry; that’s an important distinction to make with such a high dividend yield. In fact, it’s Enbridge’s security which makes it one of the best dividend stocks to buy in 2022.
6. STORE Capital Corporation
Often compared to Realty Income Corporation (one of the most well-established REITs on the market), STORE Capital Corporation is a net-lease real estate investment trust. Both prioritize dividends for investors by focusing on the acquisition of net-lease investment properties. While Realty Income has accumulated more than 6,500 properties over the course of its 52-year operating history, STORE has a well-diversified portfolio that consists of investments in more than 2,500 property locations across the United States.
The comparisons are justified, but STORE trades at a better value and has more room to grow. Perhaps even more importantly, STORE is well-positioned to take advantage of the reopening economy. Real estate investment trusts have been suppressed for far too long, and STORE could break out at any moment with the announcement of more acquisitions. Perhaps even more importantly, REITs like STORE look like a good play in an inflationary economy. As the Federal Reserve increases rates throughout 2022, STORE could simultaneously act as a hedge while returning cash to investors.
Currently, somewhere in the neighborhood of 5.26%, STORE’s dividend yield is already high enough to belong in many portfolios. However, the company’s growth potential could turn an already good dividend into one of the best dividend stocks to buy right now.
7. Devon Energy Corporation
Devon Energy, as its name suggests, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. With more than 5,134 wells, Devon has become an integral component of the oil and gas supply chain. Despite the headwinds the entire oil and gas industry has faced in recent years, Devon Energy looks like one of the best dividend stocks in today’s market.
Devon Energy is a pioneer in both the oil industry and within the framework of dividend payouts. The latter, however, is particularly important to note, as Devon was recently credited with introducing income investors to the oil and gas industry’s first fixed plus variable dividend. In doing so, Devon Energy simultaneously promised investors access to a base dividend and a variable dividend which could reach as high as 50% of the company’s free cash flow (after accounting for the previously mentioned base dividend and capital expenses).
Devon Energy’s fixed plus variable dividend framework is made even more attractive in today’s global economy, when gas prices are rising from geopolitical turmoil. With the United States and many of its Western allies sanctioning Russian oil, the cost per barrel has skyrocketed in recent weeks and increased Devon’s free cash flow. In its most recent quarter, Devon Energy’s unique divided structure resulted in a 7.2% dividend yield, well above The Street’s average.
However, it is worth noting that the international crisis has shown no signs of cooling off. While the whole world is hoping for an immediate truce, there’s a chance the conflict will continue for at least the foreseeable future; if that’s the case, it is safe to assume oil prices will keep rising. As a producer of both oil and natural gas, Devon Energy will benefit from subsequent increases. On the other hand, investors will see their dividend yield increase in conjunction with Devon’s free cash flow.
While forecasts are in no way guaranteed, many industry experts are predicting a 10- to 15-year window of growth for today’s leading oil and gas plays. Demand will undoubtedly wane in more mature markets, but there’s reason to believe the need for oil and gas will remain significant in emerging markets for years, if not decades. Therein lies the real reason Devon looks like one of today’s best dividend stocks: its current share price looks like a bargain when you account for years of growth complemented by a fixed plus variable dividend.
The advent of electric vehicles and green technology has turned many investors off of the oil and gas industry for the better part of a decade. If for nothing else, the global economy is demanding cleaner energy sources. Still, only a small percentage of the world is ready to make the transition to clean energy. In the meantime, the entire planet needs to rely on traditional sources of energy.
It is forward looking thinking, however, that has discounted the entire oil and gas sector. More investors are putting their long-term capital in clean energy companies, effectively selling the oil and gas sector short.
The impending move away from oil and gas appears to be discounting companies like Devon energy. With a price/earnings-to-growth (PEG) ratio of 0.87x, Devon energy not only boasts one of the lowest PEG ratios in the Oil, Gas & Consumable Fuels industry, but it also looks to be trading at a discount relative to its peers. Additionally, Devon Energy’s price/earnings ratio comes in just below the industry average. The unique combination of a low PEG and PE ratios suggests Devon Energy has an attractive risk/reward profile complimented by an undervalued share price.
The oil and gas industry has seen better days, but the fact remains: the world needs access to energy now more than ever, and green alternatives simply aren’t ready to supply the whole planet. Instead, companies like Devon Energy will need to bridge the gap for what could turn out to be decades. As a result, the unique undervaluation of the entire oil industry, years of potential tailwinds, and an attractive dividend framework make Devon Energy one of the best dividend stocks to buy right now.
8. Kinder Morgan, Inc.
Kinder Morgan is widely recognized as a pivotal component in the North American energy sector. As an energy infrastructure company, however, Kinder Morgan isn’t responsible for the creation or extortion of natural gas, but rather its transportation. In doing so, KMI owns and controls oil and gas pipelines and terminals. In total, Kinder Morgan has at least an invested interest in approximately 85,000 miles of pipelines and 152 terminals.
