Some of the best opportunities can still be found in dividend stocks. After all, companies with attractive yields tend to outperform even the worst of markets over time.
As noted recently by Wall Street Journal contributor Lori Ioannou, “Dividend stocks have become the new darling on Wall Street, and investors looking for income are pouring billions of dollars into them. These securities are considered a good buffer during times of market volatility. They also are seen as an inflation hedge, considering that S&P 500 dividend growth has outpaced inflation since 2000.”
And according to Fidelity’s Naveed Rahman, while dividends account for approximately 40% of the total return of the S&P 500 index since 1930, that number was significantly higher — 54% — during the 1940s, 1970s and 1980s when inflation averaged 5% or more.
So, if you’re looking for solid long-term investments that can grow with your grandchildren, consider the dividend stocks below.
| TGT | Target | $159.87 |
| HDV | iShares Core High Dividend ETF | $103.16 |
| VYM | Vanguard High Dividend Yield ETF | $107.54 |
| PSX | Phillips 66 | $105.43 |
| MPW | Medical Properties Trust | $11.33 |
| T | AT&T | $18.36 |
| EPD | Enterprise Products | $25.00 |
Best Dividend Stocks for Grandkids: Target (TGT)
Shares of Target (NYSE:TGT) have been hammered this year, losing roughly a third of their value thanks to sky-high inflation, aggravated consumers, disappointing earnings, profit warnings and supply chain issues. Yet, for long-term investors, it’s important to remember that these issues are temporary.
While Target’s profits have declined on a year-over-year basis for the past two quarters, the company is still incredibly profitable, reporting net earnings of $1.19 billion in the first half of the year.
TGT stock has a 2.7% dividend yield, with the company paying out $417 million in dividends in the second quarter. Its payout ratio is a comfortable 40.8%, which means investors should not worry about the dividend being cut. Quite the opposite in fact. As a Dividend Aristocrat, Target has raised its dividend for 50 consecutive years.
Analysts like the stock, too. Based on the 17 analysts who follow Target, according to TipRanks, it has 11 “buy” ratings, six “holds” and no “sells.” Jefferies analyst Corey Tarlowe just initiated coverage of TGT with a “buy” rating and a $185 price target. Tarlowe argues that Target’s inventory peaks historically precede sales and margin rebounds by about five months.
With a good deal of time and patience, I believe Target will refill its bearish gap with a move up to around $210 a share. So, why not collect the dividend while you wait?
iShares Core High Dividend ETF (HDV)
Dividend stocks aren’t the only way to collect income from the stock market. Investors can also purchase shares of an exchange-traded fund like the iShares Core High Dividend (NYSEARCA:HDV).
HDV is up a little more than 2% so far in 2022 compared with a 20% decline in the broader market. The ETF currently yields 3.5% with its most recent dividend of $1.23 a share paid out on Sept. 26. The fund pays a dividend every three months, with the next ex-dividend date expected in mid-December.
In addition to income, HDV offers exposure to high-quality U.S. companies, including Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), AbbVie (NYSE:ABBV), Verizon (NYSE:VZ), Merck (NYSE:MRK) and Coca-Cola (NYSE:KO). HDV has an expense ratio of 0.08%.
Best Dividend Stocks for Grandkids: Vanguard High Dividend Yield Index Fund (VYM)
Vanguard High Dividend Yield Index Fund (NYSEARCA:VYM) is another high-yielding play that I like for those interested in dividend stocks. Like HDV, it has significantly outperformed the broader market, down just over 4% while the S&P 500 remains in a bear market.
This ETF pays dividends on a quarterly basis and has a current yield of 3%. Its most recent dividend of 76 cents a share was paid out on Sept. 19. Its next ex-dividend date is expected in mid-December.
VYM’s top holdings include JP Morgan Chase (NYSE:JPM), Johnson & Johnson (NYSE: JNJ), Home Depot (NYSE:HD), Procter & Gamble (NYSE:PG) and Bank of America (NYSE:BAC). VYM has an expense ratio of 0.06%, which is 300 basis points below the average Vanguard fund.
