You can pat yourself on the back if you’re thinking of loading up your portfolio with dividend-paying stocks — because they’re surprisingly strong wealth builders. (If you weren’t thinking of doing so, you can start now!)
Dividend payers aren’t slouches. They’re not sleepy stocks only suitable for grandparents. Plenty of high-performing growth stocks pay dividends — such as Apple and Nvidia — and though their dividend yields can be low sometimes, they can also be fast-growing. When you factor growing dividends into the total returns of slower-growing blue chip companies, they become much more compelling.
Image source: Getty Images.
To appreciate the power of dividends, check out the eye-opening numbers below, adapted from a Hartford Funds report:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2023 |
|---|---|
|
Dividend growers and initiators |
10.19% |
|
Dividend payers |
9.17% |
|
No change in dividend policy |
6.74% |
|
Dividend non-payers |
4.27% |
|
Dividend shrinkers and eliminators |
(0.63%) |
|
Equal-weighted S&P 500 index |
7.72% |
Data source: Ned Davis Research and Hartford Funds.
Here are four dividend payers to consider for your long-term stock portfolio:
1. Pfizer
Pfizer (PFE 0.11%) is a more familiar name than it was a few years ago, before people started lining up to receive Pfizer vaccines for COVID-19. But demand for vaccines has waned now, which has taken some wind out of Pfizer’s sails. Still, there’s a lot to like about this company.
Its COVID-19 vaccine and the related Paxlovid treatment are still generating more than $8 billion annually, and the company has a significant portfolio of drugs in development and on the market. It’s expanded that via acquisition, too, such as how it greatly expanded its oncology business by buying Seagen. Note, too, that companies in the healthcare realm are more defensive than many others as healthcare spending is less optional during economic downturns.
What about Pfizer’s dividend? Well, it recently yielded a fat 6.6%! And better still, its shares seem attractively valued, with a recent forward-looking price-to-earnings (P/E) ratio of 8.7, well below the five-year average of 10.7.
2. Medtronic
Medtronic (MDT 0.17%), a giant in medical devices, is another solid dividend payer with a recent yield of 3.2%. That payout has grown at an average annual rate of about 5% over the past five years — and Medtronic has been upping its payout for 46-some years.
The stock hasn’t been a fast grower in recent years, but as with all good dividend payers, investors get paid to wait for stronger-performing years to arrive. There’s good reason to hope for that, too, as Medtronic has many new products in the offing, some of which can turn out to be blockbusters. The company recently had more than 190 active clinical trials, and has invested $2.7 billion in research and development for fiscal 2024.
Also, Medtronic’s business is fairly defensive, with those needing devices not so likely to put that off. Medtronic’s stock price seems quite reasonable at recent levels, too, with its forward P/E of 14.7 well below the five-year average of 17.6.
3. Realty Income
Realty Income (O 0.45%) is a company not everyone may know, but those who do know it are often impressed. It’s a real estate investment trust (REIT) — a company that owns lots of real estate, charging its tenants rent. REITs are required to pay out at least 90% of their taxable earnings as dividends, so they’re often good dividend payers.
Realty Income, unlike most dividend payers who pay out quarterly, pays its dividend monthly. In its third quarter earnings report, it announced its 108th consecutive dividend increase. The company recently owned 15,450 properties across 90 different industries leased to more than 1,500 clients throughout all 50 U.S. states and a handful of countries in Europe.
Realty Income is growing well, too, with third-quarter revenue up 28% year over year. This is a dividend payer well worth considering.
4. Schwab U.S. Dividend Equity ETF
Finally, consider the Schwab U.S. Dividend Equity ETF (SCHD 0.77%). It’s an exchange-traded fund (ETF), which is a fund that trades like a stock. It has a solid performance record, averaging annual gains of about 11% over both the past five and 10 years — while delivering growing dividends. It recently yielded around 3.5% and it held stock in roughly 100 companies.
Buying into a good dividend-focused ETF can save you from having to research and pick individual dividend payers, hoping they’ll be great for many years.
Selena Maranjian has positions in Apple, Medtronic, Nvidia, Pfizer, Realty Income, and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Apple, Nvidia, Pfizer, and Realty Income. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