Despite its prominent position in the oil and gas industry, however, Kinder Morgan’s share price has been relatively suppressed by the pandemic. For the better part of two years, energy has been trailing the broader industries because of obstacles created by COVID-19. While the S&P 500 is up more than ninety percent since the market crashed in the wake of COVID-19, KMI hasn’t even returned to its pre-pandemic levels.
Energy appears to be breaking out despite its underperformance over the past two years, and KMI is no exception. At the end of last year, even before Kinder Morgan reported its full-year 2021 earnings, the U.S. leader in natural gas pipeline infrastructure forecasted its full-year 2022 results. In the forecast, investors were reminded why they have invested in KMI in the first place: a strong balance sheet, higher net income, and higher earnings before interest, taxes, depreciation, and amortization (EBITDA). More importantly, KMI was so confident in the tailwinds the energy industry would experience in 2022 that it raised its dividend to $1.11 per share per year, giving it a dividend yield of 6.4%.
Kinder Morgan continues to be dependable in a market fraught with volatility. Even at a time when the world is trying to pivot away from oil and gas, KMI looks to be a safe transition play. If for nothing else, KMI is well positioned to cater to the lower-carbon energy sources in the future. As a result, few companies look more ready than KMI to generate consistent, dependable cash flow for their shareholders than KMI. With the ability to cater to both today’s and tomorrow’s energy sources, KMI looks ready to take its place as one of the highest paying dividend stocks in 2022 and beyond.
9. CareTrust REIT, Inc.
As its name suggests, CareTrust is a real estate investment trust that owns, acquires, develops, and leases many healthcare-related real estate assets. In particular, however, CareTrust specializes in skilled nursing facilities and senior housing on a national scale. In total, CareTrust’s diversified portfolio includes 191 net-leased healthcare properties and three operated seniors housing properties in 24 states.
Despite resting comfortably at the forefront of the healthcare REIT industry, CareTrust faced a lot of headwinds in the wake of COVID-19. Not unlike most REITs, CareTrust had to worry about collecting rents at a time when delinquent tenants were protected by the government and “forgiven” for not paying monthly obligations. While the S&P 500 is up about 90.4% since the market crashed in March of 2020, CTRE is up a more modest 29.5%.
There is no doubt that CTRE’s share price hasn’t kept pace with broader indices. As a result, the healthcare REIT looks undervalued. With a PEG ratio of 1.66x, below the Equity Real Estate Investment Trusts industry median PEG of 3.69x, CareTrust appears to be an industry leader trading at a discount relative to its peers. CareTrust’s discounted valuation is further supported by a PE of 25.59x, that is also below the industry median of 37.43x.
To be clear, it’s not the company’s valuation that has landed it on the list of today’s best dividend stocks 2022, but rather its future potential. If for nothing else, the U.S. population is aging at a rapid pace and the advent of technology in the healthcare industry is promoting longer life spans. According to The Motley Fool, today “less than 17% of the United States is 65 or older, and that’s going to rise to 22% by 2050.” Long-term trends suggest we are in the early stages of an increasing demand for senior healthcare and nursing facilities.
CareTrust is uniquely positioned to benefit from long-term trends, making it one of the best dividend stocks to buy in 2022. Investors who get in sooner rather than later may benefit from growth and a 5.16% dividend yield with room to run for decades.
10. AbbVie Inc.
AbbVie is a worldwide pharmaceutical company that discovers, develops, manufactures, and sells prescription drugs for a wide variety of therapies. Its position as a global leader in the pharmaceutical industry has firmly entrenched it on most investors’ “best dividend stocks” lists.
To be perfectly clear, AbbVie hasn’t only found itself on the “best dividend stocks 2022” list; it’s been at the top of income investors’ lists for the better part of 50 years. Having already delivered 49 consecutive years of dividend increases, AbbVie is one of the most well-established income stocks investors should be excited about in 2022. Not only does the pharmaceutical company’s track record speak for itself, but its prospects appear even brighter.
As recently as last year, AbbVie’s revenue increased 59% year-over-year; that’s impressive for such a well-established company. More importantly, AbbVie has a strong lineup of drug releases in the future, which should support years of dividend growth. With the acquisition of Botox-maker Allergan complete, AbbVie’s business model is bigger, more diverse, and in a better position to improve its already attractive 4.15% dividend yield. Above all else, AbbVie is about as safe of an income stock as they come, which places it amongst today’s best high dividend stocks.
AbbVie’s future prospects have made the stock relatively expensive. With a PEG ratio of 9.74x, AbbVie is one of the highest valued income stocks in the biotechnology industry. That said, even valuations on Wall Street are relative. While the company’s PEG ratio would leave investors to believe it’s expensive, AbbVie’s shares are trading at 9.5x forward earnings. To put things into perspective, the pharmaceutical industry’s average PE ratio is 25.01x. When taking AbbVie’s forward earnings into account, the stock actually looks cheap relative to its peers.
The future of AbbVie looks brighter than ever, and the company’s stock price is exhibiting the best of both worlds: growth and income. As a result, today’s price targets look like they will enable AbbVie to continue growing its dividend for years (if not decades) to come.
