If your retirement goal (or dream) is to earn around $50,000 per year off dividend income, the following blog post will help you understand how to get there, and we’ll provide our top dividend-paying stock picks.
Top 16 Dividend Growth Stocks
The following sixteen stocks were selected by using a stock screener with the following parameters:
- Small to Mega Cap Stocks to Diversify
- Forward Dividend Yield Above 2% (better than most bond yields)
- Consecutive Years of Dividend Growth More Than 5
- PEG ratio of Less Than 1 (i.e., The five-year estimated growth rate is higher than the current Price/Earnings Ratio, a metric that Peter Lynch uses to select stocks)
- Return on Equity Above 10 (measures the profitability of a company in relation to stockholders’ equity)
- Long Term Debt / Equity Less Than 125% (to avoid investing in risky high debt situations. As interest rates rise over time, companies with high debt could run into the problem of not being able to afford their debt obligations and having to file for bankruptcy.
- Consistent Revenue Growth
|Symbol||Name||Price (Intraday)||Change||% Change||Volume||Avg Vol (3 month)||Market Cap||PE Ratio (TTM)||52 Week Range|
|ALL||The Allstate Corporation||126.50||+0.45||+0.36%||1.419M||1.427M||37.404B||9.96|
|PFG||Principal Financial Group, Inc.||69.03||+0.42||+0.61%||875,552||1.089M||18.527B||12.01|
|IPG||The Interpublic Group of Companies, Inc.||38.26||+0.10||+0.26%||4.472M||3.681M||15.06B||20.38|
|FNF||Fidelity National Financial, Inc.||49.34||+0.07||+0.14%||821,070||1.443M||14.077B||6.16|
|AEM||Agnico Eagle Mines Limited||56.74||+0.17||+0.30%||1.115M||1.533M||13.912B||18.46|
|AQN||Algonquin Power & Utilities Corp.||15.11||+0.14||+0.94%||940,487||1.746M||9.369B||13.74|
|FAF||First American Financial Corporation||73.07||+0.19||+0.26%||378,204||540,032||8.032B||8.20|
|FLO||Flowers Foods, Inc.||24.84||-0.04||-0.16%||911,449||1.334M||5.26B||23.21|
|MCY||Mercury General Corporation||54.86||+0.42||+0.77%||115,070||153,840||3.038B||6.06|
|CSGS||CSG Systems International, Inc.||49.77||+0.04||+0.08%||53,759||122,698||1.63B||24.41|
|NHC||National HealthCare Corporation||70.65||+0.42||+0.60%||11,694||24,229||1.09B||6.53|
|DHIL||Diamond Hill Investment Group, Inc.||189.05||-2.27||-1.19%||3,023||7,298||605.546M||10.83|
|CASS||Cass Information Systems, Inc.||41.58||-0.27||-0.65%||22,225||39,358||594.86M||22.97|
|CTO||CTO Realty Growth, Inc.||53.33||-0.12||-0.22%||13,608||30,123||317.662M||3.44|
Towards the bottom of this blog post, we hand-selected another sixteen dividend-paying stocks using an alternative criterion. And there are a few that show up on both lists.
Why buy dividend stocks for income, instead of bonds?
As of 2021, the ten-year bond rate is near 1.55%, compared to its long-term average of 4.32%. Mix that with rising inflation, and bonds are not the most attractive investment at this point.
And to add more misery to the picture, bonds can be especially risky when interest rates are low because when interest rates rise, bonds lose value. And as of 2021, interest rates are only expected to go up over time.
So, what can you do? First, consider using stock dividends as a substitute for bonds.
The following case study uses one stock, Verizon, to explain how to make around $50K per year off stock dividends. For simplicity purposes, we’re using a single stock. At the end of the post, see the 16 Best Paying Dividend Stocks.
Without further ado, let’s dive in.
Verizon Case Study to Earn $50K Per Year off Dividend Income
If you purchased 19,920 shares of Verizon today at $55.61 per share, your total investment would cost $1,107,552 (that’s – one million, one hundred and seven thousand, five hundred and fifty-two dollars)
From this investment, you’d earn approximately $50,000 per year in annual income off Verizon dividends.
(x = number of shares of Verizon stock required to generate $50K in annual income off dividends)
x * $2.51 (annual dividend) = $50,000 (desired annual income)
50,000 / 2.51 = 19,920 shares
x = 19,920
19,920 total shares * $2.51 = $49,999.2 (annual income)
To purchase 19,920 shares of Verizon, it would cost $1,107,552
How much would I need to invest to earn $1,000 per month from stock dividends?
Not every person has one million dollars to invest in stocks. Perhaps, you have $50,000 invested or available to invest.
With $50,000 invested in dividend-paying stocks that pay an average dividend yield of 2%, you’d earn around $1,000 per month.
And the good news is that you don’t have to be a genius and pick the right stocks, instead invest in an index fund at Vanguard.
Compare a dividend stock index fund vs. a long-term treasury bond fund:
For example, the Vanguard fund called the High Dividend Yield Index Admiral Shares (VHYAX), on average pays a dividend yield of 2.82%.
