Focusing on dividend stocks to buy for income is a proven and solid recipe for success.
Companies that pay dividends tend to be sustainably profitable businesses that have been fire-tested over time. They make excellent long-term investments as a result. Capital appreciation might not be as fast as your average tech stock or biotech, yet dividend payers more often than not make up for it by generating income that can grow for decades.
A report by JPMorgan Chase (NYSE:JPM) looked at stocks over a 40-year period between 1972 and 2012. It found those that initiated and then hiked their dividends returned an average of 9.5% annually. Non-paying stocks returned a paltry 1.6% a year.
Further, asset managers at Hartford Funds looked at the performances of the benchmark S&P 500 going all the way back to 1930. The data they found underscores the JPM findings. They discovered dividends contributed 41% to the total return of the index over that 92-year period. Moreover, the dividend stocks never had a losing decade. The index couldn’t say the same thing.
Moreover, investors who reinvested dividends in the S&P 500 would have turned a $10,000 grubstake into more than $4.1 million. This is in contrast of the index that would have turned that investment into $641,091 based on prices alone.
Getting paid to buy stocks is an important component of creating generational wealth. The following three dividend stocks are some of the best income producers to buy today.
Investing legend Peter Lynch’s pillar of the stock-buying strategy was “buy what you know”. Own stocks you are familiar with and use because millions of others are likely buying their products and services, too. Clorox (NYSE:CLX) fits that description perfectly.
Best known for its bleach, Clorox owns a portfolio of top brand name products, including Glad storage bags, Kingsford and Match Light charcoal, and Tilex cleaning solution. They tend to be the leading brands in their respective niches. Clorox says it generates 80% of its $7.4 billion in annual net sales from brands holding the No. 1 or No. 2 market share position.
Shares are down 6% year to date (YTD) and 26% below their 52-week high. Inflation has been one of the primary influences on performance. The consumer products giant said it typically experiences about $75 million in average supply chain inflation. But that skyrocketed to $800 million during the pandemic. It was $400 million two years ago, and in its recently completed fiscal year, inflation stood at $200 million.
Clorox aggressively began raising prices to offset the effects and build back profit margins that inflation eroded. Operating margins rose over 100 basis points in fiscal 2023 to 11.1%, but remains below the 15.3% five-year average.
CLX has paid a dividend every year since 1970, currently yielding 3.7%. Clorox began increasing the payout annually in 1978 and hasn’t stopped. That makes it a Dividend Aristocrat and certainly one worth getting paid to own.
It’s no understatement to say the stock market isn’t happy with industrial conglomerate 3M (NYSE:MMM).
After coming to terms with its legal liabilities over faulty earplugs for the military and contamination from so-called “forever chemicals,” 3M warned 2024 was going to be a “slow growth environment.”
Also, Europe decided to jump on the bandwagon and sue the industrial giant for those forever chemicals. And 3M was fined $10 million by the Treasury Dept. for a subsidiary selling products to a German company knowing the products were destined for Iran in violation of U.S. law.
3M’s stock is down 22% in 2023 and sits 30% below its recent highs. The drop in stock price sent the conglomerate’s dividend yield soaring to 6.6% annually.
Even by the company’s own admission, it’s going to take a while for sales to begin growing again. 3M now expects third-quarter sales to fall in a range between $7 billion and $8 billion. Previously it guided to $8 billion. That’s due to a slow recovery in China where 3M generates about 10% of its sales.
And this is the sweet spot of payoff for a patient investor. The stock trades at less than 10 times next year’s earnings estimates and goes for a deeply discounted 11 times free cash flow. 3M has a turnaround strategy in place. Though it faces strong headwinds, it still possesses a bevy of top-rated consumer and industrial products.
In the meantime, an investor can collect a dividend check while waiting for the progress to materialize. 3M has a 66-year track record of raising the payout and counting. That string makes the industrial conglomerate a Dividend King.
York Water (YORW)
It’s no exaggeration that York Water (NYSE:YORW) is the premiere dividend stock on the market.
It has continuously paid a dividend to shareholders every year for 205 years. Let’s put this in perspective. When this little water utility began paying dividends, Mary Shelley was just publishing Frankenstein, there were only 20 states in the union, and the U.S. and England agreed the 49th parallel separated the U.S. and Canada.
There are many reasons to recommend York beyond the consistency of its dividend policy. As a utility, it’s never going to see its stock price become a moonshot. It will, however, steadily grow over time. York increases sales by adding more customers to its retinue but more commonly grows through rate increases approved by regulators.
Clean water and wastewater treatment are essential. To maintain and upgrade its facilities, York needs to raise rates over time. It is difficult for regulators to deny an increase, though they can drag their feet before ultimately granting approval.
York Water is a conservatively run utility that serves almost 50 municipalities in south-central Pennsylvania. Investors would be well-served owning its stock and enjoying the steady and reliable stream of income it produces.
On the date of publication, Rich Duprey held a LONG position in CLX and MMM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.