Best Dividend Stocks for 2023
Dividend investing is one of the best ways to build wealth in the stock market, but many people don’t know what the best dividend stocks are to buy.
Investors should always “look under the hood” of a company before pulling the trigger and buying the stock. If you don’t feel comfortable doing the research yourself, you can always invest in an index fund or ETF to avoid picking stocks on their own.
This blog post will discuss some of the most consistent paying dividend stocks that will help you build a solid passive income source.
#1: Verizon Communications ($VZ)
Verizon provides businesses and consumers with communications, technology, and entertainment products and services. Its consumer segment provides customers with service plans for smartphones and other electronic devices.
Verizon pays a dividend yield of about 7%, making it an excellent choice for investors seeking dividend income. In addition, the company generates consistent revenue and little to no growth, which is great for investors looking for an income stock with low volatility.
#2: Intel ($INTC)
Intel is an American semiconductor company that generates reliable revenue and cash flow. While Intel is losing some customers to strong competitors like Advanced Micro Devices, Intel still holds most of the CPU market share.
With a dividend yield of over 5%, Intel is an attractive investment for value investors. Moreover, since the semiconductor is getting hit hard in 2022, the P/E ratio of Intel is under 6, making it a deep value play.
#3: 3M Company ($MMM)
The 3M Company sells products such as adhesive tape and auto parts. It has over 32,000 patents globally, making them an excellent company for generating reliable income. Since the 3M Company has so many patents, it's nearly impossible for another company to provide similar or better products.
The 3M Company is another stock that pays over a 5% dividend yield and has a consistent business model to generate revenue continually. While the P/E ratio is not in deep value territory at 16, it is still a great American dividend stock.
#4: Johnson & Johnson ($JNJ)
Johnson & Johnson is a company that develops medical devices and pharmaceuticals. The company received lots of hype after it released a vaccine for the Covid-19 pandemic. However, the company has various other products that generate reliable revenue, regardless of the impact of the Covid-19 pandemic.
The company consistently beats earnings and pays a dividend yield of about 2.74%. Additionally, Johnson & Johnson has over a $400 billion market cap. Pfizer is one of the company’s largest competitors and has a market cap of about half the size of Johnson & Johnson.
#5: Chevron ($CVX)
Chevron is an energy company that strives to provide reliable and affordable oil and gas products. The company was founded in 1879 and is based in California. Since inflation is rising significantly in 2022, the price of oil and energy companies experienced a nice increase.
Chevron generally provides relatively stable revenue but had a hiccup in 2020 when the Covid-19 pandemic shocked the world and negatively affected oil companies. The company pays a dividend yield of about 3.5%, making it an excellent dividend stock.
Chevron generated about $155 billion in revenue in 2021 compared to $94 billion in 2020. While this is incredible growth, the 2020 revenue was only hindered due to Covid-19, making the growth seem more significant than reality.
Additional dividend stocks to consider:
Home Depot
Merck & Co
PepsiCo
Pfizer
Texas Instruments
Valero Energy
Lockheed Martin
Coca-cola
Amgen
Altria Group
Does the S&P 500 Index Pay Dividends?
Instead of investing in individual stocks, many investors prefer to invest in an index fund. The S&P 500 index ETFs and funds pay dividends and also give you exposure to the top 500 companies on the stock market.
The dividend yield of S&P 500 funds is generally less than 2%, but investing in an index is much safer and more consistent than individual companies. In addition to that, the S&P 500 index has grown around 10% per year since the beginning of its inception.
One of the only downsides to index investing is the expense ratios associated with owning a fund. Regardless of whether an ETF is passively or actively managed, an expense ratio is charged to the investors.
Therefore, when you select an S&P 500 ETF or index fund to buy, you should choose one with a low expense ratio.
The Importance of Cash Flow
Free cash flow is one of the most significant factors to consider when looking for good dividend stocks. The free cash flow is found on the cash flow statement and represents the money a company generates after its cash outflows to support operations and maintain its assets.
Without consistent free cash flow, a company can't pay its shareholders reliable dividend payments. Therefore, free cash flow is potentially a better metric to analyze dividend stocks than revenue or income.
The Best Dividend Stocks for 2023 | Bottom Line
As the Fed raises interest rates, growth companies may suffer for a while. Therefore, dividend stocks may outperform until the stock market is primed for growth again.
During times of economic hardship, safe companies that generate consistent revenue will be the best place to invest your money in the stock market.
Even when stock prices are flat or decreasing, you will still receive dividend payments that you can use to purchase more shares or as cash flow to live off.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #069