And even better, this fund has grown in value by 19.2% Year to Date and over 30% in the last twelve months. So not only, would you have earned around $1,400 per month in dividends over the last year, in addition, your balance would have grown from $50,000 to over $65,000.
Compare that, to investing in the Long-term Government Treasury Bond Index Fund (VLGSX) that pays a yield of 1.91% and which has gone down in value over the last year by 6.7%. So, if you had invested in the long-term treasury bond fund, your $50,000 would have turned into $46,650 as of today.
Should I invest in a single stock for dividends or diversify?
As an intelligent investor, it’s best to have at least some diversification in your portfolio. Diversification can come from selecting various stocks, including slower growers and fast growers, stocks in different industries, or different types of investments (i.e., real estate, bonds, owning businesses, investing in emerging markets).
We’ll provide the top 16 dividend-paying stocks towards the end of this post to help you find some diversification.
Forward Dividend & Yield 2.51 (4.44%)
What do these numbers mean?
2.51 represents two dollars and fifty-one cents being paid per year as a dividend for every share of Verizon stock that you own. The stock price is $55.61 as of July 8th, 2021. So for every share of Verizon stock that you purchase today for $55.61, you’ll be paid $2.51 annually as a dividend.
How do you calculate dividend yield?
Divide the annual dividends paid by the price per share.
Divide 2.51 (annual dividends) by $55.61 (the share price today) and get the dividend yield. In Verizon’s case, that’s how you come up with a dividend yield of 4.44%.
What if Verizon’s Stock Price Falls?
As a stock’s price goes down, the dividend yield goes up.
If a stock price falls drastically because the company’s income fell, this could put your dividend in jeopardy.
Dividends are paid out of a company’s net profit.
A dividend that equals 30%-60% of the net income per share (i.e., its payout ratio) is a healthy dividend that’s not at risk of being taken away.
What is the payout ratio?
“Payout Ratio” illustrates the percentage of net income that gets paid to shareholders as a dividend. However, too high of a payout ratio could present danger. For example, if a company’s payout ratio is 90%, if their income goes down by more than 10% on a bad year, they may not be able to pay their dividend that year.
“A payout ratio range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view”, according to Dividend.com.
How much cash does the company have?
To expand on this point, if you’re looking for a safe dividend-paying stock, also look at the company’s retained earnings and free cash flow. For example, suppose a business has a very bad year like after the COVID-19 hit. Do they have cash on the side to support their operations and ensure dividends continue to get paid?
Verizon has over ten billion dollars in cash and as shown in the chart below their cash has risen over the last two years. They also have over $180 billion in debt, but at least their current Ratio is above one.
What is the Current Ratio? The Current Ratio is a liquidity ratio that measures whether a firm has enough resources to meet its obligations over the next year. In other words, the current Ratio illustrates if a company can generate enough cash to pay off all its debts due within the next twelve months.
How safe is Verizon’s dividend?
Verizon has “1 million postpaid and 4 million prepaid phone customers and connects another 25 million data devices, like tablets, via its nationwide network, making it the largest U.S. wireless carrier. “And the company is still growing!
Will Verizon continue to grow?
Just this year, “The firm has agreed to acquire Tracfone, a wireless reseller that serves about 20 million prepaid customers in the U.S., from America Movil.” And for those of you who don’t know Tracfone;
“Tracfone Wireless is a mobile virtual network operator (MVNO) that partners with four major cell phone companies: Verizon, AT&T, T-Mobile, and Sprint. Although Tracfone doesn’t own any wireless network infrastructure, it has agreements with the Big 4 that allow the company to offer service to its millions of customers.”
According to Verizon, “making TracFone a part of Verizon will allow Verizon to bring its full 5G experience and other technical advances to TracFone customers more quickly. Verizon also plans to make available its fixed wireless broadband home internet solutions to TracFone customers.”
Looking back at history (see chart below), Verizon has continued to pay its dividend for over twenty years.
Not only have they paid a dividend, but the dividend rate has increased over time. And the payout ratio is 54%, a healthy figure.
Verizon’s Return on Equity
A Return on Equity (ROE) of 15% or higher is favorable. Verizon’s ROE is 28%, which is outstanding. Even more impressive, Verizon’s ROE is 50.78% when looking at the average over the last five years.
Verizon’s Gross Margin
Verizon’s gross margin is above 58%, illustrating how powerful its MOAT (i.e., a competitive advantage).
Unfortunately, Verizon carries $2.48 in debt for every $1.00 in equity. But seeing their ROE of 28% shows they are managing their company in a highly profitable manner. Verizon’s high debt is a potential downside to investing in Verizon, so keep an eye on its high debt level. Continue to monitor Verizon’s debt levels and watch for signs of debt reduction over time. Debt reduction is a positive sign.
What happens when interest rates rise? Will the added interest expense cut into Verizon’s income and hurt its ROE?
Price / Earnings Ratio (P/E)
Is Verizon expensive right now?
No, it’s not. Verizon is currently selling for around what it’s sold for over the last five years.
Verizon’s five-year average P/E Ratio is 12.50, compared to its current P/E Ratio of 12.37. In other words, Verizon sells for around 12 times its earnings on average.
