Dividend stocks offer better returns than bonds.
2021 has thankfully been a less volatile year for investors than 2020. While there have been various bumps along the way, the economy continues to recover swiftly from last year’s pandemic shock. Surging job numbers and consumer spending are leading to quite a boom. And, despite worries around inflation and surging interest rates, the benchmark 10-year Treasury bond yield still sits near 1.5%, which is, historically speaking, remarkably low. That means stocks with strong dividend yields still have greater-than-average appeal as alternatives to low-yielding bonds. That’s reflected in this list of the best dividend stocks to buy for 2021. Only three of the following 15 dividend stocks have fallen year to date — and one of those is up if you include dividends — while many are up sharply.
Target Corp. (ticker: TGT)
Target is the first pick on the list, and it’s admittedly one of the lowest-yielding. Shares currently pay only 1.4%. There are two points to consider there, though. First, Target still yields a little more than the S&P 500 as a whole. The second is that Target’s yield has declined in large part because the stock price has gone up so much over the past year. That’s not a bad problem to have. The company’s success comes from a massive $7 billion digital effort that it launched in 2017 to make itself more competitive in an increasingly e-commerce world. That investment paid off in spades in 2020 as shoppers looked to firms that could handle online grocery and basic goods, and Target met customers’ pandemic needs. Target has rode that momentum for all it’s worth in 2021, as it continues putting up sparkling quarterly earnings results.
Year-to-date total return including dividends (through Nov. 9): +46%
Greif Inc. (GEF)
Greif is the smallest firm on this list, but it packs a big punch. The company, which makes packaging materials and containers, is in just the right place at the right time in 2021. The boom in consumer demand has created all sorts of demand for boxes and other such material. Greif reported a stunning 38% rise in revenue last quarter versus the same period in 2020. Earnings also came in way ahead of expectations. There have been some pressures due to rising costs of inputs such as wood pulp. However, Greif has been able to raise prices to offset those concerns. Long story short, with American consumers shopping like never before, Greif is poised to profit. It shares the wealth with its shareholders as well: GEF stock currently yields 2.6%.
Year-to-date total return: +53.7%
AbbVie Inc. (ABBV)
AbbVie is a repeat selection on the best dividend stocks list, having made the cut in 2020 as well. It’s not hard to see why. In a market starved for dividends, AbbVie stands out as a unique option. It’s one of the best-paying stocks in the health care industry. AbbVie is unique in that it primarily generates its revenue and profits from Humira. That drug is, indeed, the best-selling pharmaceutical product out there in recent years. Bears will point to the company’s downside risk once Humira goes off patent in a couple of years. However, the firm has diversified itself by acquiring the rights to other drugs such as Botox. Shares yield 4.8% right now, and given that the stock isn’t up much overall in 2021, this might be a decent entry point.
Year-to-date total return: +13.1%
JPMorgan Chase & Co. (JPM)
Banks are back. The asset class instantly became reviled following the 2008 housing market meltdown, and many investors swore off ever owning a financial stock again. But many people failed to realize that regulators had clamped down on banks, making the system much safer than before. That became apparent during the pandemic, where investors feared huge loan losses. Instead, the banks skated through with hardly a blip. And now, conditions are setting up perfectly for the banks. The economy is surging. The housing market is on fire. The Federal Reserve is set to start tapering, and interest rates should rise over the next couple of years. JPMorgan remains one of the best-run large banks, and thus is a compelling choice for investors wanting a safer stock in the sector. The bank’s 2.4% yield doesn’t jump off the screen, but the firm more than makes up for it with the high quality of its business.
Year-to-date total return: +35.4%
Johnson & Johnson (JNJ)
Johnson & Johnson is the prototypical blue chip stock. The company tends to increase its revenue and earnings a little every year. Thanks to that steady growth trajectory, it pays out a bigger dividend each year to its shareholders. Indeed, its growth streak is now up to 58 years in a row, making it one of the few American dividend kings, or stocks that have increased their payout for at least 50 consecutive years. J&J manages this by having a hugely diversified health care business under one roof. There’s the consumer business, which sells everything from Listerine and Tylenol to Pepcid and Band-Aids. The largest division is pharmaceutical drugs, but the company also sells medical devices. That segment got hit in 2020 as hospitals delayed elective surgeries due to the pandemic. With that headwind passing, the company is back on track in 2021, making this a good time to pick up its 2.6% dividend yield.
