Three top dividend stocks!
Baseball season is underway. Therefore, I thought I would serve you up a dividend stock triple play. Consequently, I want to highlight three top dividend stocks for your consideration.
Three top dividend stocks are one triple play. But, I want to serve you up one more. Each company’s stock represents a great combination of:
- Current dividend income
- Solid dividend growth potential
- Opportunity for capital appreciation in the share price
That is the kind of triple play I really like.
Disclosure and Update: This article includes a referral link. And the article was updated in February, 2019.
TOP DIVIDEND STOCKS FOR ALL INVESTORS
You may be new to dividend stock investing. Or, you may already have a mature dividend stock portfolio. In either case, these three stocks can get you started with your first purchases. Or, be core holdings in a larger portfolio to build up over time. That is the approach I have been taking.
THE BIG PICTURE ON TOP DIVIDEND STOCKS
The broader U.S. stock market remains near record highs. Volatility has returned this year. Inflation and interest rates are on the rise. This environment has created some better values in dividend stocks than we have seen in the recent past. Lower stock prices mean higher dividend yields. And, greater potential for capital share price appreciation over the long run.
Each stock has risks and challenges. But I remain positive on each one.
THREE TOP DIVIDEND STOCKS
Let’s get on with the Dividends Diversify dividend stock triple play. Note they are all long term personal holdings of mine.
JOHNSON & JOHNSON (JNJ)
JNJ aspires to help billions of people live longer, healthier, happier lives through the development and sale of innovative health care products. It is well known, as the world’s population ages, people will need and demand greater health care services and products. The brand recognition, product diversity and complexity of JNJ’s business all provide tremendous competitive advantages.
On the other hand, the company’s massive size may limit its growth potential. In addition, there is always the threat of government intervention and price controls in the health care industry.
Finally, product quality and potential product liability can be a threat to the JNJ brand. Most recently, it is feared the company’s iconic baby powder may contain asbestos. But, the company has faced these types of challenges before and always seems to come out on top.
Dividend metrics:
- Recent dividend yield: 2.6%
- Last dividend increase: 7.1%
- 5 year compound annual dividend growth: 6.4%
- Consecutive years of dividend increases: 56
- Years owned by Tom @ Dividends Diversify: 12
REALTY INCOME (O)
Realty Income is structured as a real estate investment trust (REIT). They make money through ownership of over 5,000 commercial properties that generate rental revenue from long-term net lease agreements. They call themselves “The Monthly Dividend Company”. This refers to their practice of paying shareholders dividends on a monthly basis. The company also has a track record of increasing it’s dividend each calendar quarter. However, the largest increase is normally announced in the first quarter of each year.
Realty Income has an impressive multi year track record. They have a disciplined approach to selecting and buying properties in attractive, strategic locations. By financing the property purchases with mostly equity and a manageable amount of debt, risk is kept in check. And, they grow through the acquisition of new properties. In addition, growth comes from contractual rent increases paid by their tenants.
The company’s stock is not without risk. Rising interest rates provide competition for investor dollars. And, a higher cost of funds to purchase new properties.
In addition, their retail client brick and mortar customer base is susceptible to the competition from Amazon and other internet based retailers. Finally, there is a limited amount of real estate in the U.S. that meets their investment criteria. The limited supply may hinder future growth.
Dividend metrics:
- Recent dividend yield: 3.9%
- Last dividend increase: 3.0%
- 5 year compound annual dividend growth: 4.3%
- Consecutive years of dividend increases: 27
- Years owned by Tom @ Dividends Diversify: 11
DOMINION ENERGY (D)
Dominion is one of the largest producers and transporters of electricity and natural gas in the United States utility sector. They also operate one of the largest natural gas storage systems.
I am a big believer in investing in essential service companies. The steady demand for their products provides a great foundation for consistent dividend payments. Who doesn’t need natural gas and electricity to power their homes and businesses?
