Dividend Stocks

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>>> Best Dividend Stocks In 2020: Five Strong-Yield Stocks Beating The S&P 500


Investors Business Daily

APARNA NARAYANAN

04/15/2020


https://www.investors.com/research/best-dividend-stocks/


McDonald's (MCD), Lockheed Martin (LMT), Texas Instruments (TXN), Home Depot (HD) and Automatic Data Processing (ADP) count among the best dividend stocks in 2020, yoking solid yields to strong performance. McDonald's and the other top dividend stocks can give a big boost to growth and income portfolios.

IBD screened for stocks offering more than the S&P 500's roughly 2.3% dividend yield, while outperforming the index over the past five years. That's a high bar, which relatively few stocks meet, especially given the stock market volatility and coronavirus correction of late.

Both share-price increases and attractive payouts play a part in successful dividend investing.

Best Dividend Stocks: Top 5

Company/Benchmark Index Symbol Yield (%) 5-Yr Return (%)
S&P 500 2.3 34


McDonald's MCD 2.8 94

Lockheed Martin LMT 2.6 90

Texas Instruments TXN 3.4 88

Home Depot HD 3.0 80

Automatic Data Processing ADP 2.5 71


For investors looking for the best dividend stocks to buy and hold in 2020, several metrics matter.

Dividend stability reflects a long and steady track record of payouts. Dividend growth points to a company in sound financial health, working hard to make its stock more attractive to new and existing income investors.

A company with stable earnings is more likely to pay steady — and perhaps rising — dividends.

The dividend payout ratio (dividend per share divided by earnings per share) can help you assess whether the dividend is sustainable. A ratio greater than 100% may warn of a potential cut.

Not all high-dividend stocks are smart investments. Use the information below as a starting point for your own research.


Best Dividend Stocks: McDonald's

The fast-food icon has raised its dividend every year since it first started paying a dividend in 1976.

Dividend yield: McDonald's stock bears a $5.00 annual dividend, yielding 2.8%.

Five-year return: McDonald's delivered a 94% compound stock market return over the past five years (not including reinvested dividends), vs. 34% for the S&P 500, as tracked by SPDR S&P 500 ETF (SPY).

Dividend growth rate: 8%, measured over the past five years.

Dividend stability factor: 2, on a scale from zero (most stable) to 99 (most volatile), over the past five years.

Dividend payout ratio: 73.7%.

Earnings stability factor: 3, on a scale from zero (most stable) to 99 (least stable), over the past five years. McDonald's grew EPS at a 14% annual rate over this period.


Best Dividend Stocks: Lockheed Martin

The aerospace and defense giant has paid dividends since 1995. It's grown dividends 17 years in a row.

Dividend yield: Lockheed Martin stock offers a $9.60 annual dividend per share, for a 2.6% yield.

Five-year return: 90%.

Dividend growth rate: 13%.

Dividend stability factor: 7.

Dividend payout ratio: 39.8%.

Earnings stability factor: 8. Lockheed Martin grew earnings per share at a 16% annual pace over this period.


Best Dividend Stocks: Texas Instruments

The chipmaker boasts 16 years in a row of growing dividends. It first declared a dividend in April 1962.

Dividend yield: Texas Instruments stock has a $3.60 annual dividend, yielding 3.4%.

Five-year return: 88%.

Dividend growth rate: 23%.

Dividend stability factor: 3.

Dividend payout ratio: 77.9%.

Earnings stability factor: 6. Texas Instruments grew EPS at a 20% annual clip the past five years.


Best Dividend Stocks: Home Depot

The home improvement chain has paid a dividend for more than three decades. It has grown dividends for seven consecutive years.

Dividend yield: Home Depot stock provides a $6.00 annual dividend, for a 3.0% yield.

Five-year return: 80%.

Dividend growth rate: 32%.

Dividend stability factor: 7.

Dividend payout ratio: 60.1%

Earnings stability factor: 3. Home Depot grew EPS at a 19% annual rate the last five years.


Best Dividend Stocks: Automatic Data Processing

The provider of HR and payroll solutions has a dividend history that stretches back to at least 1989.

Dividend yield: ADP stock pays a $3.64 annual dividend per share, yielding 2.5%.

Five-year return: 71%.

Dividend growth rate: 13%.

Dividend stability factor: 4.

Dividend payout ratio: 60.2%.

Earnings stability factor: 3. Automatic Data Processing grew EPS at a 17% annual rate the last five years.

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