10 Best Dividend Stocks to Buy for Consistent Growth and Income

In this article we will take a look at the 10 best dividend stocks to buy for consistent growth and income. You can skip our detailed analysis of these dividend stocks’ outlook for 2021 and the merits of dividend investing and go directly to 5 Best Dividend Stocks to Buy for Consistent Growth and Income.

Amid rising financial volatility and job losses brought about by the coronavirus crisis, millions of Americans are feeling the need for a steady, risk-free income. Dividend investing, if executed smartly, is one of the best ways to diversify your income stream. Data compiled over several decades suggest that dividends account for a major chunk of gains in the stock market. For example, in his book The Future for Investors, Jeremy Siegel mentions a key data point to highlight the importance of dividend investing. According to Siegel, roughly 97% of total real accumulation from stocks comes from reinvesting dividends, while just 3% comes from capital gains. Similarly, from 1958 to 2002, highest dividend yield quintile compounded to over $460,000, compared to $130,000 for S&P 500. Goldman Sachs in its famous white paper titled “Why Dividend Growth Matters” mentions that the annual return for all dividend- paying stocks in a specific period was 8.8%, compared to 7.1% for S&P 500 index.

Should You Invest in Dividend Stocks During Volatility and High Inflation?

A report from Advantus said that since 1926 through 2013, dividends accounted for 40% of the S&P 500 index’s returns. The S&P 500 Dividend Aristocrats Index outperformed the broader index by a whopping 182 percent since 1996. The report also mentions important data that shows how crucial dividend stocks are to hedge against inflation and volatility. The report shows that dividend-paying stocks, especially the S&P 500 Dividend Aristocrats, were less volatile that the broader S&P 500. The report quotes data from Ned Davis Research, which suggests that since 1972, stocks with high-growth dividends have outperformed the broader markets in higher inflationary periods.

Should You Buy High-Yield Dividend Stocks?

Does this mean you should blindly buy high-yield dividend stocks? Our answer is a resounding no. For income investing, you should look for a sweet spot between yield and dividend history. Always prefer companies with several consecutive years of dividend increases over companies that have jaw-dropping yields but weak dividend history full of cuts, suspensions and non-payments.

The financial volatility is not just affecting average Americans, it’s also taking a toll on the gains of the “experts.” The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Best Dividend Stocks to buy for income and growth

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While choosing companies for our list of the best dividend stocks to buy for consistent growth and income, we also took into account the future growth catalysts, fundamentals, analyst ratings and income/revenue growth.

Best Dividend Stocks to Consistent Growth and Steady Income

10. Altria Group, Inc. (NYSE: MO)

Number of Hedge Fund Holders: 37

With a 6% dividend yield, 50 years of consistent dividend hikes and a strong growth potential in terms of core business, Altria is one of the best dividend stocks to buy for growth and steady income.  Jefferies recently upgraded MO stock to Buy, citing the company’s presence in the smokeless products sector which is expected to see a lot of growth.  Jefferies increased its price target for the stock to $58.

As of the end of the fourth quarter, 37 hedge funds in Insider Monkey’s database of 887 funds held stakes in Altria Group, compared to 47 funds in the third quarter. Renaissance Technologies is the biggest stakeholder in the company, with 9.2 million shares, worth $377.8 million.

9. Lockheed Martin Corporation (NYSE: LMT)

Number of Hedge Fund Holders: 53

Lockheed Martin is one of the 10 best dividend stocks to buy for consistent growth and income. The defense giant has increased its dividend consistently in the last 18 years. The company is continuing its dominance in the aerospace and military equipment market, winning noteworthy contracts every month. It recently secured various contracts, including a $128.39 million Navy contract modification, a $610.47 million missile defense agency contract and a $284.39 million Army contract modification. The company is now foraying into the space industry. It also plans to acquire space company Aerojet Rocketdyne. The company also won a $4.9 billion contract from the Pentagon for geosynchronous Earth-orbiting space vehicles, which are part of the Overhead Persistent Infrared next-generation space-based missile warning systems.

As of the end of the fourth quarter of 2020, Arrowstreet Capital owns 1.5 million shares of LMT worth $544.7 million. LMT accounts for 0.76% of Arrowstreet’s total portfolio.

