In a world fixated on cryptocurrency and AI, buying dividend stocks—those of companies who have made years, if not decades, of steady payouts—may seem old fashioned. But it is also extremely effective.
In fact since 1930, 40% of all stock market returns have been from dividends, according to Fidelity Investments, hardly something to scoff at. In flat or down markets in particular, an income stream becomes very valuable indeed.
Dividends aren’t hard to find: Roughly 4 in 5 stocks in the S&P 500 pay a dividend, typically once a quarter. But some sectors are more generous than others: Real estate and energy companies tend to boast the largest yields, currently close to 4% on average. While fast-growing tech companies offer the stingiest, averaging less than 1%. (Yield compares the value of a company’s annual dividend to its share price.) Dividends are also flexible: Investors can either take the dividends in cash or reinvest them. But remember even reinvested dividends are still taxable.
Of course, as with any investment strategy, there are some dividend pitfalls to avoid. One of the biggest is a so-called value trap. These stocks offer seemingly generous payouts relative to their share prices—but only because their share prices have recently been beaten down by frustrated investors. Many of these companies, which are in poor financial health, end up cutting their dividends, leaving buyers high and dry.
To help navigate this tricky but rewarding market niche, we talked to five top fund managers and analysts from investment firms such as Neuberger Berman, T. Rowe Price, Eaton Vance and more. We narrowed down the dividend investing universe to a few of their favorite names, those companies which combine compelling growth prospects with attractive price-to-earnings ratios and healthy yields.
Here are their favorite picks.
Ticker: DRIYield: 3.19%Share price: $149Forward price-to-earnings ratio: 17Who picked it: Sandy Pomeroy, portfolio manager of Neuberger Berman Equity Income Fund (NBHIX)
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