Dividend investing has many detractors. Some say that dividend stocks are a zero-sum game since the company pays dividends using its money, meaning its overall value is impacted to appease shareholders. Another very similar argument is that the value of the stock decreases proportionately to the dividend on the payout date. Last and most often used of all, dividend stocks don’t experience much growth, leading to flat capital appreciation.
Now, while I can provide counter-arguments against the points laid out against dividend stocks, I think it’s far better if I show you that you can find companies that have demonstrated above-average dividend income and capital appreciation.
How I Came Up With The Following Stocks
To get my list, I hopped on to Barchart’s Stock Screener page and used the following filters:
- Dividend Payout Ratio: 50% or less. The payout ratio tells us how much the company spends after-tax earnings to pay dividends. The generally accepted “healthy” range is 35% to 55%, and lower is better. That’s why I set it to 50% or less.
- 5-Year Percent Change: 70% or more. The S&P’s average return is around 10-11%, so that’s 50% to 55% in five years. However, since I like to drive my point home, I set the screener to look for stocks that have returned 70% in the last five years or 14% annually.
- Number of Analysts: 8 or more. The more, the merrier, especially when it comes to expert opinion.
- Current Analyst Rating: 4.5 to 5 (Strong Buy). I want the cream of the crop here - I want the highest scores only.
- 5-Year Dividend Growth: 100% or more. Dividend growth measures how much the company’s payouts have increased over the last five years. The higher the value, the higher the dividends have increased in the last half-decade, and the better the chances of further increases.
- Annual Dividend Yield: 3% or more.
And with these filters set, I ran the search and came up with exactly three companies.
I arranged the list from highest to lowest yields, and we’ll start with number one:
Diamondback Energy (FANG)
5-Year Return: 137.84%
5-Year Dividend Growth: 2,002.63%
Diamondback Energy, Inc., is a U.S.-based independent oil and natural gas company that focuses primarily on exploring, developing, and producing unconventional oil and natural gas reserves in the Permian Basin.
Diamondback is considered one of the—if not the only remaining—pure Permian Basin plays, as a significant portion of its operations, assets, and identity are tied to the location. This gives the company access to the Permian Basin’s high resource density, well-established infrastructure, and low cost of production.
The company pays a base and variable dividend quarterly, which reflects its performance. Its latest dividend consists of a 90-cent base and a $1.44 variable dividend, amounting to $2.34. On an annual basis, this reflects a $9.36 dividend, translating to a 4.80% yield.
Source: FANG Dividends via Barchart.com
Meanwhile, the stock has a 4.64 average score from 24 analysts, making it a well-covered strong buy contender.
Nexstar Media Group (NXST)
5-Year Return: 74.83%
5-Year Dividend Growth: 260.00%
Nexstar Media Group, Inc. is the largest local television station operator in the United States and a leading diversified media company. Nexstar owns, operates, and provides services to numerous television stations nationwide and has digital media businesses. Nexstar has over 200 owned and affiliated partner stations across 116 U.S. markets, and its content reaches more than 220 million people daily, or roughly 70% of U.S. households.
Source: NXST Dividends via Barchart.com
The company’s latest quarterly cash dividend is $1.69, reflecting a 3.98% annual yield. In July 2024, Nexstar also initiated a $1.5 billion stock repurchase program to help prop up it's stock. This significantly improves shareholder value, making it more attractive for short—and long-term investors. Meanwhile, it has a 47.23% dividend payout ratio and a strong buy recommendation based on a 4.75 average score.
Cenovus Energy (CVE)
5-Year Return: 107.80%
5-Year Dividend Growth: 105.26%
It’s the first time I've seen Cenovus Energy on one of my lists, and I was pleasantly surprised by the discovery. Cenovous is a Canadian integrated oil and natural gas company headquartered in Calgary, Alberta. It operates the complete energy value chain, meaning upstream (exploration and production) and downstream (refining and marketing), with a strong focus on sustainable energy production.
So far, analysts like the company. CVE stock has a strong buy recommendation. Based on a 4.79 average score from 14 analysts. Its latest quarterly dividend is 18 cents CAD (roughly $0.1330 USD), which reflects a 2.98% forward yield.
Final Thoughts
So, there you have it: proof when proof is needed that above-average dividend income and capital appreciation can come from the same company. You just need to know which ones. This handy guide and Barchart’s features can help you in your following analyses. Just remember that while the market offers unlimited potential, it also carries significant risk. So, watch your investments closely, and don’t neglect your due diligence.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
