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5 Best Dividend Stocks for Passive Income

The best dividend stocks are those that continue to pay dividends over time. When investors buy shares to receive dividends, they expect the dividends to be paid quarterly. This is important for the investor, since dividends are a source of passive income. In addition, buying dividend stocks can be a necessary part of a retirement plan. Suppose you combine passive income from dividends, social security payments, and retirement benefits, then you can have a diversified stream of income to fund your retirement.

Investing in stocks with dividends is often considered more conservative than investing in growth stocks or riskier alternative investments. But the best dividend stocks from a decade or even a year ago may not be the best today. The reason is that economic conditions and business are changing. In this article, we’ll take a look at the top five dividend stocks right now in November 2021.

What are dividend stocks?

During this period of investing in tech stocks and bitcoin, some investors may ask, what are dividend stocks? Companies that pay a portion of their profits to shareholders are known as dividend stocks. The payment is a dividend and represents a return of funds to shareholders. Most dividend stocks come from established companies with stable revenues and earnings. In turn, this consistency allows the company to pay dividends. However, even a long history of dividend payments is not enough to guarantee future payments. For example, AT&T (T) announced a dividend cut in response to a change in business strategy. Hence, it is important to look not only at dividend yield but also dividend reliability.

Important definitions of dividends

There are a few important and fundamental words to know about split finances. These are the dividend rate, dividend yield and payout ratio. Of course, there are other terms to understand, but investors who are just starting out can start with these three words.

Dividend rate: The dividend per share rate is the actual amount of money paid to shareholders. In the United States, most stocks are paid quarterly dividends. Consequently, the shares will have a quarterly dividend rate and an annual dividend rate.

Dividend Yield: Dividend Yield is the value most investors want to see. It is a percentage calculated as the ratio of the annual dividend rate to the current share price. For this reason, dividend yields fluctuate along with fluctuations in the share price. A high dividend yield is great, but it can mean that the share price is under pressure for a specific reason.

Payout ratio: The payout ratio is an indicator of the reliability of the dividend. It is the ratio of the annual dividend rate per share to the annual earnings per share. If this percentage is too high or negative, the dividend may be volatile.

Top 5 Dividend Stocks Right Now

Verizon

Verizon (VZ) ranks first on this list for two reasons: excellent dividend yield coupled with good dividend security. First, most investors know about Verizon. The company is a cellular giant with one of the largest networks in the United States. Verizon operates in a mature market with only two other major competitors, controlling more than 98% of the US wireless market. Verizon has the second largest market share with over 120 million paying users. The company also has a large broadband business known as FiOS.

Verizon shares are down roughly 13.4% this year since the start of the year. This decrease resulted in an increase in the dividend yield to more than about 5%. The quarterly dividend rate is $ 0.64 per share and the annual rate is $ 2.48 per share. Verizon’s dividend is safe too, with a payout ratio of only about 48%. This ratio means that the likelihood of a dividend cut is low. It also means that they can increase their dividends in the future.

Consumers and businesses will continue to need a reliable cellular network. In addition, a higher broadband speed is always required. Verizon can provide both. But as the markets are mature, Verizon is likely to be a slow-growing company. However, a slow and steady one is suitable for paying dividends.

  • Market Cap: $ 210.57B
  • Promotion Price: $ 50.86
  • Dividend Yield: 5.03%
  • Coef. Payouts: 47.6%

Microsoft

In our opinion, the list of dividend stocks would not be complete without Microsoft (MSFT). Almost every investor knows about Microsoft. Branded products and services of the company include Windows, MS Office, Xbox, LinkedIn, Bing, Outlook, Azure and others. Nearly every adult uses one or more of these products directly or indirectly.

Microsoft is the second largest company by market capitalization at over $ 2.58 trillion. This dollar value exceeds the gross domestic product (GDP) of many countries. Microsoft shares have plummeted since current CEO Satya Nadella came to power. Over the next 5 years, the total return was about 469%, and over the last decade, the total return was about 1256%. Over the year, the share price has grown by ~ 54%.

The current quarterly dividend is $ 0.62 per share and the annual dividend is $ 2.48 per share. However, one of the downsides to Microsoft is its low dividend yield of 0.72%. The lack of dividend yields is offset by dividend safety. The payout ratio is excellent – 27%. In addition, Microsoft is one of only two companies to receive a triple AAA rating from credit agencies. It is for this reason that Microsoft is often considered one of the best stocks for dividend growth.

