In this article, we will take a look at some of the best dividend stocks with over 5% yield.
Dividend investors have often debated the balance between high yields and dividend growth. Analysts tend to favor companies with robust dividend growth, advising investors to avoid the yield traps. However, many studies suggest that high dividend yields aren’t necessarily a negative factor.
An example of this is a report from Newton Investment Management, which found that high-yield dividend stocks outperformed the broader market during periods of high inflation between 1940 and 2021. The report also showed that portfolios with high-yield dividend stocks performed better than those with low or no dividends, with high-yield portfolios exceeding low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While the findings are insightful, the report lacks details on the specific market conditions during these periods, offering only a general overview of high-yield stock performance. Analysts have closely studied how dividend stocks fare during market volatility, given the heightened need for consistent income. As a result, they recommend considering high-yield stocks only if these companies also demonstrate a solid track record of dividend growth.
Also read: 10 Best Dividend Stocks Yielding at Least 7% According to Analysts
This is a common challenge for investors, who often believe that companies with strong dividend growth don’t offer high yields. However, this isn’t necessarily the case. Many companies provide above-average dividend yields while also maintaining solid records of dividend growth. In fact, dividend yield plays an important role in sustaining dividend growth. For example, the Dividend Aristocrats Index, which includes companies that have increased their dividends for 25 consecutive years, has managed to maintain a high yield without sacrificing growth. Over the 26 years ending in 2023, the index consistently outperformed its benchmark while maintaining yields between 2% and 2.9%. On average, the index yielded 2.5%, notably higher than the market average of 1.8%, as reported by S&P Dow Jones Indices.
Analysts typically recommend targeting dividend yields between 3% and 6%, as this range tends to offer the best balance of potential for both dividend growth and stock price appreciation. A report from Nuveen highlighted that global companies with moderate dividend yields (ranging from 0% to 3%) generally show stronger earnings growth, profitability, and profit margins compared to those with higher yields or no dividends at all. These factors also help reduce risk, particularly in times of market volatility.
Another study by Wellington Management highlighted the historical outperformance of high-yield stocks. The report analyzed dividend-paying stocks in the broader market index from 1930 to 2019 and grouped them into five categories based on their dividend yields. The top 20% of dividend payers performed the best, followed by the moderate dividend group, both surpassing the broader market in multiple periods. However, the lower dividend groups showed less consistent performance and generally underperformed the index. Given this, we will now take a look at some of the best dividend stocks with over 5% yield.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and picked 12 dividend stocks that have yields above 5%, as of February 5. These companies have strong histories of paying dividends to shareholders. The stocks are ranked in ascending order of hedge funds’ sentiment toward them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
12. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 24
Dividend Yield as of February 5: 7.25%
British American Tobacco p.l.c. (NYSE:BTI) is a London-based company that deals in the manufacturing of cigarettes, tobacco, and various other nicotine products. In the first half of FY24, the company experienced a 6.8% decline in cigarette sales compared to the same period in 2023, following decreases of 5.3% in 2023 and 5.1% in 2022. This ongoing decline had a significant impact on the company’s stock, at one point causing its market value to drop by more than 40%. However, like many in the industry, the company mitigated the effects of lower sales by increasing prices, which helped drive profits and support a stock rebound. Despite the decline in volume, the addictive nature of nicotine continues to sustain a stable customer base.
British American Tobacco p.l.c. (NYSE:BTI) aims to lessen its reliance on traditional combustible tobacco by striving for smokeless alternatives to generate 50% of its revenue by 2035. It holds a strong position in the vapor market through its Vuse brand, which commands a 40.3% value share in key markets, while also expanding its presence in the modern oral segment with Velo. This strategic transition strengthens BTI’s leadership in emerging tobacco alternatives, providing a sustainable growth path as demand for conventional smoking products continues to decline.
