With 2020 just getting underway, the stock market is on something of a long-term tear. A nearly 11-year bull rally is already the longest-ever uptrend in Wall Street history, and the American economy is equally robust as the unemployment rate (3.5%) is the lowest in 50 years. Despite this, interest rates still sit near historical lows and the 10-year Treasury yields only 1.8%. As income investors struggle to find decent sources for yield, U.S. News has highlighted 15 of the best dividend stocks to buy for 2020. Each offers the potential for capital appreciation and yields that 10-year Treasurys can’t provide.
Pharmaceutical giant Bristol-Myers Squibb (BMY), fresh off a year in which it gobbled up "pharma tour de force" Celgene and gained 28%, looks like one of the best dividend stocks to buy for 2020. As is frequently the case with drugmakers, the strengths of BMY lie in its current drug portfolio and its pipeline. Its anticoagulant Eliquis and cancer treatment Opdivo both take in nearly $2 billion each quarter. The Celgene acquisition gives it a $10 billion annual cash cow in Revlimid, and analysts expect BMY to grow earnings 15% annually over the next five years.
Market capitalization: $155 billion
Dividend yield: 2.7%
Payout ratio: 47%
The best dividend stocks to buy are often ones that can both afford to pay shareholders a meaningful quarterly dividend – preferably a sustainable and growing one – and offer a shot at solid capital gains. Medifast (MED), which sells healthy meals as a part of company-designed weight-loss programs, checks both boxes. As the payout ratio indicates, it pays out less than half of earnings to finance its dividend, using the rest to grow its business. Expected to grow earnings about 20% annually over the next half decade, MED shares trade for 18 times earnings, making their appreciation potential more impressive than their dividend.
Market capitalization: $1.3 billion
Dividend yield: 4%
Payout ratio: 48%
Energy Transfer LP
Also tapped as one of the top energy stocks to buy for 2020, Energy Transfer (ET) is a natural gas pipeline company operating as a master limited partnership, an MLP. This structure, similar to a real estate investment trust, allows MLPs to use a pass-through structure where the entity avoids corporate taxes and instead distributes its available cash flows to investors. This makes for large payouts, and Energy Transfer’s 12,000-plus miles of pipeline are generating plenty of cash flows, as ET collects a toll for everything it transports. In an era of incredibly low interest rates, ET and its 9% yield goes down as one of the best dividend stocks for 2020.
Market capitalization: $37 billion
Dividend yield: 9%
Payout ratio: 97%
British American Tobacco
While the energy sector is often flush with high-yielding investment opportunities, the tobacco industry has also been a famous cash flow generator since time immemorial. There are just a handful of global giants in this space with the global presence of British American (BTI), which is worth over $100 billion. The portfolio of brands includes Camel, Lucky Strike, Dunhill, Pall Mall, Newport, Natural American Spirit, Kool, Grizzly snuff and Vuse e-cigarettes, to name a few. Although shares gained over 40% in 2019, BTI remains oversold following a brutal 2018 overcorrection driven by fears vaping could cripple Big Tobacco. At 10 times forward earnings, this Steady Eddie and its 6% yield is a perfect option for conservative investors.
Market capitalization: $104 billion
Dividend yield: 6%
Payout ratio: 56%
One of just two names among the best dividend stocks to buy for 2020 that also made the cut last year, mega-cap pharmaceutical AbbVie (ABBV) makes the world’s bestselling drug, Humira. AbbVie’s 2019 returns were jeopardized by the company’s surprise $63 billion buyout of Botox-maker Allergan (AGN) at a hefty 45% markup. Markets worried that the North Chicago, Illinois-based ABBV was overpaying for Allergan, but shares have rebounded sharply from their mid-year woes and despite a subsequent 40% rally, shares can still be snatched up for just 9 times forward earnings. Don’t mind AbbVie’s 191% payout ratio, which is artificially inflated due to one-time losses. ABBV pays a sustainable dividend and has raised its payout annually for 46 straight years.
Market capitalization: $132 billion
Dividend yield: 5.3 %
Payout ratio: 191%
Like AbbVie, telecom giant AT&T (T) is one of the elite members of the dividend aristocrats, a list of S&P 500 (.SPX) companies that have raised their dividend for at least 25 straight years. As one of the major players in the oligopolistic wireless business, AT&T’s staying power is rivaled by few companies in America. On top of internet and cell service, AT&T is vertically integrated, owning cable and satellite TV services and – after the $104 billion purchase of Time Warner in 2018 – much of the content distributed over those services, too. After a post-acquisition hangover in 2018, shares rebounded in 2019 but still aren’t back to 2016 highs. This low-volatility stock won’t make you rich, but it’s a good option for conservative investors.
Market capitalization: $280 billion
Dividend yield: 5.5%
Payout ratio: 91%
Discover Financial Services
The oft-forgotten fourth credit card company behind Visa (V), Mastercard (MA) and American Express (AXP), (DFS) is a company that grows regularly year after year. Sure, the 2.1% dividend isn’t setting any records, but since it needs only one-fifth of its earnings to fund it, there’s plenty of room to grow the payout. With a yield still higher than the 10-year Treasury, the potential for capital appreciation is what makes DFS one of the best dividend stocks to buy for 2020. The stock’s 9.3 price-earnings ratio is well below its 5-year average P/E of 11, and DFS’s price-earnings-growth ratio of 0.9 indicates unusual value.