Year-to-date total return: +5.2%
Iron Mountain Inc. (IRM)
Iron Mountain is a real estate investment trust, or REIT, focused on document and data storage and security. The company had been in a downtrend for a while as investors feared that a reduction in paper document usage would hurt the business. However, management has adapted by focusing more on digital services such as data backups and data center operations. In any case, Iron Mountain shares have snapped out of their fall and made new highs in 2021. Meanwhile, the company still rewards shareholders with a 5.2% dividend yield. That’s in part due to the REIT structure. REITs are able to avoid double-taxation on income due to their legal structure but in return must pay out at least 90% of profits as dividends to shareholders. That’s been a most acceptable agreement for shareholders in Iron Mountain.
Year-to-date total return: +68.6%
PepsiCo Inc. (PEP)
When thinking of food and beverage stocks, most people instinctively jump to Coca-Cola Co. (KO). However, PepsiCo is the more timely pick. Coca-Cola sales plunged in 2020 as people stopped going to movie theaters, sporting events, restaurants and other such occasions where soft drinks are sold in large quantities. PepsiCo endured the year much better thanks to the strength of its Frito-Lay snack foods division. There was no slowdown in the consumption of junk food during that stressful quarantine era. For 2021, PepsiCo started on a down note as analysts fretted about inflation. However, Pepsico has strong brands and thus has been able to raise prices to offset its input cost issues. PepsiCo stock has recently moved to new 52-week highs. The firm and its 2.6% dividend remain attractive heading into 2022 as investors turn to safe, reasonably priced blue chip names in an increasingly frothy market.
Year-to-date total return: +12.7%
Discover Financial Services (DFS)
Discover made the best dividends list because it is one of the highest-yielding credit card companies. By contrast, Mastercard Inc. (MA) offers a mere 0.5% dividend yield, barely topping what’s on offer at an average bank savings account. Discover shares pay a healthier 1.7% yield. In doing so, Discover only has a 20% payout ratio compared to its earnings, giving the company plenty of room to hike the dividend in the future. This is a fantastic time to have exposure to the credit card industry. The government and the Fed released an unprecedented amount of stimulus into the economy during the pandemic. This has left consumers ready to spend. 2021 has brought a boom in purchases of appliances, home goods, travel and experiences as people start to enjoy the finer things in life. This has led to a surge in profitability for Discover and its peers. Discover shares trade at just 8.8 times forward earnings.
Year-to-date total return: +30.6%
Cisco Systems Inc. (CSCO)
Cisco is one of the highest-yielding tech stocks around, with shares currently paying 2.6%. That’s in part because Cisco is something of a tech utility company at this point. Cisco’s routers and networking gear are essential pieces of the internet infrastructure. However, much of the technology is well established at this point. Cisco isn’t having to dump tens of billions of dollars into developing the metaverse, self-driving cars or any such huge endeavor like many of the other tech titans. Thus, Cisco has room to reward its shareholders with a generous capital return program. Cisco admittedly isn’t the most thrilling tech stock around. But when it is trading for only about 16 times forward earnings, it can be a nice stable piece of a broader growth and income portfolio.
Year-to-date total return: +32.1%
Mondelez International Inc. (MDLZ)
PepsiCo isn’t the only food and beverage stock to make this list. There’s also Mondelez, which makes a bunch of well-known brands including Oreo, Cadbury, Toblerone, Halls, Trident and Tang. The company enjoyed a big boost to sales in 2020 as people stocked up their pantries during the pandemic. Shares have cooled off a bit in 2021 as that boost has faded and inflation pressures have mounted on the cost side. However, a food giant such as Mondelez will be able to push through price increases and come out of the other side of this challenging period stronger than ever. Shares are only up slightly on the year, making this a relative bargain. Meanwhile, the firm is paying out a reasonable 2.3% dividend.
