It’s very easy for future retirees to become distracted regarding fixed income opportunities in a market where growth stocks remain the name of the game. After delivering 27% gains in 2021, the S&P 500 is already off to a great start, propelled by some high-growth, non-dividend-paying players, like EV manufacturer Tesla (NASDAQ:TSLA).
But if you're in the market to secure a steady income stream for your golden years, it’s important not to overlook those boring names that quietly but reliably send dividend checks to investors year after year, without missing a beat.
Cash-rich companies and a recovering economy are putting global dividends on track for a record year, according to Janus Henderson Investors. The money manager, in November, raised its estimate for total payouts to $1.46 trillion for 2021.
Companies are planning to spend even more in 2022 on share buybacks and dividends, according to a recent report in the Wall Street Journal. Many companies have bounced back from the blow dealt by the coronavirus pandemic, giving them ample leeway to reward their shareholders, as cited by Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices in the WSJ report.
Income stocks are also gaining momentum as soaring inflation expectations and rising yields make high dividend payers a more compelling investment. To take advantage of this economic backdrop, we've short-listed three top dividend stocks that could be a great addition to any income-generating portfolio over the long run.
1. JPMorgan Chase
Banks are purely a cyclical trade, tied very closely to the direction of the economy. Right now, those factors have become favorable for banking stocks, given the prospects for higher interest rates and robust economic growth.
Among banking shares, for income investors, we like JPMorgan Chase (NYSE:JPM), the largest U.S.-based lender, due to the strength of its balance sheet and the quality of its operations.
In its most recent earnings report, JPM delivered strong results as the economy continues to show growth—despite the dampening effect of COVID variants and supply-chain disruptions.
During the third quarter, the New York-based lender posted a 52% jump in investment-banking fees, boosting its bottom-line profitability.
Combined with the government’s massive infrastructure spending plans and a gradual tapering of monetary stimulus, banks could see demand for credit pick up substantially this year as companies and individuals use up the liquidity accumulated during the pandemic.
Shares of JPM closed yesterday at $167.83, providing an annual dividend yield of 2.38%. That comes out to a current payout of $1 a share quarterly dividend, which has grown about 18% per year during the past five years.
2. Broadcom
If you plan to combine growth with a steadily increasing dividend stream, it's smart to target mature companies in the technology space. The semiconductor giant Broadcom (NASDAQ:AVGO) meets that criteria perfectly. It's a standout due to its generous payout policy.
During the past decade, Broadcom's dividend has grown massively, from just under $0.10 a share in 2011 to current payments of $4.10 quarterly. At $670.92 as of Tuesday's close, the stock is yielding 2.54%.
This impressive growth has been backed by a smart acquisition strategy and exploding demand for connected devices, like smartphones. Broadcom is a major provider of semiconductors that filter radio signals and provide Wi-Fi connections in smartphones, including the iPhone. It also dominates the market for switches, which are machines that direct traffic between data center computer servers.
With the growing use of cloud computing and introduction of 5G-enabled phones, Broadcom is well-positioned to continue with its growth trajectory and provide increasing income to its long-term investors.
According to Goldman Sachs, Broadcom is best-positioned during tough times for the chip industry which is unable to meet soaring demand. Its note on the company said:
“Management’s intense focus on differentiation and leadership shows in the company’s gross margin. Not only does Broadcom generate the highest gross margins within our coverage universe, but it has also done so over the years with little variability ... despite the cyclicality that is inherent to the semiconductor industry.”
3. Exxon Mobil
As energy demand continues to recover from the collapse in 2020, some of the biggest oil stocks have regained their momentum.
Trading around $66 a share on Tuesday, Exxon Mobil (NYSE:XOM) has soared, rising almost 60% during the past one year.
While the best time to buy quality oil stocks is certainly behind us in the current cycle, some of these names are still a bargain for yield-hungry investors. Exxon’s 5.79% annual dividend yield, for example, is about three times bigger than the S&P 500’s average yield of 2%.
After a strong recovery in energy prices since the pandemic-triggered slump in 2020, these companies are also in a much better position to cover their payouts from their own cash generation rather than borrowing from the market.
During its third quarter, the Irving, Texas-based company generated $12 billion in cash from operations, sufficient to cover XOM’s quarterly dividend of $0.88 a share.
Among the oil majors, Exxon is the favorite pick of analysts at Goldman Sachs, who see the stock’s dividend yield, which is the highest among the US energy majors, as “mispriced relative to the sustainable free cash flow.”