The stock market had a solid rally in the first quarter of 2023. While investors look for bright spots after a difficult 2022, there are some troubling warning signs for the market: Inflation is elevated, the Federal Reserve continues to raise interest rates and the regional banking crisis has caused significant uncertainty in the financial sector. All this leads to the idea that investors should remain cautious in 2023 given the challenging macroeconomic conditions.
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As such, it’s a great time to own dividend stocks. Firms with strong profitability and steady returns to shareholders tend to hold up better in volatile economic conditions. These 15 top dividend stocks all offer yields of at least 3%, providing strong income and the potential for significant stock price appreciation when market conditions improve:
| Stock | Dividend yield as of April 10 |
| Verizon Communications Inc. (ticker: VZ) | 6.6% |
| International Business Machines Corp. (IBM) | 5.1% |
| Digital Realty Trust Inc. (DLR) | 5.4% |
| Hawaiian Electric Industries Inc. (HE) | 3.7% |
| Dominion Energy Inc. (D) | 4.6% |
| Toronto-Dominion Bank (TD) | 4.8% |
| Amgen Inc. (AMGN) | 3.4% |
| AvalonBay Communities Inc. (AVB) | 3.9% |
| National Storage Affiliates Trust (NSA) | 5.1% |
| Realty Income Corp. (O) | 4.9% |
| Fidelity National Information Services Inc. (FIS) | 3.8% |
| Tyson Foods Inc. (TSN) | 3.2% |
| Grupo Aeroportuario del Pacífico SAB de CV (PAC) | 3.8% |
| Eastman Chemical Co. (EMN) | 3.9% |
| Molson Coors Beverage Co. (TAP) | 3.1% |
Verizon Communications Inc. (VZ)
Verizon is one of the three largest U.S. wireless carriers. Investors have long counted on these blue-chip firms for steady income streams. Rival AT&T Inc. (T) shocked investors with a dividend cut following its unsuccessful Time Warner acquisition attempt, but investors have overly punished Verizon in the aftermath. It’s true that the telecom industry faces challenges with rising competition and a heavy investment cycle to deploy 5G technology. Verizon retains strong cash flow, however, and telecom is a nearly recession-proof industry. For now, shares still trade for less than nine times forward earnings.
International Business Machines Corp. (IBM)
Investors have long shied away from IBM. As cloud computing took off, it seemed like IBM might get left behind. Indeed, the company had its challenges transitioning from its legacy hardware business to become better positioned for today’s opportunities. IBM has started to make big changes, one example being its 2021 spin-off of Kyndryl Holdings Inc. (KD), which got rid of the slowest-moving part of its business. Meanwhile, IBM’s bold acquisition of enterprise software firm Red Hat gave it a leg up in the cloud business, specifically as it relates to virtual machines and data centers. After years of revenue decline, IBM has returned to sales growth as well; revenue is recovering from 2020 lows, and analysts forecast further gains going forward. Not bad for a company that trades for less than 13 times forward earnings and offers a large yield.
Digital Realty Trust Inc. (DLR)
Digital Realty Trust is a real estate investment trust, or REIT, in the data center and communication equipment category. Historically, Digital Realty has enjoyed tremendous growth as companies have deployed tons of additional servers to meet the sharply rising demand for data. In recent years, Digital Realty has faced some risk as some of the large tech firms have built their own data centers rather than renting from vendors like Digital Realty. Regardless, the world of data continues its exponential growth and that gives room for the data center REITs to expand. Digital Realty shares have lost more than a third of their value over the past year, as soaring interest rates have crushed valuations in the REIT market. The upside of this, however, is that Digital Realty is now offering its highest dividend yield in years.
Hawaiian Electric Industries Inc. (HE)
While the stock market enjoyed a strong start to 2023, not all industries have participated. Utilities, for example, have underperformed due to concerns around interest rates and rising debt service costs. For example, Hawaiian Electric shares are down 6.6% year to date through April 6, offering a discount on this regional utility. Hawaiian Electric is the largest listed company in Hawaii, and it has a near monopoly on power, serving 95% of the state’s residents. As is fitting with Hawaii’s eco-focused tourism economy, the state has been a leader in adopting clean energy. Hawaiian Electric has slashed its carbon emissions 22% since 2005, and aims to get to a 70% reduction by 2030. The utility earns an established return on its capital for making these investments, giving shareholders a steady earnings stream. With the stock essentially flat over the past five years, this is a solid entry point for Hawaii’s leading enterprise.