Phillips 66 (PSX)
Phillips 66 (NYSE:PSX) is an integrated oil company that derived its name “from a road test of a new fuel, when the car reached a speed of 66 miles per hour on Highway 66.” As an energy stock, PSX has been a top performer in 2022, with shares soaring more than 45% year to date. The oil production cuts planned by OPEC+ are likely to lead to a further run in shares or, at the very least, provide a floor for the stock.
With higher energy prices helping boost profits, the company has been crushing analysts’ earnings estimates. Most recently, Phillips 66 reported adjusted earnings of $6.46 per share for the third quarter, well ahead of the $5.04 consensus estimate and more than double its year-ago EPS figure. The company generated $3.1 billion in cash from operations for the quarter and paid out $466 million in dividends.
In early October, the company announced it will pay a 97-cent per-share dividend on Dec. 1 to shareholders on record as of Nov. 17. Shares currently yield 3.8%.
Analysts are generally bullish on the stock, with TipRanks showing seven “buy” ratings, four “holds” and no “sells.” Piper Sandler analyst Ryan Todd recently raised his price target to $116 a share. Wells Fargo analyst Michael Blum is even more optimistic, bumping his target price up to $134 earlier this month, which is 27% above the current price.
Best Dividend Stocks for Grandkids: Medical Properties Trust (MPW)
Medical Properties Trust (NYSE:MPW) is a real estate investment trust that leases properties to hospital operators. According to the company, it is the world’s second-largest non-governmental owner of hospitals with 434 properties and has seen compound annual growth in assets of 25% since the end of 2012.
Shares have been cut in half this year, mainly due to economic concerns and a bankruptcy filing by one of its tenants. However, the REIT offers a very attractive yield of 10.3% and a strong history of increasing its dividend — eight years and counting.
While some hospital operators are struggling financially, the need for hospitals does not disappear simply because the economy slips into a recession. According to the Centers for Medicare & Medicaid Services, health spending in the U.S. is expected to increase 5.4% a year, on average, through 2028 to reach $6.2 trillion. And given that the REIT was formed in 2003, it’s navigated rocky economic periods before.
AT&T (T)
In the past month, shares of AT&T (NYSE:T) have exploded higher by nearly 20%. This included a 7.7% single-day jump following the company’s better-than-expected third-quarter earnings report.
AT&T beat on the top and bottom lines, earning an adjusted 68 cents per share on $30 billion in revenue. The company added 964,000 total subscribers during the quarter and generated about $3.8 billion in free cash flow. Management upped its 2022 adjusted EPS guidance to at least $2.50, from a previous range of $2.42 to $2.46, and said it is still on track to generate $14 billion in free cash flow for the full year. This free cash flow will go a long way in supporting the company’s dividend payout. The stock currently yields 6.1%.
Following the Q3 report, Raymond James analyst Frank Louthan upgraded T stock to a “strong buy” from “outperform,” saying he expects continued strength in the company’s fundamentals. Louthan’s $24 price target is more than 30% above the current price. However, I’d wait for a pullback before buying, as T stock is technically overbought on RSI, MACD and Williams’ %R. Look to buy shares on weakness with an initial price target of $20.50, which would fill its bearish gap.
Best Dividend Stocks for Grandkids: Enterprise Products (EPD)
Enterprise Products (NYSE:EPD) is a provider of midstream energy services. Like the other energy play on this dividend stocks list, shares have outperformed this year, rising nearly 14%.
On Nov. 2, the company reported better-than-expected third-quarter adjusted earnings of 63 cents per share, as the company said it transported record volumes of oil, gas and other refined products.
Revenue also came in above estimates, rising 43% year over year to $15.5 billion, while distributable cash flow was up nearly 16% to almost $1.9 billion. The company maintained its current dividend of 47.5 cents per unit for a hefty 7.6% yield.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.