In this article, I want to talk about one of my favorite topics which is dividend stocks, according to Naval Ravikant, one of the greatest assets that you can have to become wealthy is to actually have assets that earn you money while you sleep, and that is dividend stocks. For me, I love low-risk, high-reward investments.
That’s why in this article, I want to talk about my top five dividend stocks to hold for now, and indefinitely, if you read all the way through the end of this article, you’re going to get my full analysis on each of these stocks. You’ll also learn what my favorite dividend stock is to hold. Alright, without further ado, let’s roll that intro.
Dividend Stock and Dividend Payout Ratio
A dividend stock is basically just a normal stock except for the fact that they actually pay dividends. So, a dividend is basically a portion of profits that the company will pay back to you just for owning their shares. Typically, these companies are well established and they’re pretty low risk because they can offer such a consistent dividend. Of course, you can also make gains through the appreciation of the stock price itself, but with dividend-paying stocks, you also get some income in the form of passive income, in the form of dividends.
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The reason why I like dividends so much is that as long as the company is really solid, you’re going to start to see dividends come through every quarter, no matter what. The companies that we’re going to be talking about in this article, some of these companies have been paying dividends for over 50 years. That means the dividend at this point is pretty much a lock, and I don’t see why they would stop paying them anytime soon.
By owning some of these dividend stocks in your portfolio, you’re going to have core holdings that are going to continue to pay you while you sleep. Once they do pay you, you can decide to reinvest the dividends to purchase even more shares and the cycle continues from there.
This is one of the strategies that I personally employ in my own portfolio, and it’s the strategy that I’m going to stick to so that eventually one day I can just live off of my dividends.
Now, I want to quickly talk about the dividend payout ratio, it’s one of those metrics you should look at to gauge the reliability of a company’s dividend. The dividend payout ratio is simply represented as dividends paid divided by net income. The easiest way to put this is that if you have a company with $10 million a year in profit, and they actually pay out half of that or fifty percent of that five million dollars away in dividends per year then, their dividend payout ratio is five million divided by ten million which, is fifty percent.
The more that a company is paying back to its shareholders, the less it’s actually reinvesting in its own business. So we have different metrics to actually gauge how well the company is doing financially, and health-wise based on their dividend payout ratio. so here’s a quick rating on what’s considered good or not. Good is between 0% and 35%, healthy is 35% to 55%, high 55% to 75%, very high 75% to %95, and unsustainable is 95% to 150%.
Companies with a higher dividend payout ratio will probably have less growth potential because they’re investing all of their money back into dividends and not back into the company. When selecting a dividend-paying stock, it’s important to pay attention to the dividend payout ratio to assess whether or not you think that their dividend is going to be reliable in the long run.
Top 5 Dividend Paying Stocks
With that being said, I want to talk about the first dividend stock today which is actually
AT&T is in the telecom sector, you’ve definitely heard of them, they power the majority of America’s wireless services. They’re a solid company with a really high dividend yield of over 7%, and they annually pay $2.08 per share that you own of AT&T.
AT&T hasn’t had the best performance in the past, but what we really want to focus on is the future. If you remember earlier this year. AT&T actually bought HBO max, and that service has been growing ever since the beginning of 2020. According to CNN HBO max has added 8.6 million US subscribers just recently.
It’s still a small subscriber base compared to other streaming services like Netflix, but it still should boost AT&T’s business overall. In addition, AT&T is going to come out with 5G technology across their entire wireless network in the future, and that should also boost their business overall.
AT&T expects that its dividend payout ratio is around 60% which is pretty healthy, and it means it’ll continue to pay that dividend going forward. I personally believe that they’ll be continuing to pay their dividend because they’ve been paying that same dividend for over 36 years.
The other great thing about AT&T is that I think it’s slightly undervalued, Its current p/e ratio is about 18.5. the S&P 500 by comparison is over 35, and T-Mobile’s p/e ratio right now is actually way above 44.
It’s a little bit speculative to think that AT&T is going to grow to the moon in the future, but I am pretty bullish on its prospects of adding HBO max, having 5G technology, and having that dividend yield of 7%, which is so important to me for passive income. I really like having a telecom stock in my portfolio, it kind of diversifies my portfolio a little bit.
Whether or not you own AT&T, or perhaps you own Verizon which also offers a dividend, I think having telecom in your portfolio is going to be important for you.
The next stock I want to talk about is Coca-Cola. We all know Coca-Cola, it is our favorite drink brand out there, and I personally love to just chug diet coke kind of just like Taylor Swift. This is one of the safest stocks on the list because barring any random apocalypse, we know that coca-cola will probably be there still again in 50 to 60 70 80 90 100 years.
Coca-Cola’s dividend yield is 3.11%, and you’ll get $1.64 per share of coca-cola that you own annually as a dividend. The reason why Coke is such a great dividend-paying stock is that they’ve been consistently paying a dividend for 58 years. Think about that. It’s not the most exciting stock in the world, well maybe it is if you love Coke. But it’ll continue to pay that dividend for as long as you own it.
The other great thing about coke, people will keep drinking Coke even during a recession because even if the economy is bad, Coke is not really going away. It’s what’s known as a consumer staple stock, you can even probably say the same for coffee. Just because the economy is bad, people still got to drink something right, and coke is definitely just the most addictive thing on earth next to coffee. It makes sense that coke is going to be reliable even during a recession.