Dominion Energy Inc. (D)
Dominion is another utility that is currently out of favor. Remarkably enough, shares have dropped more than 30% over the past year — a massive move for the utility industry and an overreaction that dividend investors can benefit from. Dominion sells power to roughly 7 million customers in 16 states. The firm made a large and controversial acquisition, buying Scana Corp. in 2019. More recently, Dominion has projected huge spending in regulated investments with a focus on low-carbon generation. Changes in the Virginia regulatory environment could also hamper Dominion’s returns on future investment in that state. It’s understandable why some investors are nervous. However, shares have fallen back to 2013 price levels and now sell for just 15 times forward earnings. As Dominion gets back on track, shares should rebound and in the meantime there’s a strong yield.
Toronto-Dominion Bank (TD)
Toronto-Dominion Bank is one of Canada’s largest banks. It has extensive operations in both investment and retail banking. In recent years, it has moved into the American market as well. TD stock has slumped in recent weeks thanks to the crisis in the banking sector. TD is directly involved, to an extent, since it owns 12% of Charles Schwab Corp. (SCHW). Schwab shares have plummeted over the past month amid the banking crisis. TD stock offers investors a safer way to profit from the eventual recovery in Schwab, assuming it bounces back. At the same time, Toronto-Dominion’s core Canadian banking market remains highly attractive due to the limited competition and high profit margins available there. With TD shares down more than 20% over the past year, investors are getting a solid discount at today’s price.
Amgen Inc. (AMGN)
Amgen is a large biotech company with an extensive array of Food and Drug Administration-approved medicines. Traditionally, Amgen has focused on therapies for cancer, inflammatory issues and renal disease, among other conditions. The company faces some challenges as several of its drugs approach the end of their patent protection period. However, Amgen is addressing these issues via mergers and acquisitions. It bought Onyx Pharmaceuticals to add to its oncology portfolio. Amgen is also aiming to buy Horizon Therapeutics PLC (HZNP), which will bolster its position with drugs for the immune system. Amgen shares have been roughly flat over the past year, which leaves them at an attractive 13 times forward earnings.
AvalonBay Communities Inc. (AVB)
AvalonBay is a REIT that owns apartment buildings, and it operates more than 82,000 units, with another 5,000 in development. The firm has focused on top-tier markets such as Washington, D.C. and New York, which tend to have higher rents and stable demand. AvalonBay was a big winner over the past couple of years, as rents surged amid the current inflationary wave. Now, however, with the housing market rolling over, investors are worried that rent growth may dry up as well. AvalonBay will likely also have to pay higher interest rates on its debt given current market conditions. Regardless, with shares down more than 30% over the past year, AVB stock has been punished too heavily. Shares are now merely flat since 2018, which makes little sense given the huge growth in rent prices since then. AvalonBay is a bargain thanks to the investor panic around higher interest rates.
National Storage Affiliates Trust (NSA)
National Storage Affiliates is the sixth-largest publicly traded self-storage operator in the U.S. That size makes it a unique value today. That’s because the industry’s largest player, Public Storage (PSA), plans to acquire the No. 4 player, Life Storage Inc. (LSI). Life Storage shares have run up about 50% this year amid the M&A excitement. With consolidation coming to the storage industry, National Storage Affiliates is the next logical takeover target if further mergers occur. National Storage is one of the smaller players, but has grown rapidly in recent years and could be a nice tuck-in acquisition for a bigger rival. In the meantime, NSA shares are down by a third over the past year thanks to rising interest rates and the exodus out of the REIT sector. This makes little sense given the bidding war for Life Storage and NSA’s own attractive 15 price-to-forward funds from operations ratio.
Realty Income Corp. (O)
Sticking with REITs, there’s Realty Income. The firm smartly labeled itself “The Monthly Dividend Company” many years ago and has attracted a loyal shareholder base that loves the REIT’s large and frequently increased monthly dividend payouts. Realty Income is able to deliver its consistent results because it is a triple-net REIT. In this structure, tenants, rather than the landlord, pay key expenses such as utilities and maintenance. With inflation on the rise, the triple net structure shelters landlords from rising costs which have hit property owners in other segments of the REIT market. While Realty Income’s business model is stable, shares have fallen over the past year, as investors have indiscriminately sold off the REIT sector. This has pushed Realty Income’s stock up to an attractive yield today.