In one of their investor letters, RiverPark Advisors, LLC highlighted a few stocks and Lockheed Martin Corp. (NYSE:LMT) is one of them. Here is what the fund said:

“Despite better-than-expected third quarter results, LMT shares were weak for the quarter as defense spending is expected to be flat for the coming year. With a record $150 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year in 4-5 years (3Q’s revenue upside was from the F-35), we believe LMT should grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions (LMT acquired AJRD for $4 billion in late December), debt pay down, a 3% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.”

8. Cisco Systems, Inc. (NASDAQ: CSCO)

Number of Hedge Fund Holders: 60

Cisco has increased its dividend consistently for the last 10 years. The company offers a sweet spot between high growth, long-term gains and steady income. It operates in a high-growth market of network equipment, software and Cloud computing.  The stock has gained 28% over the last 12 months. Goldman Sachs recently upgraded the stock to Buy from Hold, citing a revival in network spending amid the expected reopening of offices worldwide. CSCO ranks 8th in our list of the best dividend stocks.

With a $1.04 billion stake in Cisco Systems, Generation Investment Management owns 23.3 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 60 hedge funds held stakes in CSCO as of the end of the fourth quarter, versus 59 funds in the third quarter.

In their Q3 2020 investor letter, Heartland Advisors highlighted a few stocks and Cisco Systems Inc. (NASDAQ:CSCO) is one of them. Here is what Heartland Advisors said:

“A handful of Information Technology (IT) names have been grabbing most of the investment headlines lately, however, as a whole, the sector has been a mixed bag from a performance standpoint. The Russel 3000® Value Index highlights the dynamic where the group ended the period mostly flat. Our holdings in the space outperformed marginally but also contained a key detractor, Cisco Systems, Inc. (CSCO).

Cisco, the world’s leading computer networking provider, was down for the period after revenues from its Products and Applications business lines weakened as IT departments postponed network spending in response to COVID-19. Sales from its security line were up roughly 14% but strength in the segment wasn’t large enough to offset weakness elsewhere. Impressively, they held operating margin on a 9% revenue decline.

Wall Street’s reaction to the weak results were mixed. Some credited the company for executing well in the face of an unprecedented macro pressure on its clients, while others cited results as an indicator that Cisco is struggling in its transformation from a predominantly hardware-oriented business to one that generates recurring-revenue through software and services.

The challenges faced by Cisco strike us as a temporary setback to what has been ongoing progress in its transition to a model that generates recurring revenue and is less tied to the IT spending cycle.

We believe the positive strides made in previous quarters will resume. With the recent setback, shares are trading at an attractive 12x earnings, while generating a nearly 4% dividend yield and a free cash flow/enterprise yield of nearly 10%.”

7. Johnson & Johnson (NYSE: JNJ)

Number of Hedge Fund Holders: 81

Johnson & Johnson has 58 years of consecutive dividend growth and a strong pipeline of growth catalysts.  The company recently started vaccinating adolescents in a Phase 2a clinical trial for its COVID-19 vaccine candidate. Apart from the vaccine business, JNJ has several other growth catalysts. The company is behind major brands like Band-Aid, Tylenol, Listerine and Neutrogena. Its medical device business, which accounts for about 30% of total sales, is also growing. The company’s pharmaceutical business offers promising treatments for disease related to immunology, oncology, neuroscience, infectious diseases, pulmonary hypertension, and heart.

A total of 81 hedge funds tracked by Insider Monkey were bullish JNJ at the end of the fourth quarter, down from 82 funds a quarter earlier.

6. The Procter & Gamble Company (NYSE: PG)

Number of Hedge Fund Holders: 83

Consumer products giant Procter & Gamble has hiked its dividend consistently in the last 64 years. The company also has several long-term growth catalysts. Recently, Morgan Stanley named the stock as one of its top picks in the personal care sector. The firm said that it likes P&G because it sees the firm’s revenue and earnings growth above peers, near-term visibility and reinvestments. PG ranks 6th in our list of the best dividend stocks to buy for growth and steady income.

Andy Brown’s Cedar Rock Capital is one of the 83 hedge funds tracked by Insider Monkey having stakes in PG at the end of the fourth quarter. The fund owns over 9.9 million shares of the company.

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Disclosure: None. 10 Best Dividend Stocks to Buy for Consistent Growth and Income is originally published on Insider Monkey.