British American Tobacco p.l.c. (NYSE:BTI) is one of the best dividend stocks on our list because of its reliable dividend history. Over the next five years, the company expects to generate around £40 billion (approximately $50.57 billion) in free cash flow, excluding dividend payments. In addition, it has maintained a steady pattern of annual dividend increases since 2018. The company currently offers a quarterly dividend of $0.7431 per share and has a dividend yield of 7.25%, as of February 5.
The number of hedge funds tracked by Insider Monkey owning stakes in British American Tobacco p.l.c. (NYSE:BTI) grew to 24 in Q3 2024, from 21 in the previous quarter. These stakes have a total value of more than $1.3 billion. Among these hedge funds, GQG Partners was the company’s leading stakeholder in Q3.
11. Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 25
Dividend Yield as of February 5: 6.48%
Enterprise Products Partners L.P. (NYSE:EPD) is an American midstream natural gas and crude oil pipeline company, headquartered in Texas. The company is transitioning into a growth phase, driven by opportunities in NGL exports and rising power demand fueled by AI. The company currently has $6.9 billion worth of expansion projects in its construction pipeline. In addition, it views AI-driven power demand as one of the strongest indicators of increasing natural gas consumption. With extensive pipeline and storage infrastructure, Enterprise is among the few companies well-equipped to capitalize on this trend. It has highlighted its strong positioning in the Dallas-Fort Worth and San Antonio regions, which are emerging as key data center hubs. the stock has surged by over 25% in the past 12 months.
Enterprise Products Partners L.P. (NYSE:EPD) is grabbing investors’ attention because of its stronger-than-expected earnings in the fourth quarter of 2024. The company reported revenue of $14.2 billion, which surpassed analysts’ estimates by 74.5 million. Its operating income and net income for the quarter came in at $1.9 billion and $1.63 billion, respectively.
In addition to other financials, Enterprise Products Partners L.P. (NYSE:EPD)’s cash generation also remained strong. The company generated over $2.3 billion in operating cash flow during the quarter and its adjusted free cash flow came in at $336 million. This cash position enabled the company to achieve its 27th consecutive annual dividend hike in January 2025. It currently offers a quarterly dividend of $0.535 per share for a dividend yield of 6.48%, as of February 5.
At the end of Q3 2024, 25 hedge funds tracked by Insider Monkey held stakes in Enterprise Products Partners L.P. (NYSE:EPD), up from 23 in the previous quarter. The total value of these stakes is roughly $316 million.
10. Enbridge Inc. (NYSE:ENB)
Number of Hedge Fund Holders: 26
Dividend Yield as of February 5: 6.10%
Enbridge Inc. (NYSE:ENB) is a Canadian multinational pipeline and energy company. This business remains highly dependable, as it generates revenue through fees for the use of its essential infrastructure. Unlike commodity prices, which can be volatile, the company’s financial performance is more closely tied to the demand for oil and natural gas, which typically stays strong even when prices decline. Enbridge’s midstream operations account for approximately 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA).
Enbridge Inc. (NYSE:ENB) has consistently grown its energy infrastructure while placing greater focus on cleaner energy sources, including natural gas and renewables. The rise in industrial activity and increasing electricity demand across the US and Canada are expected to drive further growth in natural gas consumption. Data centers, in particular, are contributing to this surge in energy usage due to the expanding demand for AI applications. To meet their power needs, many of these facilities are turning to cleaner energy alternatives, such as renewables and natural gas. In the past 12 months, the stock has delivered an over 27% return to shareholders.
Enbridge Inc. (NYSE:ENB)’s strong dividend history comes from its stable cash position. In the most recent quarter, the company reported an operating cash flow of $3 billion and its distributable cash flow came in at $2.6 billion. It currently offers a quarterly dividend of C$0.9425 per share, having raised it by 3% in December 2024. Through this increase, the company stretched its dividend growth streak to 30 years, which makes ENB one of the best dividend stocks on our list. The stock supports a dividend yield of 6.10%, as of February 5.
As of the close of Q3 2024, 26 hedge funds tracked by Insider Monkey were bullish on Enbridge Inc. (NYSE:ENB), owning stakes worth over $3.2 billion in total.
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