With interest rates soaring to levels not seen in more than 15 years, many people are understandably moving money into bonds and high-yield savings accounts. There is value to be had in locking in attractive interest rates in this new market environment. That said, over time, stocks have proven to be the best way to compound one’s capital, beating bonds and cash by a wide margin.
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Dividend stocks are a way to get the best of both worlds. They offer solid income today while they should also grow over time at a much faster rate than most alternatives. With the uncertain economic environment and the possibility of a recession, however, investors should be prudent when selecting their dividend stocks. These 15 top income stocks all offer favorable long-term prospects while starting out with at least a 3% dividend yield today:
| Stock | Dividend yield as of May 26 |
| Amgen Inc. (ticker: AMGN) | 3.9% |
| Kimberly-Clark Corp. (KMB) | 3.4% |
| OneMain Holdings Inc. (OMF) | 10.7% |
| Washington Trust Bancorp Inc. (WASH) | 8.7% |
| Canadian Natural Resources Ltd. (CNQ) | 4.6% |
| Eastman Chemical Co. (EMN) | 3.8% |
| Grupo Aeroportuario del Pacífico SAB de CV (PAC) | 3.3% |
| International Business Machines Corp. (IBM) | 5.3% |
| Verizon Communications Inc. (VZ) | 7.3% |
| Realty Income Corp. (O) | 5.2% |
| AvalonBay Communities Inc. (AVB) | 3.7% |
| Toronto-Dominion Bank (TD) | 4.6% |
| Qualcomm Inc. (QCOM) | 3.0% |
| American Tower Corp. (AMT) | 3.2% |
| Whirlpool Corp. (WHR) | 5.3% |
Amgen Inc. (AMGN)
Amgen is one of America’s largest biotech companies. It has developed and sells a large number of Food and Drug Administration-approved medicines. Amgen’s historical success has been tied to therapies for cancer, inflammation and renal disease, among other conditions. Amgen is starting to reach the end of patent protection for several of its drugs. It is offsetting this by bringing more products into the portfolio both through its organic pipeline and via acquisitions
such as its purchase of Onyx Pharmaceuticals. That acquisition adds to Amgen’s position in oncology. Amgen shares have fallen to near 52-week lows amid a general sell-off in the health care and biotech areas and regulatory scrutiny around Amgen’s planned acquisition of Horizon Therapeutics PLC (HZNP). Thanks to this, shares go for just 13 times forward earnings and offer a nearly 4% dividend yield.
Kimberly-Clark Corp. (KMB)
Kimberly-Clark is a consumer staples company that has had an eventful ride over the past few years. Kimberly-Clark’s outlook soared in 2020 as people stocked up on toiletries and cleaning supplies at the start of the pandemic. However, as actual usage rates of these products didn’t change much, the sales increase was short-lived. Then a major wave of inflation and supply chain disruption hit, and Kimberly-Clark went from record profits to a bust. However, Kimberly-Clark is back on the right track.
Key input goods such as wood pulp have plunged in price, making for better profit margins. As inflation subsides and economic conditions normalize, Kimberly-Clark should be well-positioned to grow earnings. Shares are only up marginally since 2016, even as the business has grown considerably. This suggests that the stock could have significant upside once earnings and investor sentiment improve.
OneMain Holdings Inc. (OMF)
OneMain Financial is a large specialty finance company. It makes consumer credit loans to people with relatively low credit ratings. OneMain operates more than 1,400 branches across 44 states in addition to a growing digital-lending channel. It has more than $20 billion in its loan portfolio outstanding. Investors have been worried about how credit quality will hold up in a recession. That’s a fair concern. However, OneMain has been around for decades, having previously been a subsidiary of Citigroup Inc. (C) and gained unmatched data and operational expertise from operating through the 2001 and 2008 downturns.
While OneMain faces competition from newer rivals, its long operating history and geographic diversification should give it sticking power through all economic climates. With the recent sell-off, OneMain now sells for six times forward earnings and offers a dividend yield of more than 10%.
