Dividend stocks are one of the most effective ways of investing your money – in fact, with their relatively safe and steady return, it’s possible to entirely live off of your dividends if you can buy enough of them. In this guide, we’re going to take a look at our top 10 choices for dividend stocks to buy in 2018.
Spectra Energy Partners, L.P.
Iron Mountain Incorporated
Brookfield Renewable Partners
Tanger Factory Outlet Centers
National Retail Properties
How We Chose These Stocks
There are three major factors we took into account when determining which stocks to include on this list.
First, it must provide a dividend yield above 4%. Most dividends don’t offer this much, but higher is always better as long as the stock itself is safe.
Second, it should be increasing its dividend. This isn’t required if a stock has a good rate and has consistently paid out the dividend, but it’s always good to see a dividend going up. If the company is likely to cut the dividend in the near future, we stayed away.
Finally, the company should be consistent about payments. Predictability is vital, and companies that have provided steady dividends for many years are, in most cases, likely to keep doing so. Past performance never guarantees future performance, but in settled markets, it’s worth looking at this.
Unfortunately, we don’t have the space to go into a complete analysis of each of these recommendations. As always, we encourage you to do independent research on each of our suggestions to ensure they’re good buys for your needs.
What’s a REIT?
REIT stands for Real Estate Investment Trust. These are companies that own significant amounts of real estate (sometimes 1000 or more properties), and legal requirements – mainly paying out 90% or more of their income to shareholders – makes them ideal sources of dividends. Many of the stocks on this list come from REITs.
Why Do Utility Companies Show Up A Lot?
Utility companies (such as electricity and gas suppliers) are effectively state-controlled monopolies. They provide a service but have little control over pricing and natural limits on how quickly they can expand. As such, much of their profit is often distributed to shareholders. Along with REITs, utility companies offer some of the best dividends on the market.
The Top 10 Dividend Stocks For 2018
Here are our picks for high-yield dividends this year.
Dividend Yield: 7.7%
Spectra Energy Partners is an infrastructure company focused on oil and gas, especially through their pipelines and storage facilities. Most of the company’s revenue comes from reservation fees that customers place to get capacity on their pipes and in their storage facilities. A small amount (>10%) comes from direct usage by customers.
What makes this stock good for dividends is their long-term business model. Most contracts last at least eight years, and the pre-arranged pricing makes the company largely immune to volatility in prices. Also, their physical pipelines are extremely difficult for a competitor to duplicate, making it unlikely the company will have challengers in the near future.
Between the high dividend yield and the prospects for growth, Spectra Energy Partners is easily one of the best dividend stocks for 2018.
Dividend Yield: 7.3%
Iron Mountain Incorporated is a real estate business service that focuses on storing and protecting information for customers. Their facilities include everything from standard files and business documents to more sensitive and esoteric items, like art and medical information. More than 80% of their profits come from their storage services, with small amounts coming from shredding and data management.
The company’s real estate covers over 80 million square feet in 40 countries, with most of its customers being Fortune 1000 businesses. Running these facilities requires minimal capital expense, and the long-term nature of storage and customer relationships (with many customers sticking with them for 50 years or more) makes the company fairly predictable.
#3: W.P. Carey
Dividend Yield: 6.7%
This diversified REIT manages roughly 900 properties on two continents, with the United States accounting for about two-thirds of them. What makes W.P. Carey so attractive as an investment is their extremely diverse portfolio. Managed assets include office, industrial, warehouse, self-storage, and retail facilities, which are further leased out to areas like public finance, automotive, and consumer service needs.
The practical result of this is a company that’s well-insulated from market issues – even if one sector turns sharply downward, that won’t affect the company as a whole. Growth can be a bit irregular – W.P. Carey regularly sells properties it thinks are overpriced and buys better locations – but on the whole, we have every reason to believe the company will be stable over the next few years.
Dividend Yield: 6.5%
Brookfield Renewable Partners is part of a larger infrastructure company known as Brookfield Asset Management. The reason we’re focusing on just one arm of this company is the strong global interest in moving towards renewable sources of energy in the coming decades. About two-thirds of its operations take place in North America, with smaller amounts in South America and a small but growing footprint in Europe.
Most of the company’s revenue is contracted out for 15 or more years, making it extremely predictable. Also, Brookfield Renewable Partners is well-positioned to expand as countries set ambitious goals for the use of renewable power. BRP focuses on hydroelectric power but also has experience with wind, solar, and biomass energy generation, and this diversity makes it one of the best dividend stocks for 2018.
#5: Ventas, Inc.
