Dividend stocks are regaining popularity in investment portfolios, a shift prompted by recent years of higher interest rates favoring fixed-income options over dividend yields. However, as investors return to dividend stocks, the criteria for evaluating these investments have evolved—mirroring broader shifts in investment standards.
Today’s investors prioritize solid financial fundamentals, a stark contrast to the cheap debt era, when simple promises of future profits could draw substantial investment, often regardless of weak financial management. Now, with a more cautious approach, investors are steering clear of speculative stocks and seeking more robust financial backbones.
This heightened scrutiny is particularly relevant for dividend stocks. While investors demand stability from growth stocks, they also seek substantial long-term growth potential from their dividend-bearing investments. Despite short-term Treasuries offering yields above 5%, dividend stocks must offer higher yields or the potential for significant long-term capital gains—or ideally both—to distinguish themselves in a competitive landscape.
Realty Income (O)
Realty Income (NYSE:O) consistently ranks among the top dividend stocks to own indefinitely, and it’s easy to see why. Known as a dividend aristocrat, Realty Income offers monthly distributions and a 5.8% yield, making it a perennial favorite among investors. After a nearly 20% decline over the past year, this dividend stock is now attractively priced for long-term investors. The company’s core strengths remain unchanged, positioning it as a compounder for today’s buyers.
Realty Income maintains an impressive occupancy rate of over 98% across its properties, with the overwhelming majority of its retail tenants operating in sectors resilient to economic downturns. A substantial portion of these tenants are in the grocery sector, complemented by convenience stores, dollar stores, and drugstores, creating a diversified portfolio that is largely immune to economic volatility.
The company’s triple-net lease model is particularly advantageous, as it transfers all operational risks and expenses, including property maintenance costs, to the tenants. This structure shields Realty Income from rising material and labor costs often associated with higher interest rates. Additionally, with leases typically spanning 15 years or more and including renewal options, Realty Income enjoys a reliable stream of rental income. The average lease term until renewal is a lengthy 9.8 years, providing the REIT with significant flexibility over the next decade, regardless of economic fluctuations.
H&R Block (HRB)
Although tax season is behind us (unless you’re a late filer), H&R Block (NYSE:HRB) remains a top dividend stock to buy year-round. Moving beyond the seasonal nature of tax services, H&R Block is diversifying its revenue streams to ensure steady cash flow throughout the year.
To counter the cyclical nature of the tax sector, H&R Block launched a mobile banking service that has quickly gained traction. The company has secured $456 million in net customer deposits and 316,000 customer signups in less than two years, filling a significant market gap. Additionally, H&R Block is leveraging new technologies for more efficient tax filing, collaborating with industry giant Microsoft (NASDAQ:MSFT) on an OpenAI-powered tax assistance product.
H&R Block’s appeal as a dividend stock is further enhanced by its impressive 10.25% total yield, which includes a respectable 2.4% dividend yield and substantial stock buybacks. Supported by a modest 29% payout ratio, this yield indicates that H&R Block retains a considerable portion of its earnings for growth initiatives while still providing significant returns to its shareholders.
VICI Properties (VICI)
Dreaming of a Las Vegas getaway? Investing in VICI Properties (NYSE:VICI) could be your next smart move. This dividend stock holds ownership and occasional operations of some of Vegas’s most iconic locations, including Caesar’s Palace, the Venetian, and MGM Grand. VICI’s extensive portfolio positions it as a strong investment, given Vegas’s enduring global popularity.
The company became publicly traded in 2017 after Caesars Entertainment (NASDAQ:CZR) went through bankruptcy. Unlike Caesars Entertainment, which still manages Caesars Palace, VICI owns the actual real estate, allowing it to benefit from tourist and gambler spending without bearing the operational risks of its tenants.
Since its IPO, VICI has provided a solid 60% return, with gross returns surpassing 120% when factoring in distributions. Over the last seven years, VICI has consistently offered a dividend yield of around 5%, with the current trailing yield at 5.9%. This robust yield, paired with promising growth prospects, makes VICI an excellent choice for dividend-focused investors.