Washington Trust Bancorp Inc. (WASH)
Founded in 1800, Washington Trust Bancorp is one of America’s oldest regional banks; it is also the largest bank based in Rhode Island. The firm has a track record of prudence and has paid dividends for more than a century. Despite these factors, Washington Trust shares haven gotten caught up in the broader banking sell-off in 2023, with the stock down by roughly 50% from prior levels. This is a gross overreaction, given that Washington Trust is not exposed to venture capital, cryptocurrency or other esoteric matters that sunk the more speculative regional banks. And it’s not facing any deposit issues either; in its first quarter, deposit balances were precisely flat.
Earnings are down this year due to a slowdown in the firm’s mortgage banking business, but that’s not anything that imperils the firm’s longer-term outlook. With the recent sell-off, shares now yield 8.7%.
Canadian Natural Resources Ltd. (CNQ)
Canadian Natural Resources is one of Canada’s largest companies and a dominant player in its energy industry. The firm has built itself around the Alberta oil sands. Historically, investors shied away from the oil sands due to high construction costs and relative lack of infrastructure in northern Canada. However, the calculus has changed in recent years. With politicians and environmentalists making it harder to build new oil-extraction facilities in developed countries, existing operations take on greater strategic importance. The oil sands stand out, as they tend to have lifespans that can last decades with minimal decline rates. That’s a favorable contrast to fracking, where oil production output quickly decays.
Canadian Natural has also been consolidating its position; it acquired oil sands assets from Devon Energy Corp. (DVN) at a steep discount in 2019. All this adds up to a company that is generating massive cash flows, paying a solid dividend and buying back big chunks of its own stock at the same time.
Eastman Chemical Co. (EMN)
Eastman Kodak was once one of America’s leading blue-chip companies with a dominant position in photography. It failed to transition to digital photography and was left in the dust. But it spun off its specialty chemical business as Eastman Chemical back in 1993. Since then, Eastman Chemical shares have produced a total return of more than 800%.
Over the years, Eastman has developed proprietary chemicals for cutting-edge applications such as virtual reality displays, tinting products for vehicles and composites for solar panels. These niche chemical applications tend to earn higher profit margins and are more stable than commodity chemicals. Some investors shun the chemical industry for being cyclical. However, Eastman Chemical has a higher-quality business model; shares trade at 10.5 times forward earnings and offer a 3.8% dividend yield, while boasting a significant buyback program to boot.
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 saw a rapid recovery in traffic thanks to relatively lax COVID-19 restrictions in Mexico, which bolstered the tourism industry.
For 2022, Pacifico saw airport traffic surge 16% versus 2019, meaning that traffic easily surpassed pre-pandemic levels. And year to date, traffic is up another 19% for 2023 versus 2022. With Mexico enjoying a historic surge of investment thanks to reshoring and North American manufacturing opportunities, Pacifico is riding a massive growth wave. Pacifico has a variable dividend policy and pays the majority of its free cash flow as dividends every year.
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 spinoff of Kyndryl Holdings Inc. (KD), which got rid of the slowest-moving part of its business. And IBM is a player in emerging technologies. Its acquisition of Red Hat made it a significant player in the hybrid cloud.
IBM’s long-running investments in Watson, its artificial intelligence unit, should also generate investor interest given the recent growing interest in that field. The IBM Think 2023 event unveiled IBM’s generative AI strategy while combining with its Watsonx AI and deep learning model. For now, IBM shares are still available at less than 14 times forward earnings and the stock yields more than 5%.
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. The industry does face rising competition — rumors of Amazon.com Inc. (AMZN) entering the industry have spurred a fresh round of selling in the telecom stocks, with the sector falling to fresh 2023 lows. The sell-off makes for an opportunity. Verizon sells for about eight times forward earnings and has a dividend yield in excess of 7%.
