In order to capture the handsome returns attainable through the stock market, investors must be willing to assume a certain amount of risk and volatility. As the popular saying goes: “You’ve got to risk it for the biscuit.”
Although it is impossible to completely eliminate the risk involved when trading stocks, investors use a multitude of techniques to make their portfolios more biscuit and less risk-it. These include diversifying over a large array of asset classes and avoiding companies with shaky leadership and underlying financials.
However, one of the most effective ways to reduce risk is by investing in dividend stocks. A dividend is a distribution of a company’s profits and cash surpluses back to its shareholders, sent out on a quarterly basis.
This ensures that regardless of the market’s performance, shareholders will receive guaranteed cash inflows for their position in a company, which is usually reinvested back into the company to increase ownership stake.
If day trading is your game, and you feel like you will never hold a stock long enough to see a dividend payment, take solace: dividend announcements usually increase optimism in a stock, leading to short-term increases in share price that can be captured by astute short-term traders.
While there are a multitude of stocks that pay dividends, the following sectors are a great place to start looking if you want to get a healthy dividend check every quarter.
Read also: 5 costs you can cut to save money
Real Estate Investment Trusts (REITs)
When speaking on dividends, any conversation would be incomplete without mentioning REITs. Formed in 1960 as a way for everyday consumers to invest in commercial real estate without having to foot the entire bill for a building or development, REITs are required to pay out at least 90% of their taxable earnings as dividends.
While growth in share price may be slow for REITs, due to their sending profits back to shareholders and not investing in further development, shareholders who want a steady income stream are unlikely to complain. Some examples of REITs that pay high dividends include:
- Crown Castle (CCI) – this company engages in the provision of cell phone towers and fiber optics to wireless carriers. Its current dividend of $1.20 per share means that if you owned 100 shares of CCI, you would be getting a $120 disbursement four times a year for a yearly passive income of $480
- Innovative Industrial Properties (IIPR) – this company engages in the ownership, acquisition, and management of industrial properties for the growth of cannabis. With a dividend of $1.12 per share, it is also attractive as being in an industry with the potential for explosive growth
- Independence Realty Trust (IRT) – while this REIT only pays out a dividend of $.12 per share, when compared to its price of around $11 per share, investors are getting a high-percentage payout while being able to load up on a large number of shares
Established, Large Cap Companies
High-growth companies, such as Tesla (TSLA), are fun to own because there is seemingly no end to the new price records they hit on a regular basis. However, these companies rarely offer a dividend, as most of their profits are immediately reinvested back into new product development.
Therefore, it is likely that more mature, stable companies will offer a dividend, as those firms with market caps over $20 billion that have been around for a long time are likely to have no debt to pay off while being less likely to be spending on innovation, giving them surpluses to give back to shareholders.
Some examples of stable, large-cap companies that reward shareholders with a tidy dividend include:
- Microsoft (MSFT) – Microsoft is one of the few companies that can boast of having a market cap over $1.5 trillion, yet still be considered a strong bet for significant future growth. With a dividend of $.51 per share and a fast track to being one of the world’s first carbon-negative companies, MSFT is a stock everyone wants in their portfolio
- Costco (COST) – Leaders in consumer staples are always a strong bet to reward shareholders with a dividend, and Costco does so at a rate of $.70 per share. With a market cap of $145 billion, you can feel confident about riding the Costco gravy train into the indefinite future
- AT&T (T) – Despite being one of the more “boring” tech stocks in a market dominated by the segment, there are few in the arena that can match AT&T in terms of dividend payout. At $.51 per share, AT&T provides a solid quarterly cash flow to shareholders–especially when compared to its share price of around $30
Energy and Utilities
Despite the changing climate to more green options, traditional energy and utility stocks remain strong plays for dividends. Energy and utility companies are usually good at doing one thing really well, so despite more innovative options potentially undermining share price, traditional companies typically have little to do with their excess cash than give it back to their shareholders.
Some strong dividend stocks in this field are:
- MPLX (MPLX) – MPLX LP deals in midstream energy infrastructure and distribution fuel services. It offers an eye-popping $.68 per share dividend against a sub-$20 share price. This means that owning a share of MPLX theoretically pays for itself in terms of cash dividends if held for about seven years
- American States Water (AWR) – American States Water is a holding company for the purchase, production, distribution, and sale of water. It offers a strong $1.22 per share dividend against a sub-$80 per share price tag
- Dominion Energy (D) – Dominion Energy provides electricity and natural gas to homes, businesses, and wholesale customers. With a quarterly dividend of $.94 per share, it is a strong option for investors looking for consistent cash flow coming into their portfolios
