A dividend is a regular distribution of earnings by companies to their shareholders. A company can pay a dividend to its shareholders as cash or stock. Not all stocks pay dividends. With rising COVID-19 fears and inflation scares, many investors are looking for the best dividend stocks to buy in 2021.
Dividend stocks can give investors stable income and long-term growth potential. Most dividend stocks pay shareholders a set amount each quarter, and the best ones raise their distributions over time. As a result, investors can create an annuity-like cash stream.
What are dividend stocks?
Dividend stocks are the shares of companies that distribute regular dividends. These stocks are generally of well-established companies with a proven track record of distributing profits back to shareholders. A dividend is paid out per share. If you own 50 shares in a company and that company distributes $1 in annual cash dividends, you'll get $50 per year. The three metrics to evaluate dividend stocks are the dividend payout ratio, dividend payout growth, and dividend yield.
The best dividend stocks in 2021
When building a dividend portfolio, it's best to have it diversified across various sectors instead of only investing in the stocks that generate the highest dividend yields. Here are some of the best dividend stocks to buy in 2021.
- AT&T is the second-largest wireless service provider in the U.S. The telecom company has increased its dividends each year for the last four decades. AT&T receives a steady income from its core wireless phone and broadband customers. Its current dividend yield is 7.4 percent.
- With an impressive portfolio of healthcare products, Johnson & Johnson has raised its dividend for the last 59 years. It generates steady income from its operations in pharmaceuticals and medical devices.
- Procter & Gamble pays a dividend yield of 2.5 percent. It's one of the best dividend stocks to hold for a long time. The consumer products manufacturer has raised its dividend for the last 63 years. It has an outstanding range of consumer product brands, including Gillette, Pampers, and Head & Shoulders.
- Annaly Capital Management has paid dividends since its inception over two decades ago. Annaly has paid out more than $20 billion in dividends, averaging a 10 percent yield throughout that time. The company operates as a REIT.
- Mobile TeleSystems, a Russian telecom giant, has consistently delivered a payout above 7 percent annually. As of June 2020, the company served around 85 million customers in Russia, Armenia, and Belarus. Mobile TeleSystems also offers a variety of new verticals that are rapidly expanding like MTS Bank, pay-TV, and cloud services, among others.
Why investors like dividend stocks
Investing in dividend stocks is one way to generate wealth and receive a stable stream of income. Dividend stocks allow investors to make money in two ways—through dividend distributions made by the company and through stock price appreciation. These stocks are typically less volatile than other types of stocks.
Usually, investors create more wealth by reinvesting their dividend distributions back into the company instead of using the cash immediately.