The High-Yield Dividend Stocks to Buy in 2021
Dividend stocks with high yields are a sought-after asset by income investors. Dividends that outperform the market average are one of the most effective ways to produce passive income on Wall Street. That said, starting positions in companies with the highest yields isn’t enough; there’s a lot more to think about. Prospective investors should weigh a variety of factors when assessing the quality of high-yield dividend stocks, including the company’s fitness, competitive advantage (moat), financial standing, track record, and industry, to name a few.
Investors would be exposed to risk if any aspect is not taken into account, which is why it is important to learn what there is to know about high-yield dividend stocks. Before you even consider the best high-yield dividend stocks in 2021, make sure you’re up to speed on the fundamentals.
What Exactly Is A Dividend Stock?
A dividend stock, like “growth” stocks, is an equity that is traded on Wall Street. Dividend stocks, like their growth counterparts, are traded on all major indices, including the S&P 500, Dow Jones, Nasdaq, and others. When it comes down to it, dividend stocks and growth stocks have more in common than they do variations. However, it is worth remembering that dividend stocks do reward patient investors with something that growth stocks do not: a dividend yield.
Dividend stocks, as the name implies, pay dividends to shareholders, while “growth” stocks do not. That is not to suggest that dividend stocks cannot provide growth (they can), but rather that their dividend yield is highly sought after.
The dividend is a nominal payment made to shareholders on behalf of eligible businesses. In the form of a dividend, investors will earn a small percentage of the stock’s value for each share they hold. The dividend yield and frequency of payment will be determined by the company. In exchange, the companies behind the stock will usually earn corporate tax cuts.
What Exactly Is Dividend Yield?
Dividends are distributions made by corporations to shareholders on their behalf (as a percentage of the stock price). Dividends may therefore be paid monthly, quarterly, biannually, or annually. In addition to the frequency, the businesses that pay dividends decide how much to pay out each time. As a result, some firms tend to pay larger dividends less often, while others prefer to pay smaller dividends more frequently.
The variety of payments and schedules is so wide that it is often difficult to make a “apples to apples” comparison between dividend stocks. Apple, Inc. (NASDAQ: AAPL) for example, paid the most recent quarterly dividend to shareholders on August 13, 2020. The cash sum came to $0.82 per share, which means that when the dividend was declared, investors would receive $0.82 for each share they held. Investors should expect to gain $3.28 per share per year if the dividend stays unchanged ($0.28 x 4 quarters).
Realty Income Corporation (NYSE: O), on the other hand, pays a monthly dividend to its shareholders. On October 15, 2020, each Realty Income share earned $0.234 over the course of a single month. Investors should expect to gain $2.808 per share ($0.234 x 12 months) if the dividend stays unchanged.
It can be difficult to compare dividend stocks, particularly when the share price, payment frequency, and forward dividend rate are all taken into account. Fortunately, a financial ratio, the dividend yield, helps us to make more precise comparisons. Dividend yield is a financial ratio that helps investors to compare dividend schedules and amounts that differ.
A dividend yield, on the other hand, uses the same idea as a dividend and extrapolates it over the course of a year. Dividend yields, which are often expressed as a percentage, are basic financial ratios that tell investors how much each share of a dividend stock will pay in dividends each year in relation to its price.
Where Do I Find High-Yield Dividend Stocks?
Finding high-yield dividend stocks is as easy as checking brokerages for companies with the highest yields at the time. The data is shown prominently, along with the stock price and other important details for investors. However, there is a significant difference between stocks that pay a big dividend and quality dividend stocks.
To put it another way, investors do not base their investment decisions solely on the size of a company’s dividend. Big dividends that seem to be too good to be true are often red flags. According to Jason Hall of the Motley Fool, “high yields can be the result of a stock falling because the dividend is under threat of being cut.” That represents a dividend yield trap.”
Though high-yield dividend stocks are an excellent addition to any portfolio, the yield alone is insufficient. Ignoring everything else and focusing solely on the yield is the surest way to make a bad investment. Investors must now assess what they can about the stock and the business. Companies that have shown an improved proclivity for the following will produce truly exceptional yields:
- Consistency: Finding a successful dividend stock begins with examining its payment history. Both in good times or bad, the ability to develop a dividend is a sign of strength. Dividend Aristocrats, for example, have increased their dividends for at least 25 years in a row. Although this is not always the case, businesses that have shown their ability to retain dividends in the past are more likely to do so in the future. In the field of income investing, track records are priceless.
- Financial Stability: A high-yield dividend portfolio must have strong financials. A strong balance sheet is required for a dividend stock to be considered by investors; this ensures that investors receive their dividends on time. Poor financials indicate a failing business and can result in the suspension or reduction of dividends.
- Profit Margins: Companies are liable for paying dividends, and they can only do so if their profit margins allow it. As a result, it is important to ensure that the business is profitable enough to continue paying dividends. Anything less would jeopardize even high-yield dividend stocks.
