5 Best Dividend Stocks For 2018 (To Buy Now)

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The 5 best dividend stocks for 2018 are steady performers with long histories of cash distributions. Don’t miss a single pick. 

High Yield Dividend Stocks boost returns in any portfolio, read on for tips on how to pick the best for yours.  

The best dividend mutual funds advice I can give, don’t bother. There are better ways to invest your money; read to the end and we’ll help you find them. Click Here To Go Straight To Our Top Dividend Stocks

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How To Invest In Dividend Stocks

Investing in dividend stocks is easy, all you do is buy stocks that pay dividends. Successfully investing in dividend stocks, particularly high yield dividend stocks, is another matter. While it may seem like buying the ones with the highest yield is the way to go that is often not the case. Remember, slow and steady wins the race.

What is a dividend? A dividend, otherwise known as a distribution or cash dividend, is a payment delivered by a corporation or other business entity to its shareholders. In theory, dividends are profits produced in the course of doing business. In practice, this is often not the case. A business or investment fund may choose to pay dividends to its shareholders from other sources including debt, return of capital and others. They do this as a means of attracting investor attention and support for stock prices; although not always a reason to avoid investing it is a red flag that should not be ignored.

While you want to go slow and steady there is no reason to buy the lowest dividend you can find. The idea is to find a blend of dividend-paying equities to fill a balanced portfolio that can pay a steady return. Successful dividend investors think not in terms of percent yield for single stocks but the yield of their portfolio. The higher the yield, the bigger the return which means more income.

  • Portfolio Yield – The average return of a basket of income-producing assets.  In this case, we are talking about high yield dividend stocks and other income-producing equity assets.

Investors should diversify portfolios across sectors as well as yield types. Younger and/or riskier investors may choose to look for higher yields while older and/or less risky investor may choose to look for lower but both will need a variety in order to maintain portfolio stability.

Choosing The Best Dividend Stocks, What To Look For

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When looking for the best dividend paying stocks to choose successful investors will ask three questions. The first is two-pronged, is this stock worth buying and is now the right time to buy it? The second is, does this stock fit into my portfolios diversification scheme? The third is, how does this stock’s yield affect my portfolio’s return? Does it increase or lower my monthly/quarterly returns?

One risk with dividends is that they can be cut or discontinued. Such actions are not good for share prices. A dividend paid from current earnings is safest while those using previous earnings or ROC, return of capital, are the riskiest. A high yielding stock is another red flag although once again not all high yield stocks are the same. If a company has had a recent bout of bad news it could lead to a sharp decline in share prices and a subsequent jump in dividend yield.

Another risk with high yield dividend stocks is that the distribution will be cut in response to weak or uncertain business conditions effectively reducing the yield. Likewise, some companies may have paid a dividend at some point in the past that is still listed on a stock market broker’s website so be sure to check to make sure that any distribution you are considering is current.

Core Strength: The Best Dividend Blue Chip Stocks

Blue chips are the core of the market. They are the largest, oldest, most established companies with a stable outlook for continued operations. They produce the most revenues, have the highest market cap, attract the most investors and are by far the “safest” plays in the market, safe because the companies are not likely to go out of business, not because their values are guaranteed. Blue chips can hit hard times like any other business in the world.

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In terms of dividend yield the blue chips, represented by the Dow Jones Industrial Average, are not what I would call high yielding stocks. They tend to pay about 2%-3% with some fluctuation as they go through the business cycle, market conditions, earnings etc. A high yielding Dow stock may pay 4% while a low paying one in the range of 1%. One method of choosing the best stock is to look at the Dogs of the Dow.

The Dogs of the Dow are the years worst performing stocks. At the end of each year, investors look to the worst performing stocks as means of picking up higher yields. Because they are lagging the market they are often purchased at a premium to other Dow components and with above average yield. This year the very worst Dog was GE, and it may be one this year as well so not of interest to us.

 Best Dividend Stocks Pick # 1 Exxon Mobil (XOM)

Exxon Mobil is the worlds largest integrated oil company with a market cap near $370 billion and the best of the blue chip stocks to buy right now. It produces, refines, ships and delivers more oil and oil products than any other company in the world and it is well positioned in the current environment. At today’s prices, near $87, with a distribution of $3.08 it yields 3.50%. Exxon’s yield is not the highest offered by a Dow component, but no others have quite the tailwinds Exxon does, nor the potential for dividend increases.

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In terms of earnings and dividend health, the company is expected to post growth at the top end robust expectations. The energy sector as a whole is expected to produce earnings growth of 60% in 2018, following 275% in 2017, with those gains driven by oil prices and economics. Oil prices are trending near multiyear highs and driving positive revisions to forward earnings. While oil prices are estimated to fall later in the year, expanding economics and demand are expected to support equity prices.

With earnings growing robustly an increase to the dividend and/or special dividend are not unlikely. Either would attract new money and drive up share prices for additional gains.

