Best Dividend Stocks to Buy and Hold in 2023 | The Motley Fool (2024)

Dividend stocks are stocks of companies that make regular distributions to their shareholders, usually in the form of cash payments. Dividend stocks can be useful sources of income, but the best dividend stocks can also be excellent ways to increase your wealth over the long term.

However, not all dividend stocks are great investments, and many investors aren't sure how to start their search. With that in mind, here's a list of dividend-paying stocks you might want to consider and some of the most important things to look for in top dividend stocks.

Top dividend stocks

Five dividend stocks to buy

The Dividend Kings list is a great place to find top dividend stocks. Dividend Kings are companies that have paid and raised their base dividend for at least 50 consecutive years. The Dividend Achievers list -- 10-plus straight years of dividend increases -- is another great list to research.

Here are five top dividend stocks to consider buying now:

1. Lowe's

Home improvement giant Lowe's (LOW -0.25%) may not seem like a very exciting stock. And that's true -- unless you like dividend growth. The company has raised its dividend almost every year since going public in 1961 and has raised the payout by 511% over the past decade alone.

However, investors worried about the housing downturn that began in the second half of 2022 shouldn't fret. When the housing supply is tight, making homes harder to buy, people tend to spend more to upgrade their existing homes. So, the cyclical weakness in its results is likely to return to growth over the long term.

Another important factor that's good for Lowe's is that the typical U.S. home is between 31 and 60 years old, depending on the state. The next generation of DIYers will spend a lot of money at Lowe's, as will home improvement contractors. It's made professionals a priority, and sales to them are growing.

2. Realty Income

If you're looking for a simple way to invest in high-quality real estate for income and growth, Realty Income (O -0.12%) might be the perfect stock. The company owns an array of largely e-commerce-resistant properties, earning strong cash flows from tenants on long-term leases.

Realty Income is also a Dividend Achiever with 28 consecutive years of dividend increases -- every year since going public in 1994 -- and 54 straight years of paying a dividend every month. It has increased the payout a mind-boggling 122 times!

Many real estate investment trusts (REITs), including Realty Income, have seen their shares punished as interest rates have moved higher. And while more than a few will struggle with higher expenses as a result, investors can rest assured that Realty Income should continue its winning ways.

3. Chevron

Oil is back. Over the past few years, oil stocks have roared back to the forefront. Energy has been one of the best-performing sectors since the COVID-19 pandemic, and Chevron (CVX 0.23%) has been a big winner for investors.

But if we are being fair, Chevron has actually been a pretty solid stock to own -- especially for dividend investors -- for years, generating strong cash flows and growing the payout modestly every year for over 35 years. The stock price can fluctuate with the ups and downs of oil prices, but owning Chevron has proven a profitable investment for dividend-seekers over the long term. Its late 2023 deal to acquire Hess (HES 0.28%) means significantly more low-cost onshore oil in the Permian Basin and some of the cheapest offshore oil currently being produced.

4. Target

For years, Target (TGT 0.6%) has been more profitable than its peers by posting some of the highest gross margins and operating margins in retail. At the same time, its focus on increasing its e-commerce business and expanding in-store offerings has kept sales growing at a solid clip.

However, 2022 was a brutal year for Target investors, with extremely high expectations clashing with the challenging realities of retail, sending shares of the stalwart down sharply. Despite a tough 2022 and challenges in early 2023, Target has turned a corner, and profits are once again growing. That's great news for dividend investors.

With dividend growth at 50 years and counting and shares trading for a steep discount to their all-time highs, dividend investors should put Target on their shopping list.

5. Starbucks

Over the past four decades, Starbucks (SBUX -0.05%) has established itself as the dominant brand in coffee beverages. With more than 38,000 global stores and Starbucks-branded ready-to-drink beverages and packaged coffees in hundreds of thousands more locations, nobody sells -- or buys -- more coffee than this company.

In 2023, China's return to more normal in-public commerce has been a big boost for the company, which is counting on that country to become its biggest and most profitable over the next decade.

Its power as a buyer and its strong brand have resulted in robust competitive advantages, including cost benefits throughout its operations and pricing power with consumers. Those economic moats and strong digital flywheel driving orders and operations have resulted in a cash cow business.

Starbucks has increased the dividend yearly since 2010 while increasing earnings per share by 855% over the same period. Its yield of roughly 2.2% at recent prices is on the higher end of its historical range, representing an attractive price to buy company shares.

The Dividend Achievers aren't the only place to look. Many excellent companies simply haven't been paying dividends (or haven't been publicly traded) long enough to be included in the list. However, they can still make excellent long-term dividend investments.

Here are four more dividend-paying stocks with excellent brands, loyal customer bases, and favorable demographic trends worth putting on your radar.

6. Brookfield Infrastructure

Sometimes, the best stocks are the ones hidden in plain sight. That's the case with Brookfield Infrastructure (BIPC 0.11%) (BIP 0.86%), which owns water, energy, utility, transportation, and communications infrastructure projects all over the world. Its assets generate steady, recession- and inflation-resistant cash flows, and Brookfield returns a sizable portion to shareholders.

