Top Dividend Stocks To Buy Right Now
Image by Pixabay
What are the top dividend stocks to buy right now?
When people ask me this, I’m usually tempted to give them a sarcastic answer…
“The top dividend stocks to buy right now are the same ones you should have bought a year ago, and the same ones you should buy a year from now.”
But unless the person talking to me is a flat out boor, I’ll soften this response and show some respect.
So here’s my take on investing in good dividend stocks.
First, there’s human nature. We’re all looking for what’s new. Whatever is new tugs at us with incredibly strong appeal.
But what’s new and what’s profitable don’t always mix.
If you built your investment strategy on your thirst for what’s new, you would invest in nothing but IPOs.
Not a good idea, based on the two largest IPOs of the past few years.
Alibaba $BABA in 2014 and Agricultural Bank of China $ACGBY in 2010…
Both are trading well off their IPO prices.
So instead of thinking about what’s new, think about what’s going to make you money.
Here’s the first thing to do.
Get High Yield Out Of Your Head
Not long ago one of my readers emailed me. He asked…
“Do you know of any high-yielding stocks (around 10%) that you would consider buying?
I am buying a house with financing at 3.75% and would like to use some free cash (as a result of no down payment) to generate more income than using that money to pay-down a 3.75% loan.”
The short answer… no.
And the reason why is the risk that comes with a 10% yield.
I wouldn’t consider buying a stock with a 10% yield any more than I’d consider buying a condo in Damascus.
I’m not a financial planner, but it wouldn’t surprise me if my reader’s best move might be to take half of his free cash flow and pay off the mortgage ahead of schedule.
Then, the other half could go into a portfolio of dividend stocks.
What would the best dividend stocks be for this portfolio?
Well, let’s say my reader has a 20-year mortgage, and he’s syncing up the dividend stocks for a 20-year investment horizon.
The first thing he should do is find out how to dodge a high yield dividend stock disaster.
This explains why you’re typically better off with a dividend yield that’s growing than a dividend yield that’s high…
Especially when you have an investment horizon that stretches out beyond five years.
But I suspect my reader still wants a few suggestions on some good dividend stocks.
The best move is to start the search in a safe and well-known neighborhood.
The Top Dividend Stocks On The S&P 500
The S&P 500 Dividend Aristocrats are are always a smart place to look for top dividend stocks.
14 Aristocrats pay a dividend of at least 3%.
Because they’re Aristocrats, you’ll pay a premium. Safety always comes with a price, but a little insurance premium isn’t always a bad thing.
After checking out the Aristocrats, you can expand your search to the small caps. Look for the same thing… dividends paid consistently year after year.
Turn your back on what is new and exciting. Go in the opposite direction. Turn up a bunch of unexciting companies in boring businesses like foaming ingredients for toothpaste and beveled glass.
The Best Dividend Stocks You Never Heard Of
Leggett & Platt Inc. $LEG is in the furniture business. They’re the guys furniture manufacturers go to for springs, lumbar systems, coils, and other components.
The stock has been paying a growing dividend for 43 years and the yield is 2.8%.
Lancaster Colony Corp. $LANC manufactures everything from safety glass to salad dressings.
It’s been paying a growing dividend for 52 years and the yield is 2.1%.
Stepan Company $SCL produces chemicals that give household products like toothpaste the ability to create a foam.
Stepan has been paying a growing dividend for 47 years and the yield is 1.9%.
Are these the best dividend stocks to buy right now?
I’d sure take a closer look. The yields aren’t much more exciting than the businesses these companies are in, but that’s OK.
It’s OK because the yield is in a good position to keep growing and compounding. The companies are well-established and in sound financial shape.
And the laggard of this group of 3 dividend stocks, Stepan that pays a dividend of less than 2%.
Most income investors would blow off Stepan because of the low yield.
But it cranks away. Check out this chart…
Even if you didn’t sell Stepan when the stock was in the 60s, over the past five years you would come close to doubling your money.
Not bad for this low yield dividend stock.
Let everybody else go chase the high fliers and take the risks.
You can dig deeper. Expand your small cap stock search to find some opportunities to flirt with a slightly higher yield.
But don’t forget that the higher the yield, the higher the risk.
And your goal is to maximize profit from your dividend stocks… NOT to chase high yield.
The Best Dividend Paying Stocks Are Like Good BBQ
Ask a talented BBQ chef how he cooks and he’ll tell you, “low and slow”.
It’s the same with your dividend stocks.
Turn down the heat a bit on your yield. Set your timer to hold onto your stocks longer.
Let your dividends compound. If you don’t need the income to pay your mortgage like my reader does, reinvest your dividends.
Reinvesting dividends is like unlocking the juices in your meat… nothing is wasted.
When you set up your brokerage account to reinvest the dividends and buy more stock, the number of shares in your portfolio grows, paying even more dividends.
And your portfolio winds up like a perfect rack of baby back ribs.
Regards,
Michael Jennings
Note: Michael Jennings writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at https://www.dividendstocksresearch.com/free-sign-up. We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.
Category: Best Dividend Stocks
