Let’s dive into the top dividend stocks to invest in 2023 edition. For many investors, 2022 was not an easy year. Coming off the back of the COVID-19 pandemic, global financial markets had to deal with aggressive inflation, raising interest rates, and a global energy crisis, and the largest war in Europe since WWII. To help navigate these uncertain times, many investors turned to dividend stocks and dividend investing.
This article examines the top dividend stocks for your portfolio to start generating those returns.
What Are Dividends?
A dividend is a form of shareholder compensation paid out by a company on a regular basis. It’s an investor’s way of getting their share of the profits in return for investing their hard-earned cash. This means that regardless of what the stock price is doing, you are still getting a return and generating passive income. It’s perfect if you’re a laid-back investor who wants to sit and watch your portfolio grow.
The amount of dividends you receive depends on the number of shares you own and the dividend per share value that is set by the board of directors. This can range massively, so it’s important to be cautious when making your choice.
The frequency of the dividends you’ll receive is also decided by the board of directors. Most companies tend to pay out quarterly dividends, but some may choose monthly or even yearly payouts. The value of the dividend you’ll get is always the same regardless of how often it is paid out, so don’t be lured in by a bad company that is making monthly dividend payments.
For example:
- Company A pays out a yearly dividend of $6 dollars per share, and you own 5 shares. $6 x 5 shares = $30 per year in dividends.
- Company B pays out a monthly dividend of $0.35 per share, again you own 5 shares. $0.35 x 5 shares x 12 months = $21 per year in dividends.
Company B may look like a better dividend stock, but the return you will get is much less than with Company A. This is a simplified example, but you get the idea…
Key Dividend Terms
If you’re new to the world of investing, it can be pretty overwhelming, and dividend investing is no exception. Below are some key terms you’ll need before building your portfolio:
Dividend Yield
A dividend yield is simply the dividend per share/share price. It is an easy-to-use percentage that gives you a good idea of how much return you can expect in the form of dividends from a particular investment.
Declaration Date
The declaration date is when the company announces a dividend. They will include information like dividends per share and the date it will be paid.
Ex-Dividend Date
This is the date when a company takes a record of all its shareholders who will get dividends. You must own that stock before this date to receive the next dividend payment.
Payment Date
This is the date the dividend is paid out to shareholders.
What’s the Catch?
Although dividend investing is very appealing to many people (myself included), these types of stocks lack the volatility, and therefore excitement, that comes from a lot of growth and tech stocks. If this isn’t a problem for you, then congratulations! You aren’t treating the stock market like your local casino…
The other downside to dividend investing is the patience that is required. If you are looking for a get-rich-quick scheme, you’ll need to look elsewhere. Dividend investing is a slow process that requires a lot of cash to make significant returns. But do not fear; as you begin to earn dividends and reinvest those earnings into more dividend stock, you will begin to harness the power of compounding, and your wealth will begin to take a snowball effect.
Building Your Portfolio
So now you know the basics of dividend investing, and you want to start building your portfolio, where do you start?
It’s important to choose high-quality companies with strong financials – not just a big dividend! Make sure you do your research, look through a company’s balance sheet, and check over their income statements. Make sure they have enough spare cash to support themselves (and you!) if times get tough.
A good place to start is the Dividend Aristocrat list. This contains all the companies worldwide that have continuously paid and increased their dividends year-in and year-out for the past 25 years. That’s an impressive feat!
Companies on this list tend to be big and well-established, which means there isn’t much room for growth, however, you’ll find much less volatility with a company like Coca-Cola than, say, Tesla. The downside means your portfolio won’t make you rich overnight. But, the risk of you losing everything is low too. Instead, our aim is to generate passive income through regular dividend payments. These dividends can then be reinvested, allowing your money to compound.
Below are my top 5 dividend stocks for 2023. These stocks are all part of my own portfolio, and you should consider adding them to yours.
3M
3M is a multinational corporation operating in U.S. health care, consumer goods, and worker safety. The company produces over 60,000 products across multiple brands. Some of these include personal protective equipment, adhesives, abrasives, dental products, medical products, and car-care products.
Dividend Yield: 4.60%
RIO Tinto
Rio Tinto is a mining company that operates in 35 countries worldwide. They produce Aluminum, Copper, and Iron Ore and offer the biggest dividend yield in my portfolio.
Dividend Yield: 11.93%
Coca-Cola
Coca-Cola is a company we have all heard of! Best known for the Coca-Cola fizzy drink, they also produce a wide range of soft drinks, syrups, and alcoholic beverages.
Dividend Yield: 2.86%
Unilever
Unilever is a British company operating in 190 countries with over 400 brands. They specialize in the consumer goods industry, with 2.5 billion people using their products daily.
Dividend Yield: 3.47%
Mercedes-Benz
Mercedes-Benz is a German car maker specializing in commercial vehicles, trucks, vans, and buses.
Dividend Yield: 8.79%
Bottom Line
Dividend investing is the perfect investment strategy for those who are seeking passive income, steady returns, and a hands-off approach to investing. If you build yourself a portfolio with high-quality, dividend-paying stocks in time, you can reap the benefits of these returns.
On top of this, dividend investing allows us to fully utilize the power of compound interest. The longer you leave your investments earning dividends, the greater the reward will be.
Investing in these top dividend stocks is the perfect way to get started. So what are you waiting for?