It claims a dividend yield of just under 5% at recent Class C share prices, almost 5.5% for the limited partner units, and a goal to raise the payout 5% to 9% every year. Brookfield Infrastructure is a hidden dividend gem that's delivered more than 750% in total returns since it went public in 2008 -- more than double the over the same period.

7. Microsoft

Microsoft (MSFT 0.28%) is one of the most important software companies on earth. It has rebuilt its business over the past decade to focus on recurring subscription-based revenues that keep its customers connected and the cash flowing. The company has a solid balance sheet with more cash than debt and a very low payout ratio that leaves tons of room to increase the dividend.

Its 14-year streak of dividend increases is easy to miss, with a yield of less than 1% at recent prices not putting it on many dividend investors' radars. But what it hasn't paid in yield, Microsoft has absolutely delivered, with total returns of almost 2,500% since 2009, with dividends accounting for 670% of those total returns.

Looking forward, Microsoft is looking to take a commanding lead in artificial intelligence. With a significant stake and partnership with ChatGPT creator OpenAI, the company is already integrating AI features across its suite of productivity and communications platforms.

8. American Express

Financial services, such as consumer and business lending, are another place to find a handful of top dividend stocks, and American Express (AXP 0.42%) is one of the best. Although not on the list of every-year dividend raisers, American Express has a decades-long track record of either raising or maintaining its dividend through every economic environment.

The big lesson here: When other banks and lenders have cut or even eliminated their dividends, Amex has proven strong enough to keep the payouts coming for its shareholders. That's a credit to its high-quality lending standards and focus on higher-income credit customers less likely to default on their debts during weak economic periods.

Thus, American Express appeals to investors who like owning a top financial services company but are also concerned about economic conditions. This is a great stock to buy during broad market downturns and a solid hold for a bull market recovery.

9. Clearway Energy

Renewable energy is mostly considered a place for growth investors, but it's also a wonderful opportunity for dividends. Clearway Energy (CWEN.A 0.91%) (CWEN 0.77%) is a perfect example. The company invests in, acquires, and operates renewables facilities, selling the power on long-term contracts -- think decades, not years -- to utility companies and large power consumers.

After seeing the stock rocket higher during the COVID-19 pandemic, it's given back essentially all of those gains in 2023 on concerns that rising interest rates could affect its business. It does, indeed, require a lot of debt to finance wind and solar farms.

Although those concerns aren't completely unfounded, the market is certainly "pricing" them in now, with the dividend yield around 6.7% as of December 2023. However, management is moving forward, saying their long-term expectations remain unchanged, with ample opportunity and funding to grow profits and continue increasing the payout by 5% to 8% per year.

Highest dividend stocks

Highest dividend stocks

Whether it's to generate the income you'll use today or the capital you can reinvest to increase your wealth, there's a good chance you're looking for a big dividend payout. If you're hoping to maximize the number of dividends you earn, here are some suggestions.

First, consider dividend yield above dividend size. The dividend yield is a percentage of the share price you paid for the stock, paid in dividends annually. That's far more relevant than the dollar amount of dividends per share.

Next, don't make owning high-dividend-yielding stocks your No. 1 priority. Focus first on business quality and a company's ability to maintain and increase the payout. Only then can you know whether a high dividend yield is sustainable.

What to look for

What to look for in dividend stocks

If you're new to dividend investing, it's smart to familiarize yourself with dividend stocks and why they can make excellent investments. Once you have a firm grasp on how dividends work, a few key concepts can help you find excellent dividend stocks for your portfolio.

• Payout ratio: A stock's payout ratio is the amount of money the company pays per share in dividends divided by its earnings per share. In other words, this tells you the percentage of earnings a stock pays to shareholders. A reasonably low payout ratio (say, 70% or less) is a good sign that the dividend is sustainable.
• History of increases: It's a very good sign when a company raises its dividend year after year, especially when it can continue to do so during recessions and other tough economic times, such as the COVID-19 pandemic.
• Steady revenue and earnings growth: When looking for the best dividend stocks to own for the long term, prioritize stability. Erratic revenue (up one year, down the next) and fluctuating earnings can be signs of trouble.
• Durable competitive advantages: This is perhaps the most important feature. A durable competitive advantage can come in several forms; for example, proprietary technology, high barriers to entry, high customer switching costs, or a powerful brand name.
• Supportable yield: This is last on the list for a reason. A high yield is obviously preferable to a lower one, but only if the other four criteria are met first. A high dividend is only as strong as the business that supports it. So, compare dividend yields after ensuring the business is healthy and the payout is stable.

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Dividend stocks are long-term investments

Even the most rock-solid dividend stocks can experience significant volatility over short periods. There are simply too many market forces that can move them up or down over days or weeks. And many have nothing to do with the underlying business itself.

So, while the companies above should make great long-term dividend investments, don't worry too much about day-to-day price movements. Instead, focus on finding companies with excellent businesses, stable income streams, and (preferably) strong dividend track records. The long term will take care of itself.

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