In this article, we will take a look at some of the best stocks for a dividend stock portfolio.
There is a common misconception that dividend stocks are primarily suited for those nearing retirement. However, this is not the case. Both experienced and retail investors have long favored dividend stocks, as they provide a steady stream of income. Unlike growth companies, dividend-paying firms distribute a portion of their profits to shareholders. While dividend investing may seem simple, successfully implementing this strategy requires thorough research and careful analysis.
Financial advisor Michael Dinich discussed dividend investing in an interview with Business Insider. Here are some comments from the analyst:
“While low-cost index funds provide easily diversified exposure to the market with minimal effort, selecting individual dividend payers demands continued research to find suitable candidates.”
He further highlighted that dividend stocks serve as a reliable income source, which can either be reinvested to compound returns or used as cash for various financial needs. This makes them particularly valuable for younger investors, offering both market exposure and a consistent income stream. His insights align with the broader impact of dividend income on market returns over extended periods. According to a report by S&P Dow Jones Indices, from 1926 to July 2023, dividends contributed 32% of the monthly total return of the broader market, with the remainder driven by capital appreciation.
READ ALSO: Top 10 Dividend Stocks To Buy According To Hedge Funds
A study by WisdomTree emphasized the strong income potential of dividend-paying stocks. The report suggested that focusing on dividends can significantly boost investors’ dividend earnings and improve the trailing 12-month dividend yield. This approach is especially beneficial during periods of low yields and market uncertainty. Investing in dividend-weighted indexes may provide a reliable strategy for generating income in such challenging conditions.
For the past two years, dividend stocks have underperformed the broader market, largely due to increased investments in the AI sector. However, analysts remain optimistic about dividend growth, particularly as more technology companies introduce dividend policies to attract investors. According to a report by S&P Global, total US dividends are expected to rise by 7% in 2025, reaching $784 billion. In recent years, and continuing into the current fiscal year, key contributions to dividend growth have come from sectors such as energy, pharmaceuticals, financial services, banking, and REITs. The report also highlighted that the media and entertainment sector experienced a significant surge in total dividend payouts in 2024, climbing by 140%, largely driven by the dividend policies of two major companies. This upward trend is expected to continue in 2025, with the sector projected to see an 18.6% increase in dividend growth, leading the market once again.
While regular dividends are projected to increase, variable dividends are set to decline by approximately 50%, with estimates placing the total for 2025 at $13.5 billion. Across all US sectors, variable dividends are expected to shrink, as persistent inflation and higher interest rates have limited the additional cash flow available for distribution. In view of this, we will take a look at some of the best stocks to buy for a dividend stock portfolio.
Our Methodology
For this list, we first used a stock screener to pick companies that have raised their dividends for at least 10 consecutive years or more. From that list, we narrowed down our options to companies with dividend yields of around 2%, as of February 25, demonstrating robust financial standings and consistent cash flow, which are indicative of their ability to sustain reliable dividends for passive income. From these companies we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of over 1,000 hedge funds and their holdings as of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 65
Lockheed Martin Corporation (NYSE:LMT) is an American defense and aerospace manufacturing company that specializes in advanced technology systems, services, and products. Since the beginning of 2025, the stock has declined by more than 7% following a mixed earnings report. Investor concerns grew further as LMT lowered its profit forecast for 2025, now expecting earnings per share between $27.00 and $27.30, falling short of the anticipated $27.92. A key factor behind the weaker outlook was a delay in the deployment of a technology upgrade for the F-35 fighter jet.
In the fourth quarter of 2024, Lockheed Martin Corporation (NYSE:LMT) reported revenue of $18.6 billion, marking a 1.3% decline compared to the same period last year. Despite this, in 2024, it invested over $3 billion in strengthening national security through research and development, along with capital expenditures designed to support its customers’ objectives. These initiatives aimed to foster innovation and modernize operations using advanced digital and manufacturing technologies. The company’s solid and consistent performance also enabled it to return more than 100% of its free cash flow to shareholders throughout the year.
Lockheed Martin Corporation (NYSE:LMT) showcased solid cash generation in fiscal year 2024. The company reported $7 billion in operating cash flow, while its free cash flow for the year reached $5.3 billion. In addition, it distributed $6.8 billion to shareholders through dividends and stock buybacks. It currently offers a quarterly dividend of $3.30 per share and has a dividend yield of 2.94%, as of February 25. It is one of the best stocks for a dividend stock portfolio as the company has been growing its payouts for 22 consecutive years.
9. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 66
Texas Instruments Incorporated (NASDAQ:TXN) is a Texas-based semiconductor company that specializes in analog and embedded chips. While its analog and embedded chips may not attract as much attention as those from other major semiconductor companies, they play a vital role in the industry. These chips convert analog signals into digital ones, a fundamental technology that enables advancements such as artificial intelligence (AI). The stock has surged by nearly 22% in the past 12 months.
Texas Instruments Incorporated (NASDAQ:TXN) manufactures over 80,000 products, catering to more than 100,000 customers. Although its primary focus is on the industrial and automotive sectors, its chips are also widely used in enterprise systems, communications equipment, and personal electronics.
Texas Instruments Incorporated (NASDAQ:TXN) has carved out a distinctive position in the industry. Under the leadership of former CEO Rich Templeton, the company became a powerhouse in dividend growth, increasing its payout at a compound annual rate of 24% from 2004 to 2023. In fiscal year 2024, the company maintained a strong cash position. Its operating cash flow over the past twelve months totaled $6.3 billion, while free cash flow for the same period reached $1.5 billion. In addition, the company returned $4.8 billion to shareholders through dividends in the fourth quarter of 2024. It has raised its dividends for 21 years in a row, which makes TXN one of the best stocks for a dividend stock portfolio. The company’s quarterly dividend comes in at $1.36 per share and has a dividend yield of 2.72%, as of February 25.
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