Pick #2 The Best Dividend Stocks Spider Fund (SDY)

Not all great dividend stocks are stocks; some are ETF’s. The best dividend ETF’s deliver the benefits of indexing and passive management with a yield/high-yield focus. Among the best dividend funds is the SPDR SDY. It is a yield weighted fund of the top 50 S&P 500 stocks with at least 20 years history of dividend increases. If you want to invest in the S&P 500 and do it in a way that maximized dividend returns this is the way to do it. 

  • Stocks in a cycle of share increases tend to see higher share prices as new money flows in and valuations stabilize relative to yield.

Because the SDY screens all but those with at least 20 years of dividend increases it tends to have a lower return than true S&P 500 high yield funds. Regardless, it returns a little more than 2% at current prices, well ahead of the 1.25% paid by the underlying index. In addition, the fund trades with a high degree of liquidity which is far from common among higher yield-focused funds. Average daily volume is more than 500 million shares or $50 million dollars.

Pick #3 The Best Dividend Stocks Vanguard High Dividend Yield ETF  (VYMI)

The Vanguard High Dividend Yield ETF (VYMI)  is among the highest paying ETFs at just over 2.66%. It also boasts one of the lowest expense ratios and highest average daily volumes making it very attractive for passive dividend investment. The ETF tracks the performance of the FTSE High Dividend Yield Index which in turn tracks common stocks characterized as “high yield.” In terms of ratings, it is higher risk but that is balanced by returns.

The fund has seen a steady increase in value over the past five years as share buybacks and dividend increases fuel market gains. While past performance is no guarantee of future returns, we feel this will continue.

Forward earnings outlook is strong, and that outlook is supported by positive economic trends, so there is no reason not to expect an increase in share prices and dividend. The fund is well diversified with primary holdings in the consumer, industrial, financial, health and technology sectors.

High Yield Dividend Stocks You Must Have

BDC’s are a special kind of stock whose sole purpose is to produce money and pay dividends. In essence, they are a kind of private equity that invests in the mid-market to support and sustain emergent businesses. Unlike private equity, these funds are incorporated under special provisions in return for tax and other advantages. What they have to do is lend money, but not in a wild or unsustainable way. BDC’s have the highest standards of lending and strictest requirements with the addendum they must also provide material help to management, further ensuring the success of the underlying investments.

Pick # 4 High Yield Dividend Stocks To Buy Now Prospect Capital (PSEC)

There are many BDC’s to choose from but the number one pick is Prospect Capital. They are the largest and only full-service lending facility trading on the open market. Because of this, they can cut costs and realize revenue from multiple streams, unlike others who rely on third-party services to source and process loans. The company operates in multiple segments; collateralized lending, online lending and real estate.

The fund pays well in excess of 10% and a safe 10% at that. As a BDC Prospect is required to pay more than 90% of its earnings to shareholders and those figures are carefully managed. Prospect Capital has a long history of paying dividends above 10% and without ROC that they work hard to keep, sometimes at the expense of share prices.

The company has recently cut the distribution to prevent ROC and that move has resulted in an opportunity for value-minded investors. Shares are trading near long-term lows and at levels from which solid advances in share prices have been made. The last time prices were in this range, near $6.50, the stock made a 50% advance while returning another 10%+ in dividend distributions.

The Best Dividend Dividend Stocks Mutual Funds

Don’t get me wrong; mutual funds are right for some people. If you are reading this article then you are probably not one of those people. That doesn’t mean you can’t benefit or invest in actively managed funds because you can. Closed-End Funds combine the (theoretically) market-beating performance of active management with the tradability of a stock. Where a mutual fund can only be redeemed from the issuer and after the close of market hours closed-end funds trade with shares on the open market just like a stock or ETF.

Closed-end funds are just like ETF’s in that they seek to match or beat the performance of an index or investment strategy. Unlike ETF’s, which are pegged to an underlying index, the managers of closed-end funds may buy or sell securities at will provided those actions are intended to meet the fund’s objectives.

A closed-end fund can be based on any strategy or investment but tend to split along two lines. Income funds focus on income producing assets such as dividends or fixed return (bonds) while equity funds invest in stocks and other assets in the hopes of capital appreciation.

Pick # 5 The Mexico Fund(MXF)

In terms of your dividend portfolio, closed-end funds like The Mexico Fund can provide diversification into foreign markets while those like the Brookfield Real Assets Fund exposure to the real assets space and fixed income. The Mexico Fund is focused on investing in Mexico’s blue-chip companies and pays an annual return near 3%.

There is some concern the ongoing NAFTA renegotiation will have a negative impact on the Mexican economy but those fears are largely unfounded. It is true the negotiations are taking longer than expected and President Trump isn’t making it easy. What is also true is that both countries need each other and, as President Trump said in his speech at Davos, all nations are stronger when they work together in cooperation.

Choosing the best dividend stocks is key to success. High yield dividend stocks are not always what they seem. The best dividend mutual funds are investments you may want to avoid.