It’s no secret that we think dividend stocks make the best investments. Compounding returns, tax advantages and consistent income are all good things. But not all dividend payers are created equal. The best investment is a diversified portfolio of stocks, funds and trusts that increase in value while paying steady income.
A solid income portfolio will be have a balance of growth, income and safe dividend stocks.
We define high growth dividend stocks as those that have a 5 year dividend growth average and a 3 year net income growth rate of 10% or more. There are over 1200 stocks that pay dividends but only 35 stocks meet this criteria and have a dividend yield of 3% or higher. High growth dividends are one of the best investments because both the yield and the dividend growth drive up the stock price. The board has shown commitment to the dividend by increasing it each year which in turn drives up the stock price.
Three of our favorite high growth dividend stocks are: CTL, RCI, and CALM. Each have a 5 year dividend growth rate over 60%.
Receiving a dividend payment is good but every investor also wants to see their investment increase in value. Stocks with high dividend growth are usually the best dividend stocks provide capital appreciation as well as steady income.
Monthly paying dividend stocks have many benefits that make them attractive to income investors:
- You get paid faster
- Your shares compound faster
- You can evaluate the strength of the dividend more often
I like consistency and it feels good to see my favorite dividend payers hitting their mark each month. When we review dividend stocks we like to see solid dividend growth that compliments a dividend yield of 5% or more. If you can find a company that is trading with a yield that is higher than it’s 5 year average and has solid growth in their business then it could be time to buy.
Our 5 highest rated monthly dividend funds are: PGP, GGN, AGD, PHT, and CRT.
Nothing can protect you from a stock losing it’s value. Stocks go up and they go down. Sometimes it’s because the company’s fundamentals are failing and sometimes it’s because the global or local economy are tanking like in 2008 and August of 2011.
Every good portfolio manager researches their stocks to stay on top of their investments. As Jim Cramer likes to say “Do your homework.”
While no investment is safe from reducing in value, there are some stocks that have a long track record of paying their dividend. There is an elite group of elite stocks called dividend aristocrats that have increased their dividend for 25 years or more.
These stocks are often the best investment for anyone looking for fixed income along with capital appreciation. And as all dividend stocks do, they provide a hedge against inflation. Safe and consistent may seem boring but when your are investing a fickle market boring can be a good thing. Capital preservation is always priority number one.
Two of our favorite safe dividend payers are: MCD and JNJ.