Dividend Yield: 6.2%
Ventas is an investment trust that focuses on healthcare. Normally, we’re a little wary of companies that focus on one field, but healthcare is a reliable area because it’s always in demand. Fortunately, it’s well-diversified within the industry and owns over 1000 properties in areas like senior housing, life science, acute care and specialty hospitals, and medical offices.
As the demand for healthcare increases, we think medical REITs will snap up more and more properties, offering excellent opportunities for growth and stable, predictable dividends.
Dividend Yield: 6.0%
Tanger Factory Outlet Centers is one of the most effective retail real estate management companies, with an occupancy rate above 95% despite the troubled retail market. Much of this comes from their emphasis on upscale shopping areas, which are less affected by economic troubles. Their shopping areas are frequently updated to provide a better shopping experience through the inclusion of comforts and technology.
In total, Tanger has more than 40 well-distributed facilities that host over 3,100 individual stores from 500 retailers. Even their biggest customers account for less than 10% of the company’s revenue, insulating Tanger from shocks and losses. Dividends have consistently increased for decades, and the high occupancy rate suggests this stock is a strong bet going forward.
#7: PPL Corporation
Dividend Yield: 5.9%
PPL is an electricity and natural gas distributor, with a small amount of power generation as a side business. A little over half of its business occurs in the U.K., with the rest coming from the states of Tennessee, Virginia, Kentucky, and Pennsylvania. Counting both sides of the ocean, PPL services more than 10 million customers.
With steady returns across more than 100 years of business, PPL is a reliable buy – but unlike most of the stocks on this list, we don’t recommend buying it quite yet. Brexit concerns mean the potential profits of the company are in flux, and it may be best to wait to see how things shake out during the year. If things look good later in 2018, it’s time to take a closer look at buying their stock.
Dividend Yield: 5.4%
AT&T is the largest telecom company in the world – and even the era of cord-cutting can only do so much to hurt its revenue. Unlike its main competition, AT&T has aggressively expanded outside of basic wireless services. Its profits mainly come through its Business Solutions, Entertainment, and Consumer Mobility divisions, with a small amount of additional revenue coming through its International division.
AT&T is well-placed, competitively speaking. While it’s only the second-largest wireless provider in the United States, entering this market is extremely costly and time-consuming. It also has the kind of competition that forces it to be creative about expanding, so we know the company can’t simply rest on its laurels the way many of the REITs on this list can.
Dividends have been paid for more than three decades, and payments have increased over that period, making AT&T one of the most reliable stocks currently on the market.
Dividend Yield: 4.9%
Much like Tanger Factory Outlet Centers, National Retail Properties is a REIT that focuses on retail properties. It currently owns more than 2,500 locations, and several hundred tenants in dozens of trades provide an extremely diverse set of leases. Major sectors include convenience stores, full-service and limited-service restaurants, auto service shops, fitness locations, and family entertainment centers.
About 60% of the company’s profits come from their 25 largest tenants, the majority of whom are stable, established businesses. Also, many leases are set to last for more than ten years, which provides excellent visibility for the company’s cash flow and expected future earnings. Unlike some other REITs, National Retail Properties doesn’t depend on capital markets for much of its financing needs.
The growth rate isn’t the highest – about 2.1% per-year – but this company has been steady and reliable for decades.
#10: Duke Energy
Dividend Yield: 4.7%
Duke Energy is one of the largest electrical utilities in the country, with most of its operations focused on the Midwest and the Southeast United States. They currently have about 7.5 million customers for electricity and 1.6 million customers for natural gas.
Like many utility companies, Duke Energy acts as a de facto monopoly where they are the sole supplier of energy. This limits their control on pricing – that tends to be regulated at the state level – but it also ensures that the company is all but assured of continued business for the foreseeable future. Helpfully, Duke Energy is the main supplier in areas with good demographics and growth potential.
Over the last few years, Duke Energy has been shifting to growing its natural gas business. Given market trends, that’s a step in the right direction. As far as its dividends go, Duke Energy has been paying them quarterly for over 90 years, making them about as predictable as you can reasonably expect.
They don’t have the same growth potential as our top picks, but they’re still a good choice for a diversified portfolio.
As with all stock investments, diversity is key. Some of the stocks on this list are naturally diverse – W.P. Carey, for example, has tenants in so many locations and industries that even a relatively serious market shock is unlikely to dislodge it. Even so, we never recommend putting all of your money into one stock, no matter how attractive you think it is.
Instead, aim for a good blend in different areas. If you’re not sure where to invest, talk to a financial advisor (preferably a fiduciary, who is bound to act in your interests instead of their own). If you plan to invest yourself, we suggest starting with the first three stocks on our list and examining their current prices, then adding others at a rate suitable for your financial status.