Occidental Petroleum (OXY)
When it comes to value investing, few can rival Warren Buffett. One dividend stock he currently favors is Occidental Petroleum (NYSE:OXY). Offering a 2.9% total yield with a 21% payout ratio, OXY provides substantial advantages for both income and growth investors.
Buffett has notably increased his investment in Occidental Petroleum over the past few years, particularly in 2023, ultimately acquiring a 27% stake in the oil and gas giant, valued at more than $14.5 billion. And, despite shares trading fairly flat, Buffett just keeps buying. Though Occidental’s net-zero and sustainability-focused projects promise a future energy pivot, the company continues to benefit from rising crude oil prices currently seen in the market.
In recent months, Occidental’s share price has ranged between $55 and $65. Thanks to its strengths and the surge in crude prices, Occidental Petroleum is nearing new five-year highs. Following Buffett’s lead on this dividend stock could be a wise move, as it offers a unique growth opportunity in a well-established industry.
Edison International (EIX)
Utility companies often attract dividend investors due to their stable customer base, reliable financials, and tendency to redistribute profits to shareholders. Edison International (NYSE:EIX) stands out among these companies, especially as the company has strong growth potential that similarly mature utilities tend to lack.
Edison International surpasses industry dividend averages by nearly 2% while consistently increasing its annual payout for the past 20 years. After hitting a low in October 2023, EIX’s stock price rebounded significantly, growing 15% since then. However, the numbers only tell part of the story.
Operating in California, Edison faces more stringent state regulatory challenges compared to its counterparts. But this could work to Edison’s advantage.
California’s continued moves away from natural gas, despite questionable success thus far, and the rising demand for green energy practices in the state position Edison as one of the few utility firms with tangible growth prospects. While currently focused on southern California, the state’s overall push for sustainability and carbon neutrality by 2045 suggests Edison has significant expansion potential.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) is a household name globally, yet investors often overlook its potential for dividend and income investing despite its continued growth potential, market power and 4.3% dividend yield.
From a value investor’s perspective, McDonald’s is a mature and stable presence with an unrivaled market footprint. The company operates 38,000 locations in over 100 countries and offers investors geographic diversification, scaled operations, and a dependable cash flow. Its robust balance sheet and iconic brand provide a significant competitive edge, effectively deterring new market entrants. Additionally, McDonald’s continues to embrace technological advancements and initiatives, focusing on digital and delivery capabilities, which positions it well for adapting to evolving consumer habits and potential future growth.
For income investors, McDonald’s has a long and impressive history of paying and increasing dividends. It belongs to the elite group of Dividend Aristocrats, companies that have raised dividends for at least 25 consecutive years. Impressively, McDonald’s has increased its dividend for nearly 50 consecutive years, demonstrating a strong commitment to returning capital to shareholders. This consistent and growing income stream makes it an ideal choice for those seeking stability and reliability in their dividend stock portfolio.
Schwab U.S. Dividend Equity ETF (SCHD)
Expense Ratio: 0.06%, or $6 annually on a $10,000 investment
Of course, if you want to diversify your dividends, it’s hard to beat the ever-popular Schwab US Dividend Equity ETF (NYSEARCA:SCHD). SCHD grants access to leading dividend-producing companies, including core holdings like Amgen (NASDAQ:AMGEN), Verizon Communications (NYSE:VZ), and Merk & Co (NYSE:MRK). Together, these and other top-tier dividend stocks yield an attractive 3.83% SEC yield.
SCHD’s foundation is built on the Dow Jones Dividend 100 index, which only includes stocks that have increased dividends for ten consecutive years and possess the financial strength to continue doing so. This index is a powerful diversification tool, offering a solid 6% return over the past five years with relatively low volatility.
Morningstar analysts call SCHD “one of the best dividend funds available,” citing its inherently defensive nature as the top dividend stocks comprising the ETF “tend to be more insulated from market movements.”
Oftentimes, those adding dividend stocks to a well-rounded portfolio do so in an effort to diversify — and adding SCHD as a core dividend holding helps diversify your strategy even further.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
