- Dividend stocks are a popular safe harbor during volatile economic times.
- Reinvesting dividends during down markets can quickly compound growth.
- Consider dividend-focused ETFs and mutual funds to benefit from diversification and dividend income.
Many economists and investors fear that 2023 will be a turbulent year. With high inflation and a Federal Reserve that seems dedicated to fighting that inflation regardless of whether a soft landing is possible, there’s no telling where the stock market or the economy will go.
In uncertain times, many investors like to invest in dividend stocks for their perceived stability compared to more volatile investments.
What Are Dividend Stocks and Why Are They Appealing?
Dividends are regular payments that companies make to their shareholders. Often, these payments come quarterly or annually and are a way for companies to distribute their profits.
Traditionally, companies that pay dividends (especially steady or growing ones) are larger, more established firms. Newer and growing businesses tend to keep their profits and reinvest them into growth. That’s why you’ll see massive names like Coca-Cola and Procter & Gamble paying dividends while growing tech firms like Uber don’t.
This leads many investors to perceive dividend stocks as more stable and less likely to see sharp price decreases, even when the economy turns sour.
Some investors choose to use the dividend payments they receive to invest in other things or as a source of income for living expenses. Others reinvest their dividends, buying more shares in the dividend-paying company. In this way, they increase their investments and receive larger payments with each dividend, letting their growth compound.
During down markets, dividend reinvestment lets you buy more shares at a lower price, further accelerating the growth of your dividend payments.
Top Dividend Stocks for 2023
If you’re thinking about investing in dividend stocks in 2023, these are some of the top options.
Chevron is a multinational energy company and the second-largest direct descendant of Standard Oil. Chevron deals with nearly every aspect of both oil and natural gas including exploration, production, refining, transportation, and marketing.
Energy did well in 2022 with the S&P 500 Energy Index gaining about 50% during the year. Between inflation, war in Ukraine, and OPEC production cuts, energy producers saw supply shrink, allowing them to charge premiums for their products.
Investors who believe that oil and gas will remain expensive may consider Chevron, which offers a solid dividend yield of 3.25%.
Johnson & Johnson
Johnson & Johnson is a consumer health and medical company that is a member of the Dividend Kings index. That means it has managed to increase its dividend annually for at least 50 years running, which is no small feat given that only 40 other companies can claim the same.
The company saw some volatility over 2022 but ended the year around the same price that it began — a far better performance than the market average. It also has a solid 2.6% dividend yield.
One thing that makes J&J appealing this year is its announced goal to merge or acquire firms in eye care, surgical robots, orthopedics, and cardiovascular products, as well as an increased focus on its pharmaceutical and medical device business.
This focusing of its business plan may help give the company a boost going forward.
Realty Income Corporation
Realty Income Corporation is a real estate investment trust (REIT). It invests in single-tenant commercial properties across the U.S., UK, and Spain.
As a REIT, the company is obligated to pay out 90% of its taxable profits as dividends. That leaves the company with a strong 4.65% dividend yield.
Real estate saw explosive growth in 2020 and 2021 but saw that growth slow or even turn into price drops in 2022 when interest rates spiked as the Fed took on the fight against inflation. That led Realty Income Corp stock to fall from a peak of $75 to a low of $55 in October.
Though its price has recovered somewhat, investors who believe that inflation will ease and rates increase will begin to slow or reverse might see this as a good time to buy in.
Verizon is a major telecommunications company that offers a juicy 6.3% dividend yield. After a rough 2022 that saw its price fall by about 25%, the company could present a strong buying opportunity for interested investors.
Telecommunications is a unique industry in that it’s hard for competitors to enter and an absolute essential for almost everyone. While Verizon likely won’t be a huge winner that sees its stock price skyrocket, it should be a relatively steady pick that offers solid income through dividends.
When people think of dividend stocks, Coca-Cola is one of the first companies that comes to mind. Coke is one of the most popular beverages on the planet and the company has a more than century-long history of success.
Like Johnson & Johnson, Coca-Cola is a dividend king that can boast 61 years of consecutive dividend increases. Today, it has a solid dividend yield of 2.81%.
One thing that may give investors pause is its current P/E ratio, which is high at 27.43. Coca-Cola had a strong 2022, gaining 7% when the wider market fell by 20%. So its current price may not be an especially good deal compared to some others available.
What This Means for Investors
Investors who are considering dividend stocks will want to look at both the dividend yield of the companies they buy into as well as the company’s long-term prospects. You want to make sure that the dividend will be sustainable over the long term and that the price of shares won’t plummet.
For many, the best thing to do is to consider a dividend-focused ETF or mutual fund. These funds let you get the benefits of investing in dividend stocks while easily diversifying your portfolio, limiting the impact of major price drops in specific companies.
Investing through a recession can be difficult, which is why some people turn to dividend stocks and their purported stability.
Another solid option is to work with Q.ai. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing straightforward and strategic.
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