- The motte A moat is a strategic advantage that is invaluable to a dividend stock’s long-term prospects. With a stable moat, investors may be confident that their dividends will be covered and paid over time.
- Dividend stocks have a lot of potential as long-term investments. A high-yield dividend stock must have the ability to last for years, if not decades, to be considered. As a result, investors may want to assess a company’s future prospects. In this manner, they will guarantee their dividend for several years.
The Advantages of Dividend Stocks With High Yields
The benefits of investing in dividend stocks are clear. The advantages of high-yield dividend stocks are obvious: dividends. However, dividends can provide a greater benefit than many new investors know. Let’s look at the advantages of high-yield dividend stocks in more detail:
- Dividends are an obvious advantage associated with high-yielding securities. However, the true benefit is revealed when those returns are reinvested with a DRIP (dividend reinvestment program). Brokerages allow investors to reinvest dividends in the stocks from which they were produced, compounding income for years and years.
- Appreciation: While high-yield dividend stocks are necessarily incapable of achieving the same growth rates as some of today’s best growth stocks (due to their dividends), they can still exhibit growth. In reality, the best dividend stocks can also be classified as growth stocks. As a result, fortunate investors will be able to earn income in the form of dividends while also seeing their portfolio grow in value.
- Strong Fundamentals: In order to pay a dividend, a corporation must first be financially sound enough to make the payments in the first place. As a result, most businesses do not begin paying dividends until they are financially sound enough to do so. That isn’t to suggest that all dividend stocks are “safe,” but it is a strong measure of a profitable stock.
- Risk Aversion: Dividend stocks may be owned in a variety of industries, increasing diversification thus decreasing risk. Dividend stocks, like conventional stocks, can fluctuate significantly, which can help investors escape market volatility.
High-Yield Dividend Stocks’ Risks
High-yield dividend stocks, like any other investment, are subject to risks in the event of a calamitous event. Although they have proven to be valuable additions to a well-diversified portfolio, there are some risks investors should be aware of, not the least of which are:
- Dividend traps: While high dividend yields can seem appealing to the untrained eye, companies with dividends that appear to be too good to be true may be a risky investment. Although this is not always the case, businesses in distress may use exorbitant dividends to entice stock traders. It is entirely possible that the dividend is still high after a stock price drop, and that the dividend has not been reduced, so be cautious.
- Poor Financials: Just because a stock pays a high dividend doesn’t mean it can keep paying it. If the company does not have enough cash flow or capital to keep the business going, dividends are unlikely to last much longer.
- Interest Rates: Increasing interest rates have a negative effect on dividend stocks. As interest rates increase, dividends become less appealing compared to other, safer government securities.
The Top 10 High-Yield Dividend Stocks
There are several high-yield dividend stocks to consider in 2021, but below is a list of some of the most promising:
- Verizon Communications Inc. is a communications company (NYSE: VZ)
- Microsoft Corporation is an acronym for Microsoft Corporation (NASDAQ: MSFT)
- Incorporated Mastercard (NYSE: MA)
- Brookfield Renewable Partners L.P. is a limited partnership that invests in renewable energy (NYSE: BEP)
- STAG Industrial, Inc. is a company that specializes in manufacturing (NYSE: STAG)
- STORE Capital Corporation is a company that invests in real estate (NYSE: STOR)
- Healthpeak Properties, Inc. is a real estate investment trust (NYSE: PEAK)
- Ryman Hospitality Properties, Inc. is an acronym for Ryman Hospitality Properties, Inc. (NYSE: RHP)
- Federal Realty Investment Trust is a form of real estate investment trust (NYSE: FRT)
- AbbVie Inc. is a pharmaceutical company (NYSE: ABBV)
- Verizon Communications Inc. is the first.
Verizon Communications Inc. is currently trading near its 52-week high of $58.04. Nonetheless, many people in the telecom industry regard Verizon as a great dividend stock and a great profit stock. Verizon is well-positioned to capitalize on what is turning out to be a significant leap in telecommunications, owing primarily to its position as one of the largest 5-G companies on the market. Because of the company’s established track record and promising future, the current 4.32 percent dividend yield is extremely appealing. Aside from all else Verizon has going for it, this stock appears to be poised to benefit from both growth and dividend increases.
- Microsoft Inc.
Most people are aware that Microsoft has been one of the best-performing stocks in recent decades, but many are unaware that it is also a dividend stock. Although not the highest yielding stock on this list, the company’s proven track record and promising future indicate that the dividend has room to rise. Microsoft’s rising dominance in the cloud-based sector, in particular, means that it will remain a tech industry leader for many years to come. At that point, no one should be surprised if the current dividend yield rises in tandem with the stock price. As if that wasn’t enough, Microsoft recently signed a multibillion-dollar contract with the United States government to supply virtual reality headsets to the Army. The transaction may be worth up to $21.9 billion and would boost returns for optimistic investors for years to come.
