In this article, we take a look at 13 best annual dividend stocks to buy now.
Annual dividend stocks are stocks that pay a dividend yearly.
In the United States, many dividend stocks actually pay a dividend 4 times a year, or quarterly.
The best dividend stocks have substantial free cash flow to more than cover their annual dividend payments. They should have substantial competitive advantages and also fairly attractive growth potential in the future.
For those of you interested, check out 10 High Growth Dividend Paying Stocks to Buy.
When times are good, management of profitable companies will often increase their dividends. When times are difficult, however, many companies might cut or suspend their dividends.
The best dividend stocks often have also increased their annual dividends through multiple market cycles including tough economic recessions.
Many dividend stocks have faced fairly substantial headwinds in 2022 given the high inflation which has led to higher interest rates. With higher interest rates, U.S. Treasury yield have increased considerably. As of March 6, the U.S. 10 year Treasury bond has increased 224 basis points in one year to a yield of 3.98%.
Given the U.S. 10 year Treasury bond’s yield, Treasury bonds have higher yields than many blue chip dividend stocks even though Treasury bonds have substantially lower risk. As a result, considerable capital has flowed out of dividend stocks and the broader market and into the U.S. Treasuries. The capital outflow has led to some lower valuations for many blue chip dividend stocks as a result.
Nevertheless, there is still hope that the Federal Reserve will win its fight against inflation in the next few years. If that happens, interest rates could decrease, and capital could flow back into blue chip dividend stocks, giving them potentially a better valuation.
For those of you interested, check out 10 Best Blue Chip Stocks With Strong Balance Sheets.
When it comes to dividend stocks, it could be a good idea to own blue chips since companies with fewer competitive advantages might not be able to sustain their dividends as well over the long term. Given the uncertainty in the market, it could be a good idea for long term investors to own a well diversified portfolio of leading stocks across many different sectors.
Photo by Luke Peters on Unsplash
Methodology
For our list of 13 Best Annual Dividend Stocks to Buy Now, we picked 13 stocks that paid dividends at least once a year that are regarded by many investors as blue chips.
We then ranked the stocks based on the number of hedge funds in our database of 943 funds that owned shares of the same stock at the end of Q4.
13 Best Annual Dividend Stocks to Buy Now
13. SAP SE (NYSE:SAP)
Number of Hedge Fund Holders: 18
Dividend Yield as of 3/6: 1.73%
SAP SE (NYSE:SAP) is one of the largest German enterprise software companies in the world that has an annual dividend of $2.08 per share or a dividend yield of 1.73% as of 3/6. For full year 2022, one bright spot for SAP SE was its cloud business, whose sales rose 24% year over year. With a bigger cloud business, there is potential for more recurring revenue and more earnings, which could help the dividend. In terms of its dividend, SAP SE has said, “our dividend policy is to pay out at least 40% of Non-IFRS profit after tax to our shareholders.”
12. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 55
Dividend Yield as of 3/6: 3.15%
Morgan Stanley (NYSE:MS) is one of the leading investment banks on Wall Street that had full year net revenues of $53.7 billion and net income of $11 billion for 2022. In terms of its dividend, Morgan Stanley pays a quarterly dividend of $0.775 per share, which gives the stock a 3.15% dividend yield as of 3/6. Given the annual dividend costs around $5.1 billion, the bank has more than enough net income to cover the dividend and to potentially even raise its dividend in the future if earnings per share increases. In 2022, Morgan Stanley also bought back $10 billion worth of shares.
11. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 57
Dividend Yield as of 3/6: 2.25%
McDonald’s Corporation is a leading restaurant chain with pretty high profit margins. According to FINVIZ.com, in fact, the company has a profit margin of 26.6%, which is higher than many other restaurant chains. One reason for the high margins is that around 93% Of McDonald’s Corporation’s restaurants worldwide are owned and operated by independent local business owners. With the substantial franchising, McDonald’s Corporation has a high margin and fairly steady income stream which makes it a fairly attractive dividend stock as a result. Given its relatively steady income, the company has increased its annual dividend for 46 consecutive years.
For those of you interested, check out 11 High Growth High Margin Stocks to Buy.
10. ASML Holding N.V. (NASDAQ:ASML)
Number of Hedge Fund Holders: 59
Dividend Yield as of 3/6: 1.60%
ASML Holding N.V. (NASDAQ:ASML) makes semiconductor equipment that is essential for producing the latest cutting edge semiconductors which are considered essential for many of today’s modern technologies such as computers. Given it has a R&D advantage of at least several years over its competitors, ASML Holding N.V. is considered an essential company as a result. Given its importance and its growth potential, ASML Holding N.V. is an attractive dividend stock that has an annual dividend of $9.95 per share that could likely increase in the future.
Of the 943 hedge funds in our database, 59 owned shares of ASML Holding N.V. at the end of Q4, ranking the stock #10 on our list of 13 Best Annual Dividend Stocks to Buy Now.
9. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 62
Dividend Yield as of 3/6: 2.80%
Home improvement retailer The Home Depot, Inc. (NYSE:HD) has raised its annual dividend for 14 straight years given earnings growth as a result of the secular growth of the home improvement retail market. Although demand has softened given a weaker housing market, analysts nevertheless see EPS growth in the future for the company. In terms of estimates, analysts expect The Home Depot, Inc. to earn $15.85 per share for FY2024, $16.85 per share for FY2025, and $17.65 per share for FY2026. As of 3/6, The Home Depot, Inc. has a dividend yield of 2.8%.
8. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 66
Dividend Yield as of 3/6: 1.62%
Leading retailer Walmart Inc. (NYSE:WMT) is one of the select companies in the S&P 500 that has raised its annual dividend for over 50 years. For Walmart Inc., the company has raised its annual dividend for 51 straight years, meaning the company has been able to increase its dividend return through the pandemic and even the Great Recession. One reason for the consistent dividend raises is that Walmart Inc. has huge scale that allows it to sell many products at a cheaper price than competitors and still be profitable. As of March 6, Walmart Inc. has a dividend yield of 1.62%.
7. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 71
Dividend Yield as of 3/6: 1.13%
NIKE, Inc. (NYSE:NKE) ranks #7 on our list of 13 Best Annual Dividend Stocks to Buy Now given 71 hedge funds in our database owned shares of the leading apparel maker at the end of Q4. In terms of its dividend, NIKE, Inc. has raised its annual dividend for 21 straight years given the company’s long term earnings growth. For fiscal 2023 second quarter, which for the company is the quarter ended November 30, 2022, the company’s sales rose 17% year over year to $13 .3 billion. Diluted EPS was $0.85, up 2% year over year. By comparison, NIKE, Inc. has a quarterly dividend of $0.34 per share.
6. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 74
Dividend Yield as of 3/6: 2.60%
The Procter & Gamble Company is a leading consumer staple whose demand has weakened given higher inflation. Nevertheless, The Procter & Gamble Company will likely continue its streak of 67 straight years of annual dividend increases in FY2023 if the company achieves its guidance. In terms of its outlook, The Procter & Gamble Company said in January 2023 that it ‘maintained its outlook for fiscal 2023 diluted net earnings per share growth in the range of in-line to up four percent versus fiscal 2022 EPS of $5.81.’ The company currently has an annual dividend of $3.65 per share.
5. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 84
Dividend Yield as of 3/6: 2.91%
Johnson & Johnson is a leading healthcare giant with substantial financial resources given its scale and profitability. In 2022, for instance, Johnson & Johnson deployed over $17 billion in M&A including the acquisition of Abiomed and the company also raised its annual dividend for the 60th straight year. In combination with its dividend, Johnson & Johnson returned more than $14 billion to shareholders. In terms of the future for its dividend, Johnson & Johnson said, “We know investors value our dividend, and as a part of the consumer health separation, we intend, at a minimum, to maintain that dividend.”
4. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 100
Dividend Yield as of 3/6: 2.80%
JPMorgan Chase & Co. ranks #4 on our list of 13 Best Annual Dividend Stocks to Buy Now given 100 hedge funds in our database owned shares of the bank at the end of Q4. Although JPMorgan Chase & Co. could face headwinds if the economy slows, the bank has a strong enough balance sheet that management believes could allow it to potentially begin repurchasing shares this year. With the share repurchases, JPMorgan Chase & Co.’s annual dividend could also increase if the economy doesn’t slow too much.
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 100
Dividend Yield as of 3/6: 2.58%
Bank of America Corporation (NYSE:BAC) is one of the big four American banks in the United States with an annual dividend of $0.88 per share and a dividend yield of 2.58% as of March 6. In terms of its dividend, Bank of America Corporation is committed to it as they said, “The strategy hasn’t changed. We’ve got, number one, support our clients. We’re going to, number two, invest in our growth. Then we plan to just sustain and grow our dividend.” Like JPMorgan Chase & Co., Bank of America Corporation earnings could decline if there is an economic slowdown or recession but nevertheless has long term growth potential.
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 135
Dividend Yield as of 3/6: 0.60%
Apple Inc. (NASDAQ:AAPL) is a tech giant that makes high end smartphones and computers that has raised its annual dividend for 11 straight years. For the December quarter, Apple Inc.’s business continued to generate very strong cash flow and the company returned more than $25 billion to shareholders, including $3.8 billion in dividends and $19 billion through open market repurchases. Apple Inc. ended the December quarter with $165 billion in cash and marketable securities.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Dividend Yield as of 3/6: 1.06%
Microsoft Corporation (NASDAQ:MSFT) ranks #1 on our list of 13 Best Annual Dividend Stocks to Buy Now given 259 hedge funds in our database owned shares of the software giant at the end of Q4. The 259 hedge funds holding shares also make Microsoft Corporation the most popular stock among hedge funds in our database as well. In addition to having strong growth potential in AI, Microsoft Corporation is also a pretty decent dividend stock given it has raised its annual dividend for 20 straight years. For those of you interested, check out 10 High Growth AI Stocks to Buy.
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This article is originally published at Insider Monkey.
