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Robinhood
Robinhood
On Robinhood’s Website
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Fees
- Commission for U.S. stocks and ETFs: $0
- A trading activity fee of $0.000166 per share applies when selling equities
- Regulatory fee of $8.00 per $1,000,000 of principal on equity sells
Pricing
- Standard account: $0
- Robinhood Gold: $6.99/month or $75/year
- Includes higher interest on cash sweep accounts, additional research data and better rates on margin trading
Best Dividend Stocks of 2024
Best Credit Card Stock
Symbol
V
Sector
Consumer Discretionary
Dividend yield
0.73%
Market cap
$520 billion
Why we chose it
Strong consumer spending has propelled the company’s earnings. Visa enjoys profit margins above 50% and has almost doubled in value over the past five years.
Pros
- High dividend growth rate
- People will always use debit and credit cards
- High profit margins
Cons
- Low dividend yield
- Faces competition from companies like Mastercard and American Express
- Shares trade at a higher valuation compared to last year
Best Tech Stock
Symbol
MSFT
Sector
Technology
Dividend yield
0.73%
Market cap
$3.1 trillion
Why we chose it
Microsoft has exposure to several growing industries like artificial intelligence, cloud computing, and gaming. The company is well-diversified, and shares have increased by 276% over the past five years.
Pros
- A leading company in many promising verticals
- Reliable revenue and earnings growth
- Microsoft Cloud is still growing at a fast pace
Cons
- Low yield
- More competition in artificial intelligence
- Shares had a big run-up in 2023
Best Wholesaler Stock
Symbol
COST
Sector
Consumer Discretionary
Dividend yield
0.55%
Market cap
$343 billion
Why we chose it
The wholesaler consistently attracts customers looking for great deals. Although Costco has a low yield, the company occasionally gives out substantial bonus dividends.
Pros
- 129.5 million cardholders as of November 26, 2023
- International presence with 875 warehouses
- Special dividends can get as high as $15/share
Cons
- Low profit margins
- Single-digit year-over-year revenue growth
- Higher valuation than last year
Best Dividend Growth Stock
Symbol
AVGO
Sector
Technology
Dividend yield
1.61%
Market cap
$655 billion
Why we chose it
Broadcom is a leader in the semiconductor industry that benefits from artificial intelligence tailwinds. The company has a great history of raising its dividend by more than 10% each year while offering a respectable yield.
Pros
- Artificial intelligence is increasing demand for Broadcom’s chips
- The recent acquisition of VMware will result in additional revenue and net income
- History of raising the dividend by 10% or more each year
Cons
- Revenue and earnings growth are decelerating
- The AI rally has led to a higher valuation
- Apple is the company’s biggest customer and is working on in-house chips
Best Consumer Goods Stock
Symbol
PG
Sector
Consumer Discretionary
Dividend yield
2.37%
Market cap
$374 billion
Why we chose it
Procter & Gamble has a long history that dates back to 1837. The company offers essential products and has navigated various economic cycles while raising its dividend for 67 consecutive years.
Pros
- Resilience in economic uncertainty
- 133 consecutive years of dividends and 67 consecutive years of dividend increases
- Offers essential products
Cons
- Underperforms the stock market during bullish cycles
- Single-digit year-over-year revenue growth
- Low dividend growth rate
Best Monthly Dividend Stock
Symbol
MAIN
Sector
Finance
Dividend yield
6.34%
Market cap
$3.9 billion
Why we chose it
Main Street Capital offers a high yield and monthly dividend distributions. The investment firm generates cash flow by lending capital to lower middle-market companies.
Pros
- Monthly dividends
- Low valuation
- High yield
Cons
- Dividends are taxed as ordinary income
- Limited upside beyond the dividend yield
- Low dividend growth rate
Best Consumer Discretionary Stock
Symbol
CTAS
Sector
Consumer Discretionary
Dividend yield
0.86%
Market cap
$63.7 billion
Why we chose it
Cintas generates steady revenue from a large client base of more than one million businesses. The company has an impressive dividend growth rate, which includes a 17.4% dividend hike in 2023.
Pros
- High dividend growth rate
- Revenue is spread across more than one million businesses
- Opportunity to gain more market share
Cons
- Higher valuation than last year
- High single-digit revenue growth
- Low yield
Best Bank Stock
Symbol
JPM
Sector
Finance
Dividend yield
2.27%
Market cap
$545 billion
Why we chose it
JP Morgan is the leading big financial firm with a wide range of products. The bank serves many customers and is labeled as “Too Big to Fail.”
