These three dividend stocks can provide both growth and income for investors.
Investing in the stock market is a solid approach to building long-term wealth. Dividend stocks, in particular, are a smart way to let your money work for you. These stocks represent companies that distribute a portion of their profits to shareholders, typically every quarter.
A study titled “The Power of Dividends: Past, Present, and Future” from The Hartford Funds highlights the significant role dividends have in stock market returns. Since 1960, about 95% of the cumulative total return of the S&P 500 has come from compounding interest and reinvested dividends.
Investing in dividend stocks not only allows for passive income but also often means investing in strong companies. Stocks that consistently increase their dividends have outperformed others, achieving annual returns of 10.2% with lower volatility. In contrast, stocks that don’t pay dividends have returned closer to 4.3%.
Such strong performance usually stems from companies with solid business models, stable cash flows, and careful risk management. Hence, if you’re seeking passive income or looking to diversify your portfolio and have around $2,000 to invest, here are three dividend stocks worth considering.
Collect monthly dividends with this real estate stock
Realty Income is a REIT owning and leasing over 15,000 commercial properties under long-term triple net leases.
In a triple-net lease, tenants cover most operating costs, including taxes, maintenance, and insurance. This leads to fixed, predictable expenses and stable cash flows. Lease agreements typically extend over 10 to 20 years and often include rent escalations, adding to reliable long-term cash inflow.
One appealing aspect of Realty Income is that it provides dividends monthly instead of quarterly like many other dividend-paying companies. For instance, an investor could expect a dividend of around $0.27 on December 15th, representing an annual yield of approximately 5.6%.
Furthermore, Realty Income has a track record of increasing dividends; in fact, it has raised its monthly dividends 133 times over the past 30 years, making it a great option for steady income.
The world’s largest asset manager delivers income and growth
BlackRock plays an integral role in financial markets, offering a wide array of investment options, including various ETFs through its iShares brand.
The company has capitalized on the momentum of passive investing with its low-cost and diverse ETF selection. Presently, BlackRock stands as the largest asset manager globally, overseeing more than $13.5 trillion in assets. The company’s ETFs provide extensive exposure across diverse sectors, thus enabling customers to craft portfolios that align with their risk tolerance, making iShares a major player in the global ETF market.
The asset manager earns fees on ETFs and other offerings, generating significant recurring revenue. Its vast investment platform allows for substantial profitability without the need for extensive infrastructure, which results in a low capital model.
BlackRock has consistently raised its dividend for 16 years straight, currently boasting a yield of around 1.8%. Additionally, the stock has delivered over 14.8% annual returns over the past decade, including reinvested dividends, making it a commendable pick for those looking for growth alongside income.
Earn a dividend yield of over 9% with this company
If you’re in search of higher returns and are open to some risk, Ares Capital might catch your eye. This company offers a high dividend yield exceeding 9%, a result of its structure as a Business Development Corporation (BDC). BDCs are mandated to pay out 90% of taxable income to shareholders, functioning as pass-through entities.
Over the years, BDCs have filled a crucial gap in financing for small and medium businesses often overlooked by traditional banks. As banks pivot towards larger companies to lower risks, this creates opportunities for BDCs like Ares Capital.
However, lending to middle-market companies does come with its own set of risks, including potential defaults during economic downturns. The recent closures of First Brands and Tricolor, two significant borrowers, have raised eyebrows and put pressure on Ares Capital’s stock performance.
That said, Ares boasts over 20 years of experience in this lending space and has managed to maintain stability, even during the Great Recession. For risk-tolerant investors, Ares Capital stands out as a compelling dividend stock to consider picking up today.