Microsoft will continue to grow organically and through acquisitions. The company has a habit of buying small tech companies by adding brands, products and services to its portfolio.

  • Market cap: $ 2.58 trillion
  • Promotion Price: $ 343.11
  • Dividend Yield: 0.72%
  • Coef. Payouts: 27.1%

Real Estate Income Corporation

Realty Income Corporation (O) is the only real estate investment fund (REIT) on this list. The trust owns over 6,500 commercial real estate objects. In addition, Realty Income retail properties are not part of larger shopping centers such as shopping malls or city centers, but are separate properties. This means that many tenants can use the property, including government services, medical services and entertainment.

The REIT share price is up 14.1% since the beginning of the year. The current dividend rate on real estate income is $ 0.246 per share per month or $ 3.17 per share per year. Thus, the dividend yield is 4.16%. REITs generally have higher payout ratios as they have to distribute most of their income, and real estate income is no exception. The payout ratio is around 85%.

Realty Income is known for its monthly dividend payments. REIT has paid dividends since its founding in 1969. This amounts to 617 consecutive monthly dividends. Since 1994, dividends have increased 113 times.

  • Market Cap: $ 40.15 billion
  • Promotion Price: $ 70.91
  • Dividend Yield: 4.16%
  • Coef. Payouts: 85.5%

Coca Cola

Coca-Cola (KO) is one of the most famous dividend stocks. In addition, the company owns some of the world’s most renowned brands operating in over 200 countries. Coca-Cola owns over 20 brands with $ 1 billion in sales. Notable brands include Coca-Cola, Diet Coke, Fanta, Sprite, Costa Coffee, Powerade, Dasani, Minute Maid, etc.

Coca-Cola’s share price has remained unchanged since the beginning of the year. The quarterly dividend rate is $ 0.42 per share. The annual dividend rate is $ 1.68 per share. The dividend yield is around 3.1%. However, Coca-Cola’s dividend safety has lagged behind, with a payout ratio of roughly 73%. That’s a high figure, but Coca-Cola has consistent revenue and profitability even during recessions. However, investors should not expect a significant increase in dividends over the next few years.

Coca-Cola is the market leader in most of its segments. In addition, the market for many of its brands is mature. However, Coca-Cola must grow organically through brand expansion. For example, the updated Coca-Cola Zero is doing well. Coca-Cola will also grow with acquisitions and its recent purchase of Bodyarmor, a sports hydration drink.

  • Market Cap: $ 238.13 billion
  • Share Price: $ 55.13
  • Dividend Yield: 3.05%
  • Coef. Payouts: 73.2%

Consolidated Edison

For our latest stock on this list of five stocks, we’ve added a diversification utility. Consolidated Edison (ED) is one of the oldest regulated utility companies. The company is also a well-known dividend stock that has been paying dividends since 1885. Consolidated Edison provides electricity, gas and ferry services to New York, South New York and North New Jersey. The utility serves approximately 3.5 million electricity consumers and 1.1 million gas consumers.

Consolidated Edison’s share price is up about 8% over the year. The quarterly dividend per share is $ 0.78. The annual dividend per share is US $ 3.12. Thus, the dividend yield is around 4%. However, the payout ratio is high at around 73% due to lower revenues and profits during the pandemic. As the New York economy recovers, demand for Consolidated Edison should also rebound, leading to a lower payout ratio. But again, investors shouldn’t expect a significant increase in dividends in the future.

Edison’s consolidated market is mature but growing. As a regulated utility, the company has a monopoly in the service industry. In addition, the population of New York continues to grow. In turn, this growth should stimulate the demand for electricity and natural gas.

  • Market Cap: $ 27.6B
  • Promotion Price: $ 78.03
  • Dividend Yield: 3.97%
  • Coef. Payouts: 73.0%

Disclosure: Dividend power is long: MSFT, KO and ED.

Disclaimer: Dividend Power is not a licensed or registered investment advisor or broker / dealer. He does not give you individual investment advice. Please consult a licensed investment professional before investing.

This post was originally published on Wealth of Geeks.

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