Realty Income Corp. (O)
Real estate investment trusts, or REITs, are a popular hunting ground for dividend investors. Unfortunately, REITs have had a terrible year amid soaring interest rates and falling property values. It’s more important than ever to select high-quality REITs. Realty Income fits the bill. Realty Income is one of the longest-running monthly dividend companies in America. It 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 that have hit property owners in other segments of the REIT market. Despite these advantages, Realty Income has hit fresh year-to-date lows in May. Now, shares go for just 14 times funds from operations while paying a greater than 5% dividend yield.
[READ: 9 of the Best REITs to Buy for 2023]
AvalonBay Communities Inc. (AVB)
AvalonBay is a REIT that owns apartment buildings, and it operates more than 88,000 units. The firm has focused on top-tier markets such as Washington, D.C., San Francisco and New York, which tend to have higher rents and stable demand. AvalonBay shares surged over the past few years amid a surging housing market with soaring rents, but as the market has cooled, AvalonBay shares have plunged. Now, with shares down by a third since early 2022, AVB stock has been punished too heavily.
AvalonBay Communities’ stock price is now merely flat since 2018, which makes little sense given the huge growth in rent prices since then. In other words, AvalonBay is a bargain thanks to the investor panic around higher interest rates.
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. It aimed to acquire First Horizon Corp. (FHN), which would have enlarged its U.S. footprint, but that deal fell through. TD also owns a large position in Charles Schwab Corp. (SCHW) and thus has taken a hit as the value of Schwab shares has fallen. Regardless, this is all baked in with TD stock down more than 20% over the past year. TD’s core Canadian banking market remains highly attractive thanks to the high profit margins inherent to that market. And when the American bank crisis starts to abate, TD shares should be poised for a strong recovery.
Qualcomm Inc. (QCOM)
Qualcomm is a leading semiconductor company focused on mobile communications technology. The firm became famous for its role in developing and commercializing the patents behind pivotal communications standards such as 3G. To this day, Qualcomm earns hefty royalties on many smartphone sales related to its intellectual property. The company has branched out, making its own products including the Snapdragon platform for tablets and phones.
Qualcomm has sold off over the past year due to slow rollouts of 5G technology. Additionally, the smartphone market has softened, which further weakens the short-term outlook. Regardless, shares have dropped sharply, which has given Qualcomm a much more attractive starting yield. It’s not just the dividend that drives appeal, either. Morningstar analyst Abhinav Davuluri sees fair value at $140 per share, which implies more than 25% upside from late-May levels.
American Tower Corp. (AMT)
American Tower is a REIT focused on mobile communications infrastructure. It currently owns approximately 219,000 communications towers and sites. Cell phone towers have enviable economics, with low overhead, built-in inflation escalators, and a stable and reliable client base. With the long-term demand for mobile data continuing to grow, American Tower should have attractive opportunities to grow its business in coming years; that’s especially true in emerging markets. American Tower shares have lost nearly a third of their value over the past year amid soaring interest rates and a sharp sell-off in the real estate sector. This has pushed AMT stock to less than 20 times funds from operations, and shares now offer a 3.2% dividend yield.
Whirlpool Corp. (WHR)
Whirlpool is a leading manufacturer of home appliances such as refrigerators, washing machines and microwaves. Not surprisingly, the company enjoyed soaring product demand in 2020 and 2021. During the pandemic, people rushed to upgrade their home appliances. Whirlpool shares gained more than 50% between the beginning of 2020 and their 2021 peak. But the sales boom abruptly dissipated, and Whirlpool shares now sell below where they did prior to the onset of COVID-19. That seems like an overreaction.
While higher interest rates aren’t great for business, the housing market is still holding up reasonably well. Whirlpool has seen a decline from record levels of profitability, but business remains strong. And with the stock down at current depressed levels, it sells for less than nine times forward earnings. Shares are also spinning up a 5.3% dividend yield today.
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15 Best Dividend Stocks to Buy Now originally appeared on usnews.com
Update 05/26/23: This story was previously published at an earlier date and has been updated with new information.