Market capitalization: $26 billion
Dividend yield: 2.1%
Payout ratio: 19%
Johnson & Johnson
While the economy seems fine heading into 2020 – the U.S. has added jobs for 10 straight years, the longest streak ever in the 80 years of data available – there’s simply no way to know when things can take a turn for the worse. (JNJ) is well-positioned to outperform the market in a downturn, as health care stocks tend to outperform in late bull markets and recessions. That, plus JNJ’s gargantuan size, impressive diversification and the 56-year streak of dividend increases, make Johnson & Johnson one of the best dividend stocks to buy for 2020.
Market capitalization: $384 billion
Dividend yield: 2.6%
Payout ratio: 70%
Brookfield Renewable Partners
Named one of the best energy stocks to buy this year, Brookfield Renewable (BEP) differs from the rest of 2020’s top dividend stocks. First off, technically BEP is an MLP, which allows the company to avoid corporate taxes by paying out mandatory dividends. Traditional P/E ratios aren’t relevant here, as it’s funds from operations (FFO), not earnings, that matter. Brookfield Renewable is a hybrid of sorts between energy and utility company, selling electricity it generates through hydropower, wind, solar and other renewable sources. BEP aims to increase its distribution by between 5% and 9% annually. It trades at 18 times FFO, which rose 27% last quarter.
Market capitalization: $8.2 billion
Dividend yield: 4.5%
Payout ratio: 80% of FFO
Like Brookfield, Healthpeak Properties (PEAK) is a little different from most other names on this list due to its structure: PEAK is a real estate investment trust (REIT), which, like an MLP, is able to avoid corporate taxes if it abides certain rules. One such rule is that PEAK must distribute at least 90% of its income to shareholders each year. A way for investors to indirectly participate in the real estate market, PEAK specializes in high-quality health care real estate, focusing on senior housing, medical offices and life sciences. Trading at 20 times FFO, PEAK was named as one of the best stocks to buy for 2020, in part due to its potential to stabilize and hedge a broader portfolio.
Market capitalization: $18 billion
Dividend yield: 4.2%
Payout ratio: 84%
Duke Energy Corp.
The best dividend stocks are the “set it and forget it” type investments – companies you can buy, own, and literally forget about, sleeping soundly at night while dreaming of your quarterly dividend check. This degree of safety is largely what made regional utility Duke Energy (DUK) a member of both this list and U.S. News’ Best Blue-Chip Stocks to Buy for 2020. The company, which sells electricity and natural gas to nearly 10 million customers in the Carolinas, Florida and the Midwest, trades for 18 times earnings. Utilities stocks like DUK are a favorite of income investors seeking stability and predictability.
Market capitalization: $69 billion
Dividend yield: 4.2%
Payout ratio: 77%
This next pick is far different from the average dividend-payer on this list. For one, it’s a tech stock. Secondly, it’s Chinese. Third, the company has a newly spelled out dividend policy, and it’s only suitable for more aggressive, growth-seeking income investors. An internet tech business, NetEase (NTES) is primarily an online gaming company, offering many of the most popular PC and mobile games in Asia. Due to a recent special dividend, the payout ratio looks bloated, but NTES plans to regularly pay out between 20% and 30% of quarterly earnings as a dividend.
Market capitalization: $45 billion
Dividend yield: 4.7%
Payout ratio: 200%
Another (quite different) tech company that makes the cut as one of the best dividend stocks to buy for 2020 is Intel (INTC), the semiconductor giant and Dow member that is one of just two stocks that made both the 2019 and 2020 U.S. News Best Dividend Stocks lists. INTC is trying to reinvest and reposition itself with a focus on data, where its data center business now accounts for 33% of all revenue. Its focus has driven a fourth-straight year of record revenues and the company, at 14 times earnings, is not only a blue-chip dividend stock, but a well-priced one.
Market capitalization: $260 billion
Dividend yield: 2.1%
Payout ratio: 29%
It’s not McDonald’s (MCD) 2.4% yield that makes shares worth the consideration of income investors, it’s the staying power. The fast-food giant has grown its dividend payout annually for 42 straight years and, in the depths of the Great Recession in 2008, MCD outperformed the S&P by 46 percentage points as consumers and investors alike flocked to the Golden Arches. Although shares may seem fully valued at 27 times earnings, investors are willing to pay up for sturdy cash cows in almost any market, making MCD one of the best dividend stocks to buy for 2020.
Market capitalization: $156 billion
Dividend yield: 2.4%
Payout ratio: 60%
Last but not least among the best dividend stocks for 2020 is Novartis (NVS), the large Swiss drugmaker that also made the cut as one of the best blue-chip stocks to buy this year. With fast-growing drugs like Cosentyx (+27%) and Entresto (+61%) boosting its portfolio last quarter, revenue rose 10% overall. Modestly priced at 16 times forward earnings, NVS has made a series of bold acquisitions since CEO Vas Narasimhan took over in early 2018. The most recent acquisition, The Medicines Co., developed a potential breakthrough cholesterol and cardiovascular drug that should go before U.S. and E.U. regulators this quarter.
Market capitalization: $240 billion
Dividend yield: 3%
Payout ratio: 57%
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