Fidelity National Information Services Inc. (FIS)
Fidelity National Information Services is a technology company focused on providing payments solutions to a wide range of clients. The firm offers flexible cloud-based software that delivers payments support to everyone from startups to Fortune 500 giants. In addition to core payments operations, it offers ancillary services such as online and mobile banking solutions, fraud detection and prevention, and risk management. The firm is currently in the penalty box since it overpaid for Worldpay, a 2019 acquisition, and took a write-down on that deal recently. However, the core business remains highly profitable and shares are trading for less than 9 times forward earnings. This is pretty remarkable for a firm that analysts continue to see growing into the future. With the large drop in share price over the past year, FIS stock now offers a strong starting yield as well.
Tyson Foods Inc. (TSN)
Tyson Foods is a packaged foods firm focused on meat products. Meat wasn’t a great industry in 2022 due to soaring livestock prices. The war in Ukraine caused a surge in grain prices, making it more expensive to raise cattle and poultry. This resulted in a big squeeze in Tyson’s profit margins, and shares have lost about a third of their value over the past year. However, this shouldn’t be a permanent condition. Meat is a cyclical business, and the cycle is set to turn in Tyson’s favor. Grain prices have plunged in recent months as inflationary pressures appear to be abating more broadly. In any case, meat demand won’t be going anywhere long term, so it’s just a matter of time until Tyson returns to normal levels of profitability. Even with current difficulties, Tyson shares are selling for just 11 times forward earnings. That’s a tasty entry point.
Grupo Aeroportuario del Pacífico SAB de CV (PAC)
Pacific Airport Group, as the name translates, is a Mexican airport operator. It runs 12 airports in Mexico and two more in Jamaica. Prized concessions include the big city of Guadalajara, industrial hub Tijuana, and beach resorts such as Puerto Vallarta and Cabos. Concessions for the Mexican airports run until 2048 and are renewable until 2098. Pacifico enjoyed a massive surge in traffic over the past two years, as Mexico had more relaxed COVID-19 travel restrictions than most other countries in the region. The traffic surge has continued in 2023 as focus now shifts to reshoring, that is to say, the movement to locate more manufacturing in North America. Mexico will be a natural beneficiary as American firms move more of their supply chains closer to home. Pacifico has a variable dividend policy and pays the majority of its free cash flow as dividends every year.
Eastman Chemical Co. (EMN)
Eastman Chemical is a specialty chemical company with roots tracing back to the photography giant Eastman Kodak. While Kodak failed to navigate the transition to digital photography, its former chemicals subsidiary, Eastman Chemical, has blossomed as an independent firm. Since its spinoff in 1993, EMN stock has now delivered a total return of about 800%. It has managed this by focusing on more niche chemicals for specific markets rather than competing solely in mass-market commodity chemicals. Eastman has products for use cases such as virtual reality displays, tinting products for vehicles and composites for solar panels, among others. These sorts of proprietary products earn higher margins than commodity chemicals. While there is cyclical risk here if the economy sours, EMN stock is plenty cheap enough at about 9 times forward earnings to account for that.
Molson Coors Beverage Co. (TAP)
Molson Coors is a leading brewing firm focused on the North American and European markets. It came about through the merger of Canada’s Molson with Coors and its leading brands such as Coors Light and Miller Lite. The firm also has a big presence overseas, including with Carling, which is the No. 1 beer brand in the U.K. Molson Coors had a rough couple of years during the pandemic as COVID-19 restrictions greatly limited beer sales at on-premise venues such as bars, restaurants and stadiums. In addition, the surge in commodity prices and the cost of materials such as packaging hit the bottom line. However, Molson Coors has recently reported stronger earnings and key brands appear to be back on track. The firm is also a leader in the alternative drinks space with key brands such as Blue Moon, Simply Spiked and Topo Chico Hard Seltzer. Shares now trade for just 12 times forward earnings.
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Update 04/10/23: This story was previously published at an earlier date and has been updated with new information.
