Hello, everyone. Today we have a first for Engineering Dividends… a guest post!
I’m happy to have Bob Ciura from Sure Dividend share his thoughts regarding Why Investors Should Consider Dividend Stocks.
As noted on their website… “Sure Dividend helps individual investors build high-quality dividend growth portfolios for the long run.”
Sure Dividend offers a plethora of free articles and information on dividend stocks and dividend investing. In addition, paid services include premium newsletters and a dividend stock database providing detailed analysis on more than 600 companies. I recommend you check out Sure Dividend if you haven’t before.
Anyway, no more waiting, let’s check out our guest post…
Why Investors Should Consider Dividend Stocks
Investors are spoiled for choice today when it comes to the sheer number of opportunities that are present in the market. Depending upon what a particular investor’s goals are, there are countless products and services available to help meet those goals. Every investor’s goal is to build wealth, but how that is done is open to interpretation.
Given this variety of choices, investors must narrow down the best way to achieve their goals. In our view, the best way to build wealth is to buy high-quality dividend stocks that have long-term capital appreciation potential, as well as strong dividends that are safe and growing. Stocks with these characteristics tend to perform very well over time, which is why investors should consider dividend stocks.
Why Consider Dividend Stocks?
Given there are so many kinds of stocks available to invest in, why should investors choose dividend stocks? In general, dividend-paying companies tend to be ones with sustainable competitive advantages, long operating histories, and ones that are consistently profitable. Without these characteristics, it would be very difficult – or even impossible – to consistently pay dividends. Thus, by narrowing our search for the best stocks down to just those with attractive dividend characteristics, we are filtering out companies with short histories, volatile earnings, or outright unprofitability.
Companies such as these tend to suffer immensely during recessions, seeing earnings decline sharply or disappear completely. Companies like this will never be great dividend stocks because their payouts are at risk every time there is economic weakness. These tend to be highly cyclical stocks as well, so share prices and valuations may swing wildly during the economic cycle.
We like stocks that do not exhibit this sort of behavior, so picking dividend stocks with long payout histories, low current payout ratios, and an element of defensiveness – rather than cyclicality – is a great way to generate long-term wealth.
Finding The Best Dividend Stocks
If we start from the place of considering dividend stocks for our investment choices, it makes sense to try and find the best of the best. Our philosophy is to focus on those companies with long dividend histories, safe payouts, and the potential to continue to raise the payout for years to come. These companies tend to offer competitive advantages that are sustainable, generate predictable and growing profits, and have shareholder-friendly management teams that are willing to return capital to shareholders.
The Dividend Aristocrats are a group of just 65 stocks in the S&P 500 that have at least 25 consecutive years of dividend increases, and meet certain size and liquidity requirements. The net result is large capitalization stocks with extremely impressive dividend histories, and we think this list is a great way to find the best dividend stocks for long-term wealth generation.
These companies have stood the test of time in terms of weathering recessions and various stages of the business cycle, and have not only maintained their dividends, but continued to raise them. The reason there are only 65 Dividend Aristocrats is because doing this is very difficult, so only the best will make the cut. For this reason, we see the Dividend Aristocrats as a great place to start when looking for a dividend stock to purchase and hold for long-term wealth generation.
A Great Dividend Stock For Long-Term Wealth Generation
One example of a great dividend stock is AbbVie Inc. (ABBV), a global pharmaceutical company that develops, produces and distributes a huge variety of treatments for various ailments. AbbVie was spun out of Abbott Laboratories (ABT) in 2012, so its own operating history is shorter than the other Dividend Aristocrats. However, including its time as part of Abbott, AbbVie sports a 49-year dividend increase streak.
AbbVie has weathered a number of recessions, including the one in 2020 driven by COVID-19, and has maintained strong profits throughout. The company’s healthcare products offer a defensive, diversifying impact to an investor’s portfolio, which is an added bonus for a company that offers an exemplary dividend history.
In addition, AbbVie has the other characteristics we like in long-term dividend winners. Its payout is safe, coming in at just 42% of this year’s projected earnings. With a payout ratio that low, AbbVie has massive potential in terms of continuing to raise its payout for many years to come, even if earnings growth slows or even stops for a period of time. This kind of payout safety in a dividend stock is extremely attractive because investors can be sure their payments will keep flowing even during tough economic periods, for instance.
AbbVie has proven it has sustainable competitive advantages with its extensive portfolio of treatments for various diseases and conditions, and we see no reason why that should change. Combined with the dividend characteristics it boasts, AbbVie is an example of a great dividend stock to build long-term wealth.
Final Thoughts
When investors are evaluating where to place their hard-earned capital, we think the best place to start is with high-quality dividend stocks. These companies have proven they can operate profitably in a wide variety of environments and through all stages of the economic cycle. These companies tend to be less cyclical than non-dividend-paying stocks as well, so their valuations and share prices tend to be less volatile over time.
These characteristics, along with the tangible benefit of reliable and growing income from rising dividend payments, makes them a terrific place to start the search for a new stock to purchase.
AbbVie is an example of a great dividend stock; it has a very long dividend increase streak, its payout ratio is very low, it is quite defensive, and it has a shareholder-friendly management team that is willing to return capital to shareholders year after year, even during recessions. By finding stocks like the Dividend Aristocrats, investors are off to the best start.
Engineering Dividends here…. Well, there you have it. I couldn’t have said it any better.
It’s no surprise that AbbVie (ABBV) is a part of my dividend Portfolio with characteristics like that. Does ABBV exist in your portfolio as well?
As it turns out, the ‘Dividend Aristocrats’ link provided in the guest post is the same one that I happened to share in my last ‘A of I’ article. Who knew!
I hope you enjoyed this first-ever guest post. Big thanks to Bob @ Sure Dividend.