Now may be a good time to consider dividend stocks, which can offer stability amid volatile stock and bond markets, with a steady stream of income and potential for capital gains.
The S&P 500 High Dividend Index, which includes 80 stocks with high yields, has returned 3.6% in 2022 to date. That’s better than the negative 16.8% return posted by the S&P 500 as a whole.
The S&P 500 Dividend Aristocrats index, which includes companies that have raised their dividends for at least 25 straight years, has a negative return of 9.1% year to date.
This Dividend ETF Is Up 12% This Year
The top five members of the High Dividend Index, ranked by their weighting in the index, starting from the top, are energy companies:
· Oil refiner Valero Energy (VLO). It has a dividend yield of 3.2%.
· Oil refiner Marathon Petroleum (MPC). It has a yield of 2.4%.
· Oil producer Chevron (CVX). It has a yield of 3.4%.
· Utility Sempra Energy (SRE). It has a yield of 2.9%.
· Energy infrastructure company Williams (WMB). It has a yield of 4.8%.
Other big-name stocks with high yields include the telecom giants AT&T (T), 5.4%, and Verizon (VZ), 5.2%, and tobacco major Altria (MO), 7.1%.
As for the Dividend Aristocrats index, its top five holdings, ranked by their weighting in the index, starting from the top, consist of:
· Steelmaker Nucor (NUE). It has a dividend yield of 1.7%.
· Agricultural-products processor Archer-Daniels-Midland (ADM). It has a yield of 1.9%.
· Chevron is in the top five of both indices. It has a yield of 3.4%.
· Oil producer Exxon Mobil, (XOM). It has a yield of 3.8%.
· Health-care-services provider Cardinal Health (CAH). It has a yield of 3.6%.
Also, here are two of Morningstar’s top-rated dividend-stock mutual funds that you might consider.
Vanguard Dividend Growth Fund VDIGX
The fund focuses on high-quality companies that have both the ability and commitment to grow their dividends over time. Morningstar gives the fund its top rating of gold.
Fund manager Donald Kilbride’s strategy in building its 40- to 50-stock portfolio “blends disciplined, benchmark-agnostic focus on firms likely to continue increasing their dividends at a double-digit rate with a willingness to learn and adapt,” Morningstar analyst Alec Lucas wrote in a commentary.
T. Rowe Price Equity Income Fund PRFDX
The fund seeks a high level of dividend income and long-term capital growth. Morningstar gives it the firm’s second highest rating of silver. The fund has a “strong analyst team and well-executed process,” Morningstar analyst Adam Sabban wrote in a commentary.
“While dividend-paying stocks feature prominently in this strategy, income is but one of a few considerations. Manager John Linehan won’t reach for yields while compromising on fundamentals, though he’ll sometimes lower his quality criteria for a stock trading at a large perceived discount.”
The portfolio is built around the Russell 1000 Value index, but “leaves enough room for differentiation through moderate sector over- or under-weightings and single-stock bets,” Sabban said.
The author of this story owns shares of Exxon Mobil, Verizon and Vanguard Dividend Growth Fund.