Rising interest rates, the uncertainty surrounding the merger with SCANA, tax law changes and cost over runs related to their Atlantic Coast Pipeline project have all led to an overhang on the company’s stock.
Dividend metrics:
- Recent dividend yield: 5.1%
- Last dividend increase: 9.9%
- 5 year compound annual dividend growth: 8.9%
- Consecutive years of dividend increases: 16
- Years owned by Tom @ Dividends Diversify: 16
THREE TOP DIVIDEND STOCKS WRAP UP
Each of these top dividend stocks are in my personal top 10 largest holdings. They are also members of the Dividends Deluxe model portfolio. Overtime, I have made multiple add on purchases to all three of these top dividend paying stocks.
For a dividend stock investor, equal weight positions in each stock will throw off an average dividend yield of 3.9% and projected annual dividend growth of about 6%. This is a powerful combination of current dividend yield and projected dividend growth. And these factors should lead to share price appreciation over the long term from these three top dividend stocks. Now that’s my kind of triple play!
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Well I own O and have added to it multiple times already. JNJ has been on my watchlist forever but never found the right entry point. D is on a watchlist but I’m more looking at ED due to there more green nature.
So 2/3 at this time! 🙂
Let’s call that a double play Mr. Robot! I need to look at ED. For whatever reason, it has never been on my radar. Maybe because I’m pretty heavily weighted in utilities already. Tom
Thanks for the insight. I’m 1 our of 3 and maybe soon to be 2 out of 3. I’m considering O for our IRA contribution this year to max it out. It seems like one of the more stable REITS.
Good call SMM. I own O in my IRA for the tax benefits. I have been hoping to add more below 50, but every time this year I have missed that dip in price. Tom
Love the baseball reference! Longtime JNJ shareholder here. One of my very favorite companies. Thankfully we have not had to use any bandaids yet on our vacation this week! A little behind on the post comments however!
No trouble Mr. DS. Hope you are having a great time! Tom
Nice post, Tom.
All 3 are very good names. All three are on the watchlist…1 is most likely to shortly become our #2 individual holding after T. (Although there is an additional contender.)
O is one I’d love to add but 2 reasons we’re not going to at this moment:
(1) we’re focusing on our taxable account; with O’s income getting taxed at ordinary rates, it makes more sense for us to hold in a tax-advantaged account.
(2) Related to item 1, we already indirectly hold O via the Vanguard Real Estate Index fund in our ROTH.
Thanks for the post. – Mike
Hi Mike, I think JNJ would be an excellent 2nd stock to add to your existing individual holding (T). It’s such a great core holding to get started with. Understand your decision criteria with O. Seems like for you and some of the other contributors, D is a little less popular. Tom
Tom, very good analysis. JNJ is brand that goes to every household. Interest rate definitely is a big factor to the stock market. As a saver, I like to see the rate going up. On the other hand, I don’t want to see the rising rate impact the market too much,
Hi Helen, Yes. You are talking about the sweet spot for interest rates. I’m a saver too, and for the first time in so many years I’m glad to be earning some interest on my savings. Hopefully, we will continue to get a slow steady pace of rate increases that won’t kill off the stock market or damage bond values to a great degree. Tom
I am finally getting ready to buy JNJ:) Exchange rate is a little high but still seems like a good buy.
Great analysis as usual Tom:)
Thanks Caroline. Good luck with your purchase. I dislike too when exchange rates interfere with what I want to do from an investing standpoint. Tom
Hey Tom,
Nice picks! I own an energy-sector fund, plus I now have some REITs (though I mainly focus on residential real estate).
Cheers,
Miguel
Sounds like you are pretty well covered for the real estate and energy sectors Miguel. A couple of essential services you can’t go wrong with as I can’t see them going away anytime soon. Thanks for stopping by and hope you had a good long holiday weekend. Tom
Great picks!