Another great thing about coke is that they have $15 billion of cash on hand, which means that they have more room for acquisitions, they can continue to grow, and most importantly pay out that dividend quarterly. Even though Coke’s payout ratio is over 75% which is pretty high, they’re still going to pay out that dividend because that’s what people are expecting of them. They know that their stock is bought a lot by dividend seekers.
The other great thing about Coke right now is that on seeking alpha, which is a popular stock research website that I subscribe to, a lot of the analysts are very bullish on coca-cola and actually have set a price target for them of over $69.82 per share. Coke stock is trading for about $59.07 as of this writing. That’s about another 10 or 15% upside that we could potentially see.
I will say though if you are buying coke stock, you’re probably buying it for the brand recognition, the fact that it’ll probably remain a force in the modern world, and also for that consistent dividend. Any growth on top of that is just an added benefit, so just be mindful of that.
3. Home Depot
The next stock on this list is Home Depot, and it’s actually in the sector of consumer cyclical. Home Depot pays a dividend yield of 2.21%, which is about $6 per share. it’s a lot per share, but since the share price is so high, it’s actually not a lot of dividends for your money.
The main reason to own home depot is for the dividend, but also for the price appreciation. Both home depot and Lowe’s accounted for more than 50% of the hardware retail spending previous, year alone even during the pandemic. I really like home depot because of their dividend yield, but also because they’ve been doing better than Lowe’s during the pandemic as a company.
With home improvement spending is expected to rise about 7.3% this year, and will just climb higher and higher as we go into 2023. The dividend payout ratio for home depot is 55% which means it still leaves a lot of room for reinvestment in its core business, and also it’ll continue to pay out that dividend most likely. As of this year alone, stockholders have seen 12 years of consecutive dividends, and also 10 years of consecutive dividend increases as well.
Again home depot is one of these other great stocks that’s safe, and it’s going to continue to pay you a dividend, and it sits in the consumer cyclical sector of the economy. Whether you choose home depot or maybe you choose to buy low stock, they both are going to be doing pretty well barring any crazy recession like maybe in 2008, but barring any of that it should do just fine.
I said at the beginning of the article, I would reveal my favorite stock for 2022 and beyond. My favorite dividend-paying stock and that is actually going to be right now it’s actually Citigroup
Citigroup owns Citibank, and Citigroup has been paying a dividend for over six years now. Their dividend yield is t3.6%, and they pay annually about $2.04 per share. We all know what Citibank is, but why am I so optimistic about Citibank and Citigroup in the future?
One of the main reasons I really like them right now is they just recently partnered with Google to actually introduce a new type of savings account called the Citiplex account. Google pay is actually going to start offering bank accounts in conjunction with Citibank, using Citibank as their backend source for basically holding these accounts.
knowing Google, they’re going to make it super easy for existing Google pay users to sign up for this citiplex account. Imagine everyone that uses Google pay all of a sudden signs up for a new Citibank account, the number of new customers for Citibank is inherently just going to be quite large as long as it’s integrated with google pay. This makes me really excited for Citibank in the future.
Also, their dividend payout ratio is only 26.91% which is very healthy. They’ll likely continue their dividend and actually increase them in the future with this dividend payout ratio.
The other thing I think about Citigroup is, I think they’re a little bit undervalued based on their book value their current book value per share is $92.03. If we take the price of Citigroup right now which is around $47.58 and divided by the book value which is $92.3, we get a price-to-book ratio of 0.52.
A price-to-book ratio of 0.52 means that the stock price relative to the book value is actually a pretty good deal right now. I’m really optimistic about Citigroup, I love having a financial sector in my dividend portfolio.
The last dividend-paying stock I would love to talk about is,
5. Johnson & Johnson (JNJ)
JNJ is just like coke, they’ve been paying a dividend for over 60 years which actually qualifies them to be called a dividend king. Their dividend yield is 2.8% or 2.81% around there, and that means their annual dividend per share of JNJ that you own is around $4.04. It sits in the health care sector, and it produces a lot of different products under different brand names such as Band-Aid, Tylenol, Johnson’s baby products like Baby powder, Neutrogena, Clean and Clear, and Acuvue.
One of the best reasons to own Johnson and Johnson is that it’s continually investing in new research and development, and it owns the market share for a lot of products that are inelastic demand. Products such as Tylenol, in simpler terms, that means the products are going to be in demand. Whether or not the economy is doing well, their product line is super diversified giving them a wide range of different types of revenue sources.
They’ve also recorded a profit margin of more than 14% in nine of the last 10 years which is pretty amazing. Their dividend payout ratio is 46.54%, but they’re not really going anywhere, so they’re going to continue to pay that dividend because, well, 58 years and counting, I doubt they’ll stop now.
At worst Johnson and Johnson is a stable but boring investment, and at best it is a growth investment, plus, you get that dividend.
With that being said, these are my top five stocks and if you own each one of these stocks in your portfolio, then you’re filling out your sectors quite well. We went over five different stocks in five different sectors in this article, and those sectors would be telecom, consumer cyclical, banking, consumer staples, and health care.
I do want to remind you that investing in stocks always carries some risk, and while dividend stocks are a little bit more stable than others they still carry some inherent risk. I personally like to hold dividend stocks for longer periods of time, so that any day-to-day price changes in the actual stock, I’m not too worried.
If you’re willing to hold them for 5, 10, or 20 years, you should have nothing to worry about as well. But as always, consult the financial advisor if you have more pressing concerns. Peace and Happy Hustling!
2 thoughts on “The TOP 5 Dividend Stocks That Will Pay You While You SLEEP”
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