How To Find High-Yield Dividend Stocks
Finding high-yield dividend stocks is as simple as searching brokerages for companies currently offering the highest yield. The information is displayed front and center, along with the stock price and everything else investors need to know. That said, there’s a huge difference between stocks that offer a large dividend and quality dividend stocks.
In other words, investors shouldn’t make their investment decisions based solely on a company’s dividend size. Oftentimes, in fact, large dividends that seem too good to be true are red flags. According to Jason Hall at the Motley Fool, “High yields can be the result of a stock that’s fallen because the dividend is at risk of being cut. That’s a dividend yield trap.”
While the best dividend stocks are a great addition to any portfolio, it’s not enough to covet the yield itself. Focusing solely on the yield and ignoring everything else is the surest way to make a poor investment. Instead, investors must evaluate everything they can about the stock and the company. Truly great yields will come from companies who have demonstrated an increased propensity for the following:
Consistency: Identifying a good dividend stock starts with looking at its payment history. Whether in prosperity or downturn, the ability to grow a dividend is a sign of strength. The Dividend Aristocrats, for example, have grown their own dividends for at least 25 consecutive years. While not always the case, companies who have proven they can maintain their dividends in the past are more likely to maintain them moving forward. Track records are invaluable in the world of income investing.
Financial Stability: A high-yield dividend stock must be supported by solid financials. For a dividend stock to even be considered by investors, it should have a good balance sheet; that way, it can make sure investors get their payments every time. Poor financials are a sign of a struggling company and could result in a dividend suspension or cut.
Profit Margins: Businesses are responsible for paying dividends, and they will only be able to do so if their profit margins allow as much. Therefore, it’s important to make sure the company is making enough to continue paying said dividends. Anything less will put even high-yield dividend stocks in jeopardy.
The Moat A moat is a competitive advantage, and invaluable to the long-term prospects of a dividend stock. Investors can rest assured their dividends will remain protected and continue paying over time with a secure moat.
Potential: Dividend stocks shine as long-term investments. For a high-yield dividend stock to be worth considering, it must exercise the potential to stick around for years, decades even. Therefore, investors will want to evaluate a company’s potential moving forward. That way, they can ensure their dividend for years.
The Benefits Of High-Yield Dividend Stocks
The advantages of investing in dividend stocks are relatively straightforward. The benefits of high-yield dividend stocks are in their name: dividends. That said, dividends might offer more of an advantage than many new investors realize. Let’s take a closer look at the benefits of high-yield dividend stocks:
Compounding Income: Dividends are an obvious benefit associated with high-yield stocks. However, the true benefit is brought to light once those returns are reinvested through a DRIP (dividend reinvestment program). Brokerages allow investors to reinvest their dividends in the stocks they originate from, compounding income for years and years.
Appreciation: While high-yield dividend stocks are inherently incapable of realizing the same growth rates as some of today’s best growth stocks (their dividends prevent them from scaling further), they may still exhibit growth. In fact, the best dividend stocks may be considered growth stocks too. As a result, lucky investors will be able to simultaneously receive income in the form of dividends and watch their portfolios increase in value.
Sound Fundamentals: For a company to pay a dividend in the first place, it must first be financially sound enough to even make the payments. As a result, most companies don’t start making dividend payments until they are healthy enough to support them. That’s not to say all dividend stocks are “healthy,” but rather that it’s a good indicator of a successful stock.
Risk Aversion: Dividend stocks can be held in several industries, which increases diversity and reduces risk. Not unlike traditional stocks, dividend stocks can vary dramatically, which can really help investors avoid market volatility.
The Risks Of High-Yield Dividend Stocks
Even the best dividend stocks, not unlike any other investment, are subject to risks under extenuating circumstances. While they have proven they belong in a diversified portfolio, there are certain pitfalls investors need to be aware of, not the least of which include:
Dividend Traps: High-dividend yields may look attractive to the untrained eye, but companies with dividends that appear too good to be true can be a dangerous investment. While not always the case, businesses in distress may use incredibly high dividends to attract stock traders. It is entirely likely the dividend is still high after a stock price pullback, and the dividend hasn’t been cut, so be aware.
Poor Financials: Simply because a stock pays a high dividend, doesn’t mean they can continue to pay it. If the company doesn’t have enough cash flow or enough money to keep the business up and running, there’s a good chance that dividends won’t last much longer.
Interest Rates: Dividend stocks are adversely impacted by rising interest rates. When rates rise, dividends become less attractive than other, safer government securities.
To be clear, the best high-yield dividend stocks in 2022 are entirely subjective. Every dividend stock which is publicly traded carries its own intrinsic value, and that value is worth more to some investors than others. In other words, investors view stocks through different lenses. What one investor views as the best high-yield dividend stock in 2022, another may write off entirely because it fails to see their specific criteria. Nonetheless, those listed above appear to have what it takes to thrive for the foreseeable future and beyond. As a result, they are all candidates for the best dividend stocks in 2022.
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