Investing in the stock market can help you build long-term wealth, but it can take years or even decades to generate substantial returns.
However, with dividend-paying stocks, you not only get long-term returns on your investments, but you also receive dividend payments every year or quarter. Any time you receive dividends, you can reinvest that money to buy more shares or you can cash them in to create a source of passive income.
It’s important to invest wisely when choosing dividend stocks. Not all stocks are created equal and some investments are better than others. While each of these three companies has experienced setbacks, they consistently pay out high dividends, making them a smart choice for many investors.
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1. AbbVie
AbbVie (NYSE: ABBV) is a biopharmaceutical company with a strong track record in dividends. It is a member of the Dividend Aristocrats, a group of S&P 500 shares that have each increased their dividend payment for at least 25 consecutive years.
AbbVie has been a favorite among dividend investors for years because it is known for its high dividend yield and for consistently increasing its dividend. A potential red flag is that the best-selling drug Humira will lose its exclusivity in the US in 2023, which could lead to a sharp drop in Humira sales. However, the company already has several other drugs that are generating strong sales growth, which could offset Humira’s potential losses. For this reason, AbbVie is still in a strong position and should continue to increase its dividend.
The stock has a relatively high annual dividend payment of $ 1.30 per quarter, which equates to $ 5.20 per year. It also costs about $ 106 per share as of this writing. For example, if you invested $ 5,000 in shares of AbbVie, that works out to about 47 shares. In this scenario, you would earn about $ 244 per year in dividend income.
Of course, $ 244 a year is hardly enough to pay the bills. But don’t forget that investing is a long-term strategy. The more you invest, the more you earn. Reinvesting your dividends to buy more shares can boost your dividend payments.
2. IBM
IBM (NYSE: IBM) has been paying dividends since 1913, making it one of the longest-paying dividend stocks in existence. Although the company had a difficult quarter at the end of 2020, it is expected to rebound this year by focusing more on its cloud software solutions. This is a good sign for long-term investors willing to wait and see as this restructuring could result in greater growth potential.
The company also has a hefty dividend payment of $ 1.63 per quarter (or $ 6.52 per year) and is currently trading at $ 120 a share.If you invested $ 5,000 in IBM stock now, you would get about 41 shares to own. With a dividend of $ 6.52 per year, that investment would get you about $ 267 in dividend payments each year.
Also keep in mind that if companies increase their dividends, it will also increase your annual payments, even if you don’t invest more money. By investing in strong companies that increase their dividends every year, you can boost your passive income effortlessly.
3. ExxonMobil
ExxonMobil (NYSE: XOM) is another member of the Dividend Aristocrats, which has increased its dividend for 37 consecutive years every year. It has a slightly lower dividend payout of $ 0.87 per quarter ($ 3.48 per year), but it also has a lower share price of just $ 53 per share at the time of writing.
This stock is on the riskier side as the company has had a difficult year as oil prices fell in 2020. In the past, ExxonMobil has tried hard to protect its dividend by choosing to take on more debt to avoid cutting dividend payments. But if the company continues to struggle, the dividend could be in jeopardy.
However, the company is currently under pressure to focus more heavily on renewable energy and is reportedly considering making changes to the board of directors and investing more in renewable energy. This could result in stronger long-term growth, which is a good sign for investors.
If you currently invest $ 5,000 in ExxonMobil, you will buy 94 shares. At $ 3.48 per share in dividends, you would earn $ 327 per year in dividend payments. If you are a risk averse investor, this stock may not be the best option. But if you’re willing to bet the company is making a comeback, this could potentially be a profitable decision.
When choosing dividend stocks, focus primarily on the overall health of the company. Organizations that consistently pay dividends and take steps to increase revenue growth are likely to be more solid long-term investments. And investing for the long term is key to generating wealth with dividend stocks.