Pros
- Regional bank woes bring more customers to financial giants like JP Morgan
- JP Morgan can acquire smaller banks at discounts if they have liquidity issues
- High profit margins
Cons
- Decelerating revenue growth in recent quarters
- Higher valuation than last year
- The company faces competition from large banks
Best Fintech Stock
Symbol
MCO
Sector
Finance
Dividend yield
0.89%
Market cap
$70.7 billion
Why we chose it
Moody’s is a global risk assessment firm that has been raising its dividend by at least 10% per year. The company’s generative AI initiatives can open up new growth opportunities.
Pros
- Revenue growth and profitability are improving
- Diversified business model
- Generative AI tools are strengthening the company’s value proposition
Cons
- Low yield
- Higher valuation than last year
- Competition from other risk assessment firms
Best Construction Stock
Symbol
CAT
Sector
Industrials
Dividend yield
1.54%
Market cap
$168.1 billion
Why we chose it
Caterpillar is a leader in the construction industry. The stock offers a reasonable valuation, decent yield, and a dividend growth rate of close to 10% per year.
Pros
- Expanding profit margins
- Reasonable valuation
- The company has been in business for almost 100 years
Cons
- Supply chain issues and higher interest rates can put pressure on the stock
- Competition from other construction companies
- Revenue growth has slowed down in recent quarters
What Are Dividend Stocks?
Dividend stocks are shares of corporations that distribute cash to shareholders. Many dividend-paying companies distribute quarterly dividends. Companies are not obligated to distribute or raise their dividends. But consistency can demonstrate financial strength and make shareholders happy.
Once a corporation begins to distribute dividends, any pause, cut, or suspension can lead to sharp selloffs. If a corporation cannot keep up with dividend payments, investors will wonder what is wrong with the business. Companies with good dividend payment histories often highlight their streaks of dividend payments and hikes to increase investors’ confidence.
Some investors accumulate these stocks before retirement so they can live on the dividends. But a high yield isn’t the decisive factor that determines a dividend stock’s quality. Some dividend stocks combine consistent payouts with steady gains for long-term investors. Dividend growth stocks can produce high yields with appreciation by the time a young investor reaches retirement age.
Dividend Stocks vs. Dividend Funds
Dividend stocks and dividend funds both offer cash flow if investors hold on to their shares. But a dividend stock only entitles you to cash flow from a single company. Dividend investors can pick individual dividend stocks to increase their cash flow and receive payouts every month.
Dividend funds are a basket of dividend stocks. These funds are automatically diversified into corporations that distribute cash to investors. This approach is more convenient and requires less work. If a company within the fund stops paying dividends, you will still receive cash flow from the other positions.
Investors can choose from mutual funds and exchange-traded funds (ETFs). Mutual funds only trade at the end of the day, while investors can trade ETFs during market hours and after hours. ETFs are more liquid and have their prices fluctuate throughout the day, while a mutual fund’s price only changes once per day.
You can filter funds based on their objectives. Dividend income funds focus on high-yield stocks, while dividend growth funds focus on stocks with high dividend growth rates and the potential for long-term appreciation.
You can see a dividend fund’s holdings and decide if you want exposure to the fund’s holdings. It involves less work to buy a fund rather than buy and analyze dividend stocks. But dividend funds have expense ratios that reduce your rate of return. Some funds have reasonable expense ratios below 0.20%, while others have lofty expense ratios that can get close to 1%.
Picking dividend stocks allows you to avoid the expense ratio. Depending on your objectives and investments, you can also end up with higher returns, a higher yield, or both.
Why Would You Want to Invest in Dividend Stocks?
Investors can choose from many stocks, bonds and other assets. Despite the number of options, dividend investing remains a popular strategy. Here are some reasons to invest in dividend stocks.
- Generate consistent income. Dividend stocks distribute cash to their investors every quarter. It can add an extra income stream so you aren’t only relying on your paycheck.
- Prepare for retirement. Investors can use cash flow producing assets like dividend stocks to replace their income. The extra dividend income combined with Social Security can help you enjoy your retirement years. These stocks minimize the likelihood of having to take on a part-time job or going through all of your savings.
- Grow your portfolio. Dividend stocks can increase your wealth faster than keeping money in the bank. Some dividend stocks have higher yields than the ones you will find with high-yield savings accounts. Dividend stocks give you a chance to increase your purchasing power by achieving total returns above the rate of inflation.