I used to own JNJ but sold it around $60-something dollars. JNJ is my husband’s favourite stock (I’ve probably mentioned that before). Should probably look into adding it back into my portfolio- will check my asset allocation soon 🙂
Hi GYM. You must have been selling when I was buying. I remember after I bought in at $60, it didn’t move up for quite a few months/years. Had to be patient. Of course that’s why I like dividends. Get paid while being patient. Tom
Nice article. All those companies are solid choices. D is about at their 52 week low right now and I have been adding to my position a lot late last year and early this year when the Utility sector was really down. They also are very shareholder minded and have a pretty high dividend growth rate. O is great with the monthly dividends. The compounding goes that much faster. I also want to point out that JNJ is one of the few AAA rated companies left. That has to say something about their stability as it shows over their great history. Thanks for sharing.
You bring up some really good points on each company Daze. I forgot about JNJs AAA rating. There are so few companies left that still have it (MSFT and ADP I think come to mind). I believe this trio hits our mutual investing sweet spot right on the target. I just checked your portfolio and I see you do not own JNJ. Any plans to initiate a position? Tom
Yes, I believe you are correct about those other AAA companies. I would really like to have JNJ in my portfolio but capital is limited. I have been adding to my ABBV position instead of initiating a new one. The choice between the two really just comes down to ABBV shares being lower priced and higher yield. Therefor I can buy more and it will generate greater dividends. Really no reason not to have JNJ. Eventually I plan to own it as well to diversify even more within the healthcare sector since their business models are different. Just takes time and available capital is limited.
Understand on the capital side Daze. It just takes time to accumulate. Agree about the differences between ABBV and JNJ. JNJ is much bigger and more diversified. ABBV is still pretty dependent on their block buster drug Humira. They keep getting additional indications for the drug which is fortunately extending their patent protection. Tom
nice picks tom
im 0-3 womp womp. id love to get into o and jnj though!
soon enough. tfsa first (canadian stocks)
cheers
O Canada! Understand the home country bias Rob.
Tom
Hi Tom, I actually like the sound of all three. I’ll be sure to pass these ideas on to Global Gary for further consideration – no doubt they’ll make his next shortlist of ideas for the next Global Fund purchase 🙂
Cheers,
Frankie
Let me know what Gary thinks Frankie. Maybe he can do one of his DCF analysis on one or more of these companies? Tom
Hi Tom,
Great companies which were I own both Realty at cost basis $51 and Dominion at $73. My target price for JNJ is $110- $115 and the discounted cash flow calculation tells me JNJ might even be worth $130 AND that’s neglecting the intangible assets!
Impressed to hear that you have owned all of them for such a long time. Where can I find your total portfolio?
Hi Stockles,
For confidentiality purposes, I don’t post my total portfolio. Check out the model portfolio drop down menu at the top of the site. I own every stock and fund in those model portfolios. For the most part I only analyze/write about what I own so I am always working from personal experience and learning more about my investments by writing. Tom
I see. No problem. I think I know which companies you are looking for and might own. Really cool to see someone that owned my favourite companies for more than 10 years. Please write more about how you felt when some of your companies had a bad period (and the future outlook was negative). That’s what I find most interesting. See you,
Stockles
Thanks for the writing theme Stockles. I will think about that and come up with some ideas around bad periods for stocks and the markets. I started DGI about 15 years ago. So my long time holdings which are usually my largest holdings I have had for 10-15 years. Tom
JNJ is the only one I own out of the three you mentioned. I’ve had it a couple years now. I only started DGI at the end of 2013 and have seen good progress. You’ve been DGI for awhile it looks like!
I started in 2003 HP. One of the FEW advantages of getting older is more time in the market collecting dividends! Tom
Tom…I’m 3/3. I’ve owned JNJ for a number of years, but only recently added O & D to my portfolio. Your article added a degree of confirmation to my thinking. – Mark
Hi Mark, It has been a good year to add D and O to your holdings. I think they will play out as good long term investments for both of us. Tom