Investors are increasingly looking at high-yield dividend stocks this year. These stocks offer quarterly payments based on company performance, which can be taken as cash or reinvested for additional shares.
Why buy them now? In a volatile market, dividend stocks provide an income stream alongside potential price appreciation. This dual benefit is seen as reassuring during market fluctuations.
Companies typically pay dividends quarterly, with amounts decided during earnings announcements. Firms that pay dividends consistently often have attractive earnings per share and may see stock price appreciation. Historically, companies that have paid dividends in the past are likely to continue doing so, as management aims to maintain profit and free cash flow to cover payments. A halt in dividends after years of payment is considered a warning sign for investors.
However, caution is advised. While many high-yield dividend stocks are dependable, some can be risky. Certain companies offer high dividends to attract investors, but these may be unsustainable. Experts warn against new companies paying large dividends instead of reinvesting in business growth. They recommend looking for long-term dividend payers, such as "dividend aristocrats" that have increased dividends annually for at least 25 years, or "dividend kings" with at least 50 years of increases.
For those seeking to add high-yield dividend stocks to portfolios, companies with regular dividend payments are suggested. According to StockAnalysis.com, dividend kings include Proctor & Gamble (PG), Johnson & Johnson (JNJ), The Coca-Cola Company (KO), Stanley Black & Decker (SWK), and Lowe’s Companies (LOW). Dividend aristocrats feature household names like The Clorox Company (CLX), The Sherwin-Williams Company (SHW), Exxon Mobil Corporation (XOM), Caterpillar Inc. (CAT), International Business Machines (IBM), and The J. M. Smucker Company (SJM).
Alternatively, investors can opt for mutual funds or ETFs that include high-yield dividend stocks. Examples include the Vanguard High Dividend Yield Index Fund, which tracks the FTSE High Dividend Yield Index, and the Fidelity Dividend Growth Fund.