Mastercard Incorporated is already associated with today’s most common credit cards, representing a pure-play in the battle against cash. As the pandemic worsens, less people are able to work with cash, and Mastercard appears to be one of the biggest winners of the change. That, combined with its already sizable market cap and low-risk business model, puts Mastercard in a strong position to expand. If more people move away from cash, the company’s dividend is likely to increase.
4. Brookfield Renewable Partners
Brookfield Asset Management Inc. is a real estate, clean energy, infrastructure, and private equity asset management firm. Brookfield Renewable Partners, on the other hand, is an extension of Brookfield Asset Management that appears to be well-positioned to benefit from a “greener” future. Brookfield Renewable Partners, as the name implies, owns and manages renewable energy infrastructure. With most people already transitioning away from fossil fuels, Brookfield Renewable is projected to take up a large portion of the slack. With several contracts signed for decades in the future, its dividend is extremely secure and expected to rise.
5. STAG Industrial, Inc. is No.
STAG Industrial, Inc. is a real estate investment trust that is hoping to capitalize on the e-commerce boom. If more retailers shift to online purchases, the need for warehouses grows, and STAG is uniquely positioned to provide retailers with exactly what they want. STAG rents industrial property that can be used to house the future of e-commerce, and its dividend is already appealing.
6. STORE Capital Corporation
STORE Capital Corporation is a net-lease real estate investment trust that is often compared to Realty Income Corporation (one of the market’s most well-established REITs). By focusing on the purchase of net-lease investment assets, both prioritize dividends for investors. Though Realty Income has amassed over 6,500 properties in its 52-year existence, STORE has a well-diversified portfolio that includes investments in over 2,500 property locations throughout the United States. The similarities are true, but STORE is a better buy and has more room to expand. Perhaps more significantly, STORE is well-positioned to capitalize on the impending reopening thesis. For far too long, real estate investment trusts have been silenced, and STORE could break out at any time with the announcement of new acquisitions.
7. Healthpeak Properties, Inc.
Healthpeak is well-positioned to capitalize on an aging baby boomer population. When the generation ages, more and more people will become reliant on assisted living and medical facilities; this is where Healthpeak comes in. According to Yahoo Finance, Healthpeak “owns and develops high-quality real estate in the three private-pay healthcare asset groups of Life Science, Medical Office, and Senior Housing, with the aim of providing stability across the inevitable market cycles.” This REIT appears to be a good choice for long-term investors, but its diversification through various facilities also helps to reduce risk. If nothing else, Healthpeak’s business model can ensure that dividends are secure for a long time.
8. Ryman Hospitality Properties, Inc.
Ryman Hospitality Properties, Inc. owns many irreplaceable convention center properties that are owned by Marriott International and operate under the Gaylord Hotels name. Many of the company’s core holdings, such as the Grand Ole Opry in Nashville, Tennessee, are one-of-a-kind and attract tourists from all over the world. However, Ryman Hospitality, as a REIT in the hospitality industry (particularly one focused on large conventions), was hard hit by the pandemic. As a result, it suspended its dividend in order to preserve its finances and invest in itself. Although the country was closed down, Ryman Hospitality expanded its portfolio by updating several of its closed properties, making them more appealing than before the pandemic. Any of the company’s assets stands to benefit from the country’s reopening as soon as possible. As business recovers, the company’s dividend will recover at the same pace.
9. Federal Realty Investment Trust
Federal Realty Investment Trust has become synonymous with the industry’s biggest and highest-paying REITs. FRT, as a REIT, owns, manages, and redevelops high-quality retail assets in some of today’s most vibrant markets. Federal Realty’s mission has grown into one of the shareholders after approximately 60 years of experience. Shareholders gain access to continued changes by generating long-term, sustainable growth through retail assets. As a result, the dividend is regarded as extremely secure, with ample room for development.
10. AbbVie Inc.
When addressing dividend stocks, it’s difficult not to mention the aristocrats. AbbVie is one of the most well-established Dividend Aristocrats investors should be excited about in 2021, having already delivered 49 consecutive years of dividend increases. Not only does the pharmaceutical firm’s track record speak for itself, but its prospects seem to be equally promising. AbbVie’s sales rose 59 percent year over year as recently as last year, which is remarkable for such a well-established business. More significantly, AbbVie has a deep pipeline of upcoming drug launches, which could sustain years of dividend development.
To be sure, determining the best high-yield dividend stocks in 2021 is entirely subjective. Every publicly traded dividend stock has its own intrinsic value, and that value is more valuable to some investors than others. In other words, investors look at stocks through various lenses. What one investor considers to be the best high-yield dividend stock in 2021, another will dismiss outright because it does not meet their particular requirements. Nonetheless, the individuals mentioned above tend to have what it takes to succeed in the near future and beyond. As a result, both of them are contenders for the best high-yield dividend stocks in 2021. What is next? Best cities to invest in property in 2021.