Year-to-date total return: +8.2%
Crown Castle International Corp. (CCI)
Crown Castle is another REIT that makes the list. The company serves an indispensable role in modern life, as it owns, operates or leases 40,000 cellphone towers, primarily in the U.S. It also controls tens of thousands of miles of fiber cable connecting various wireless assets. This puts Crown Castle on a more solid footing than many of its REIT peers. REITs tied to malls, shopping centers or offices, for example, have had a rough go of it in recent years. Cell towers, by contrast, have a bright future. People are using mobile data for everything nowadays. The “internet of things” and 5G rollout will further bolster the existing trend. A cellphone tower might seem like an insignificant business, but 40,000 of them add up to a true real estate empire. Meanwhile, Crown Castle rewards its shareholders with a 3.2% dividend yield.
Year-to-date total return: +16.2%
AT&T Inc. (T)
AT&T has arguably been the biggest disappointment of the dividend stocks in 2021. Its streaming business held a great deal of promise. However, management failed to execute and ended up deciding to spin off that asset in a complicated deal involving media peer Discovery Inc. (DISCA). As part of its corporate reorganization, AT&T will be cutting its dividend dramatically. While the company will still offer a high yield, it won’t be nearly the same as it was at more than 8% prior to the cut. Arguably, the bad news is priced in by now. AT&T shares have dropped sharply, and management is refocusing its efforts on core telephony operations. If AT&T can turn things around, shares look quite cheap from current levels. While the dividend will be reduced, it’s still likely to yield around 5% once the Discovery media assets deal is complete. In this market, that’s not a bad offer.
Year-to-date total return: -7.7%
Antero Midstream Corp. (AM)
Antero Midstream is one of the smaller and riskier firms on this list. It’s an energy firm formed by parent company Antero Resources Corp. (AR), which produces natural gas, primarily in Pennsylvania, Ohio and West Virginia. Antero Midstream, in turn, handles various logistics for its parent company, including natural gas gathering and compression, processing, and water delivery and blending. Even after a sizzling rally in 2021, Antero Midstream still yields more than 8%. Normally, a yield that high raises concerns of a possible cut. That seems unlikely at the moment, however, given that natural gas prices are through the roof. With the winter heating season now setting in, natural gas prices could run even higher in coming weeks, giving another boost to the Antero complex. If the economic recovery slows down, hitting energy prices, it could reverse Antero Midstream’s fortunes. For now, however, the energy firm remains an intriguing way to ride the economic reopening trade.
Year-to-date total return: +55.9%
Newmont Corp. (NEM)
Newmont is one of North America’s leading gold and metals mining companies. With the surge in inflation tied to the rapid economic reopening and heavy government stimulus, things appeared to be ideal for gold miners. Instead, it seems, much of that demand for hard assets went into cryptocurrencies in place of gold. For a certain set of investors, Bitcoin seems to work fine as an inflation hedge and alternative to holding fiat currency. That said, the price of gold remains about $1,800 per ounce, which is not that far from its all-time high. The gold miners are making plenty of profits, even if the stock market isn’t enamored with the sector. Newmont is also treating its shareholders well, and the firm currently yields 3.8%.
Year-to-date total return: -3.4%
Kimberly-Clark Corp. (KMB)
Rounding out the list, there’s personal hygiene company Kimberly-Clark. The company is most famous for its toilet paper, though it sells a wide array of other goods, such as soaps and cleaning supplies, diapers and incontinence products. The company has had a fairly quiet 2021 so far. Many people bought more paper goods than necessary last year due to pandemic-induced anxiety, so the company has seen a sales headwind. Meanwhile, input costs are up due to the current inflation wave. Regardless, the firm’s long-term prospects remain strong. And with shares essentially flat for the year, they now look like a bargain compared to the rest of the market. Kimberly-Clark also checks the right boxes for income investors, as shares yield 3.4%.
Year-to-date total return: +0.8%
Top dividend stocks for 2021:
— Target Corp. (TGT)
— Greif Inc. (GEF)
— AbbVie Inc. (ABBV)
— JPMorgan Chase & Co. (JPM)
— Johnson & Johnson (JNJ)
— Iron Mountain Inc. (IRM)
— PepsiCo Inc. (PEP)
— Discover Financial Services (DFS)
— Cisco Systems Inc. (CSCO)
— Mondelez International Inc. (MDLZ)
— Crown Castle International Corp. (CCI)
— AT&T Inc. (T)
— Antero Midstream Corp. (AM)
— Newmont Corp. (NEM)
— Kimberly-Clark Corp. (KMB)
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