Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
Looking for an investment that offers regular income? High-dividend stocks can be a good choice.
Dividend stocks distribute a portion of the company's earnings to investors on a regular basis. Most American dividend stocks pay investors a set amount each quarter, and the top ones increase their payouts over time, so investors can build an annuity-like cash stream. (Investors can also choose to reinvest dividends. Here's more about dividends and how they work.)
Dividend stocks tend to be less volatile than growth stocks, so they can also help diversify your overall portfolio and reduce risk.
Investing for income: Dividend stocks vs. dividend funds
There are two main ways to invest in dividend stocks: Through mutual funds — such as index-funds or exchange-traded funds — that hold dividend stocks, or by purchasing individual dividend stocks.
Dividend ETFs or index funds offer investors access to a selection of dividend stocks within a single investment — that means with just one transaction, you can own a portfolio of dividend stocks. The fund will then pay out dividends to you on a regular basis, which you can take as income or reinvest. Dividend funds offer the benefit of instant diversification — if one stock held by the fund cuts or suspends its dividend, you can still rely on income from the others.
In general, we recommend investing the bulk of your portfolio in index funds, for the above reasons. But investing in individual dividend stocks directly has benefits. Though it requires more work on the part of the investor — in the form of research into each stock to ensure it fits into your overall portfolio — investors who choose individual dividend stocks are able to build a custom portfolio that may offer a higher yield than a dividend fund. Expenses can also be lower with dividend stocks, as ETFs and index funds charge an annual fee, called an expense ratio, to investors.
» Learn more about dividend ETFs
How to invest in dividend stocks
Building a portfolio of individual dividend stocks takes time and effort, but for many investors it's worth it. Here’s how to buy a dividend stock:
1. Find a dividend-paying stock. You can screen for stocks that pay dividends on many financial sites, as well as on your online broker's website. We've also included a list of high-dividend stocks below.
2. Evaluate the stock. To look under the hood of a high-dividend stock, start by comparing the dividend yields among its peers. If a company’s dividend yield is much higher than that of similar companies, it could be a red flag. At the very least, it’s worth additional research into the company and the safety of the dividend.
Then look at the stock’s payout ratio, which tells you how much of the company’s income is going toward dividends. A payout ratio that is too high — generally above 80%, though it can vary by industry — means the company is putting a large percentage of its income into paying dividends. In some cases dividend payout ratios can top 100%, meaning the company may be going into debt to pay out dividends. (We have a full guide to how to research a stock.)
3. Decide how much stock you want to buy. You need diversification if you’re buying individual stocks, so you’ll need to determine what percent of your portfolio goes into each stock. For example, you’re buying 20 stocks, you could put 5% of your portfolio in each. However, if the stock is riskier, you might want to buy less of it and put more of your money toward safer choices.
The No. 1 consideration in buying a dividend stock is the safety of its dividend. Dividend yields over 4% should be carefully scrutinized; those over 10% tread firmly into risky territory. Among other things, a too-high dividend yield can indicate the payout is unsustainable, or that investors are selling the stock, driving down its share price and increasing the dividend yield as a result.
» Need more detail? Learn how to buy stocks
List of 25 high-dividend stocks
Below is a list of 25 high-dividend stocks, ordered by dividend yield. The dividend shown below is the amount paid per period, not annually.
National Health Investors Inc. (REIT)
The Bank of Nova Scotia
Bank of Montreal
TC Energy Corp.
Principal Financial Group Inc.
The Toronto-Dominion Bank
Seagate Technology Plc.
Omnicom Group Inc.
Royal Bank of Canada
Duke Energy Corp.
National Bankshares Inc.
Sun Life Financial Inc.
Boston Properties Inc. (REIT)
Bank of Hawaii Corp.
M&T Bank Corp.
Black Hills Corp.
DTE Energy Co.
United Parcel Service Inc.
Stock data current as of June 22, 2020.
» Need a brokerage account? Here are some of our top picks for both individual stocks and ETFs.
For more, check out our full list of the best brokers for stock trading.