Analysts project Verizon will grow its earnings by around 3% per year over the next five years. Therefore, the stock price should only continue to grow over the next five years because the stock price follows a company’s earnings over the long term.
How long has Verizon been paying a dividend?
“Verizon has paid a dividend since before it began operating as Verizon in 2000″, according to Fool.com.
Should I invest one million dollars into just Verizon, a single stock?
It doesn’t take a licensed financial advisor to answer this question.
Don’t invest all of your money into one stock. The point of this blog is to illustrate how a stock’s dividend rate and yield translate into you getting paid retirement income. Consequently, the case study is using a single stock to explain the process.
Choose at least 5-10 safe passive income or dividend-paying investments for retirement income. This passive income could come from a business partnership, monetizing online traffic, real estate, dividend stocks, and other options. But today’s blog post is focussing on dividend income.
Is dividend income taxable?
We can’t talk about dividend income without at least touching the subject of taxes.
If you’re earning dividends inside a retirement account, such as an IRA, your dividends are NOT TAXABLE. However, the quarterly dividends are considered taxable if you own Verizon stock outside of a retirement account. In addition, if you own a mutual fund holding dividend-paying stocks, similarly, the dividends paid are considered taxable.
According to Investopedia, “Dividends are income earned by investing in stocks, mutual funds, or exchange-traded funds, and they are included in your tax return on Schedule B, Form 1040. Capital gains are the amount an asset increases in value between when it is purchased and sold. The U.S. tax code gives similar treatment to dividends and short-term capital gains, and qualified dividends and long-term capital gains, respectively.”
Is your goal income?
Find stocks that pay a high annual dividend or invest in companies with a high dividend yield. But make sure to only invest in growing companies that have a healthy balance sheet. More importantly, focus on companies with a long history of increasing their dividends and earnings and look for companies with a high dividend growth rate.
Top 16 Dividend Paying Stocks and Income Producing Investments
The following investment choices take into consideration:
- industry trends
- payout ratio
- past earnings
- future projected earnings (Companies with a negative future projected growth rate wouldn’t qualify for this list)
- debt (High debt can also disqualify a company from this list)
- cash situations
- dividend rates
- dividend history for ten or more years
- dividend growth rate
- profitability ratios (e.g., ROE and Profit Margins)
- qualitative factors
The order of this list does not correlate with ratings or rankings and is entirely random.
- Omega Healthcare Investors, (OHI) / Dividend & Yield 2.68 (7.31%)
- CareTrust REIT, Inc. (CTRE) / Dividend & Yield 1.06 (4.48%)
- Verizon (VZ) / Dividend & Yield 2.51 (4.44%)
- Gilead Sciences, Inc. (GILD) / Dividend & Yield 5.20 (4.52%)
- Pinnacle West Capital Corporation (PNW) / Dividend & Yield 3.32 (4.00%)
- The Toronto-Dominion Bank (TD) / Dividend & Yield 2.62 (3.71%)
- Consolidated Edison, Inc. (ED)/ Dividend & Yield 3.10 (4.28%)
- Franklin Resources, Inc. (BEN) / Dividend & Yield 1.12 (3.49%)
- Comcast Corporation (CMCSA) / Dividend & Yield 1.00 (1.71%)
- The Southern Company (SO) / Dividend & Yield 2.64 (4.29%)
- Enbridge Inc. (ENB) / Dividend & Yield 2.77 (6.81%)
- Prudential Financial, Inc. (PRU) / Dividend & Yield 4.60 (4.53%)
- AbbVie (ABBV) / Forward Dividend & Yield 5.20 (4.82%)
- Pfizer (PFE) / Forward Dividend & Yield 1.56 (3.63%)
- Merck (MRK) / Forward Dividend & Yield 2.60 (3.46%)
- AstraZeneca PLC (AZN) / Forward Dividend & Yield 1.40 (2.33%)
Golden Financial Services does not hold itself out as providing any legal, financial planning, insurance, investment, or other professional advice. Nothing contained in this blog post should be construed as an offer to sell, a solicitation to purchase, or any recommendation or endorsement regarding any investment, policy, or product. Also, Golden Financial Services does not offer any advice regarding the nature, potential value, or suitability of any particular investment, security, or investment strategy. The strategies, investments, and services mentioned in this blog post may not be suitable for you. If you have any doubts, you should contact an independent financial advisor. You should consult with an independent professional before initiating any investment strategy. This blog post does not constitute advice, and you should not rely on any material in this blog post to make (or refrain from making) any decision or take (or refrain from making) any action. You alone are responsible for making financial decisions appropriate for you based on your situation and personal financial goals. When this article was published, the author did hold a position in Verizon and Comcast.
If you’ve enjoyed this article about dividend-paying stocks and investments that produce income, we recommend next checking out our One Up On Wall Street Summary.
How to eliminate debt and become a millionaire, NoMoreCreditCards.com
How are capital gains and dividends taxed differently, Investopedia
Verizon Starts to Sweat TracFone Acquisition, Lightreading.com
Why Verizon is a Dividend Investor’s Dream, Fool.com
What is an ideal payout ratio, Dividend.com
Bond Yield and Return, Finra