Income Stocks: Best Dividend Paying Companies
If you want to start your stock investing journey, a great place to start is with dividend-paying income stocks. These companies pay their investors income simply for owning shares. There are many choices, but first, let’s define what defines an income stock.
Income Stock Definition
Income stocks are generally low-risk companies that generate consistent income for their investors. These stocks usually provide their investors' income via dividend payments.
Dividends are cash payments paid to investors for owning shares of a company. Income stocks typically pay dividends every month or quarter.
How are Dividends Taxed?
Various factors determine the taxes you pay on dividend payments. To simplify dividend taxes, we can break down the critical determining factors.
Brokerage account types:
ROTH IRA - Many dividend investors choose to invest with a ROTH IRA because you do not have to pay taxes on any dividend income. However, you must wait until retirement age (59.5) to withdraw your earnings tax-free.
Standard brokerage account - You must pay taxes on your dividend income in a standard taxable brokerage account.
Types of dividends:
Qualified dividends - you pay either 0%, 15%, or 20% on qualified dividend payments depending on your income.
Ordinary dividends - you pay regular income tax on any ordinary dividends.
The Best Income Stocks to Buy in 2022
1- Coca-Cola (KO)
Coca-Cola is a fantastic example of an income stock. In addition, the company is a dividend growth stock because it continues to raise its dividend payment every year. Dividend growth stocks like Coca-Cola increase their dividends yearly to boost investor confidence and prove they have a reliable business.
Coca-Cola is a beverage company that manufactures, markets, and sells non-alcoholic beverages worldwide. It was founded in 1886 and generates over $30b in revenue annually. Regardless of market conditions, investors generally consider Coca-Cola a safe investment because of its reliable income derived from its stable business model.
Annual Dividend Yield: 2.85%
2- Realty Income (O)
Realty Income is a REIT (real estate investment trust) that pays dividends monthly. The company pays dividends with the income generated from over 6,000 real estate properties from their commercial clients.
Like many REITs, Realty Income pays a high dividend yield of over 4%. In addition, REITs must pay at least 90% of their taxable income as dividends, making REITs attractive to dividend investors.
Annual Dividend Yield: 4.35%
3- Gladstone Investment Corporation (GAIN)
Gladstone Investment Corporation is a business development company that invests in the business/consumer services, manufacturing, and consumer products sectors. It seeks to own a majority stake in the companies within its portfolio and usually holds the companies for about seven years.
Gladstone Investment makes debt and equity investments in private businesses. The debt investments are primarily senior term loans, senior subordinated loans, and junior subordinated loans. 75% of its portfolio consists of debt securities, while the other 25% is equity investments.
Annual Dividend Yield: 6.27%
4- Verizon Communications (VZ)
Verizon offers consumers and businesses entertainment and communication products and services. It pays an excellent dividend yield of over 5% and increases its dividend payment each year, classifying it as a dividend growth stock.
While the company’s revenue is not growing, Verizon generates stable income that it pays its shareholders via dividends. Additionally, the stock has an attractive P/E ratio of just 8, proving that it is fundamentally undervalued based on earnings.
Annual Dividend Yield: 5.91%
5- Microsoft (MSFT)
Microsoft is a leading tech company in the productivity, intelligent cloud, and personal computing segments. Microsoft Office is the ultimate productivity software for businesses, with over a billion users worldwide. Microsoft Windows is also the most commonly used operating system in the world, demonstrating the popularity of the company’s products.
Microsoft is one of the largest companies on the stock market, with a market capitalization of nearly $2t. Its revenue increases substantially each year, yet it maintains an attractive P/E ratio of about 27. Additionally, Microsoft pays a dividend yield of about 0.94%, which is solid when considering the capital growth appreciation that comes with owning shares.
Annual Dividend Yield: 0.94%
What is an Income Stock: Bottom Line
Income stocks are fantastic investments for those looking to generate passive income from a stock portfolio. In addition, income stocks allow you to own the best companies in the world, so you can enjoy a portion of the profits without doing anything except take the risk of investing.
When searching for an income stock to invest in, you should focus on the company’s revenue and cash flow reliability. Some dividend-paying income stocks pay a high dividend yield, but this can often be what we call a yield trap. Generally, solid income stocks pay a dividend yield between 2-4%.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #041