- Dividend stocks are typically less risky. Dividend-paying corporations are profitable and tend to be more mature than growth stocks. Any stock is vulnerable to market corrections and losses, but many of these stocks have better margins of safety. It’s also common to find dividend stocks that have lower betas and don’t fluctuate as much as the broader stock market.
- Compounded payouts. Dividends grow over time. Some corporations double their dividends within five to seven years, which means more cash flow without any additional work. You can reinvest dividend payments back into the stock before retirement to accumulate shares faster.
How to Invest in Dividend Stocks
Dividend stocks offer many perks for long-term investors. If you want to get started and build a dividend portfolio, follow these steps.
Open a Brokerage Account
You’ll have to open an account with a stock broker like Fidelity or Vanguard before you can invest in dividend stocks. These accounts let you buy stocks, bonds, and funds. You’ll have to provide basic details like your name, ID, email, and address to open an account with any brokerage firm. You should compare multiple brokerage firms before choosing the right one for you. Check each account’s features, fees, investing choices, and other details before getting started. You can open brokerage accounts with multiple firms.
Define Your Objectives
Some dividend investors prioritize high yields, while others want dividend growth stocks. Knowing what you want from your portfolio can lead to better stock picks that align with your goals. Investors should consider their time horizons and risk tolerances as they establish goals for their dividend portfolios.
It usually makes more sense for young investors to prioritize dividend growth stocks. These investors still have many years left in their careers and can withstand volatility. Older investors do not have as much time to recover from market downturns and usually focus on less risky dividend stocks with higher yields. Older investors may also be approaching retirement, which makes present cash flow more important than future possibilities.
Find Dividend Stocks That Align With Your Goals
Narrowing down your objectives will make it easier to find dividend stocks that are a good fit for your portfolio. You can focus your capital on assets that cater to your goals instead of spreading yourself too thin. Investors should assess a company’s financials, yield, dividend growth rate, opportunities and valuation before buying its stock.
If you don’t want to pick dividend stocks, you can also buy dividend funds. Investors should review a fund’s holdings and objectives before buying shares. Some investors opt to buy individual dividend stocks and funds instead of choosing one or the other.
Execute Trades in Your Brokerage Account
You’ll have to place a buy order in your brokerage account for each dividend stock or fund that you want to acquire. Most brokerage firms have seamless interfaces that make buying and selling stocks easy. Many dividend investors take a buy-and-hold approach rather than trading their stocks.
Most dividend investors use market orders to accumulate dividend stocks. A market order allows you to buy shares at the current price, and it’s a great way for beginners to get started. You can also use limit orders to buy shares at your desired price once you get more comfortable with the process.
Monitor Your Portfolio
A dividend investing strategy doesn’t end when you buy shares. Investors have to monitor their holdings to ensure catalysts are still intact. Corporations undergo changes that can impact revenue, earnings, and growth opportunities. Investors have to stay on top of these developments or buy a fund that will handle those responsibilities.
You should also monitor if the holdings in your portfolio still align with your long-term goals. It’s normal for investors to periodically rebalance their holdings based on how their position sizes change. Company and macroeconomic news will also impact portfolio adjustments. But it’s usually a bad idea to panic during volatility and sell shares of good companies.
Frequently Asked Questions
Is It Worth Buying Dividend Stocks?
Buying dividend stocks can be a great strategy for long-term investors. Dividend investing caters to patient investors who wait for dividends to compound over several years. Continuously reinvesting into dividend stocks can result in steady cash flow during retirement. This investing model isn’t the best choice for people who sell their shares within a year.
Do You Pay Taxes on Dividends?
You have to pay taxes on dividends, but the amount you pay depends on the type of dividend you receive. Qualified dividends are taxed like long-term capital gains which result in a lower tax bill. But certain dividend-paying corporations like real estate investment trusts (REITs) do not offer qualified dividends. Non-qualified dividends get taxed at the same tax rate as your ordinary income. Luckily, you do not have to pay taxes on dividend stocks in a Roth retirement account.
Is It Better to Reinvest in Dividends or Get Cash?
It’s often better to reinvest your dividends instead of receiving cash. The only exceptions are if you quickly deploy the cash into another dividend stock that you believe offers more value or if you need the cash to cover living expenses. Reinvesting dividends will result in a higher cash distribution in the following quarter since you will have more shares.
