The Federal Reserve has made a dramatic move to raise interest rates and tighten liquidity as part of its efforts to rein in inflation. After having held interest rates at or near zero for the greater part of the past decade, the effective federal funds rate has now topped 5%. And it seems possible that there could be several more interest rate hikes before the cycle turns.
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With this in mind, many people are understandably stashing their cash in bonds and high-yield savings accounts. There’s logic to that. However, over time, stocks have proven to be the best way to compound capital, beating bonds and cash by a wide margin. As such, even with higher interest rates, there’s still a lot of appeal in owning high-quality dividend stocks.
These 15 top income stocks all have strong long-term outlooks and have at least a 2% starting dividend yield:
| Stock | Forward dividend yield |
| The Coca-Cola Co. (ticker: KO) | 3% |
| Pfizer Inc. (PFE) | 4.5% |
| The Goldman Sachs Group Inc. (GS) | 3.1% |
| American Tower Corp. (AMT) | 3.2% |
| Black Hills Corp. (BKH) | 4.2% |
| Northwest Natural Holding Co. (NWN) | 4.5% |
| Eastman Chemical Co. (EMN) | 3.6% |
| Whirlpool Corp. (WHR) | 4.6% |
| Public Storage (PSA) | 4% |
| AvalonBay Communities Inc. (AVB) | 3.3% |
| Verizon Communications Inc. (VZ) | 7.7% |
| Grupo Aeroportuario del Pacífico SAB de CV (PAC) | 4.3%* |
| Suncor Energy Inc. (SU) | 5.5% |
| State Street Corp. (STT) | 3.7% |
| OneMain Holdings Inc. (OMF) | 8.6% |
*Indicates trailing yield
The Coca-Cola Co. (KO)
One of Warren Buffett’s all-time greatest investments has been his firm’s position in Coca-Cola. Berkshire Hathaway Inc. (BRK. A, BRK.B) started buying shares in the soft drink giant following the stock market crash of 1987. Berkshire has held shares loyally over the decades and has been rewarded with countless billions of dollars in capital gains and dividends as a result. Buffett appreciates Coca-Cola for its consistency, as the company offers consumers a small luxury that they can enjoy every day. Beverages also tend to be recession resistant, making Coca-Cola a timely purchase as the economy may be set to slow down. KO stock is down year to date and near its lowest price in 2023, giving investors a bit of a discount for new positions.
Dividend yield: 3%
Pfizer Inc. (PFE)
Pharmaceutical giant Pfizer has gotten caught in a tailspin. The company saw its business reach record heights during the pandemic as its COVID-19 vaccine generated tens of billions of dollars in revenue. However, that revenue stream is largely coming to an end. Investors may be overestimating the severity of the blow, however, with PFE stock now trading all the way back to pre-pandemic levels, despite the actual business being much larger now than it was in 2019. Analysts are projecting roughly $68 billion in revenues for 2023 and 2024, whereas the company generated only about $40 billion annually before the pandemic. Given the company’s larger business and expanded profitability, investors are getting a bargain today, along with a healthy dividend.
Dividend yield: 4.5%
The Goldman Sachs Group Inc. (GS)
Goldman Sachs is one of America’s dominant investment banks, and it has a growing retail banking franchise as well. The company’s stock has underperformed the market recently. Investors might chalk that up to the broader banking sector’s challenges, but Goldman isn’t having an issue with its deposit base or interest rate spreads. Rather, it’s the investment banking side of the business that has struggled.
Goldman relies on financial market activity to drive much of its revenue as services such as merger and acquisition advisory, bond underwriting and facilitating initial public offerings are crucial parts of Goldman’s business. Understandably, the 2022 bear market meant a downturn in this type of business for Goldman as the IPO market died down and M&A activity slowed. But that should be changing. With the stock market now roaring back and this summer seeing some successful IPOs, investment banking revenue should pick back up. That makes GS stock a bargain as it lingers near its lows for 2023.
Dividend yield: 3.1%
American Tower Corp. (AMT)
American Tower is a real estate investment trust focused on mobile communications infrastructure. It currently owns approximately 226,000 communications towers and sites. Cell phone towers have enviable economics, with low overhead, built-in inflation escalators, and a stable and reliable client base. Investors might think the opportunity is played out, but American Tower continues to aggressively add new sites in less saturated markets such as Latin America and Africa. American Tower shares have declined about 25% over the past year amid soaring interest rates and a serious decline in various parts of the commercial real estate market. This has pushed AMT stock to less than 20 times funds from operations, a prominent valuation metric for REITs.
Dividend yield: 3.2%
Black Hills Corp. (BKH)
Founded in 1941, Black Hills is a South Dakota-based utility company. It operates in both electricity and natural gas distribution. The gas business serves more than one million customers primarily in the Great Plains states while the electricity unit has about 220,000 customers. The company also owns thousands of miles of intrastate gas pipelines, distribution mains, gas storage sites and related infrastructure. Investors primarily own utility stocks for their dividends. With the rise in risk-free interest rates on things such as certificates of deposit and Treasury bills, investors have shunned utility shares. Black Hills stock fell to fresh 52-week lows in July and is now little-changed over the past five and 10 years, respectively. That’s even as Black Hills has grown its earnings and dividend over that stretch. In fact, Black Hills is a “Dividend King,” meaning that it has grown its dividend for at least 50 consecutive years.
Dividend yield: 4.2%
Northwest Natural Holding Co. (NWN)
The case for Northwest Natural is similar to that for Black Hills. Northwest Natural is also a utility company and a fellow Dividend King. There aren’t many firms out there with 50 years of consecutive dividend increases, and investors should take advantage of these sorts of opportunities when these companies trade at multiyear lows. Northwest Natural continues to show rising earnings and dividend payments, even as the stock price has been roughly flat since the 2008 Great Recession.
Some investors are likely nervous about the company’s geography, as it serves Portland, Oregon, where there is a sometimes unfriendly regulatory climate. That said, consumers will still need natural gas, and Northwest shares now go for about 16 times forward earnings with the latest dip in the share price.
Dividend yield: 4.5%
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
Eastman Chemical Co. (EMN)
Eastman Kodak was once one of America’s leading blue-chip companies, enjoying a dominant position in photography. Ultimately, it failed to make the leap 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%. That’s thanks to the company’s proprietary chemicals for cutting-edge applications such as virtual reality displays, tinting products for vehicles and composites for solar panels, which tend to earn higher profit margins than commodity chemicals.
EMN stock has been treading water recently amid fears of an economic slowdown. Despite that, analysts see earnings per share dropping just 1% in 2023 before returning to double-digit growth next year. Despite the positive outlook, shares go for just 12 times forward earnings and have both a solid dividend and a large share repurchase program.
Dividend yield: 3.6%
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 as people rushed to upgrade their home appliances during the pandemic. Whirlpool shares gained more than 50% between the beginning of 2020 and their 2021 peak.
But as the sales boom tapered off, Whirlpool shares have given back all their prior gains and now sit well beneath where they did in the mid-2010s. That makes for a good entry point. While high interest rates are a headwind, the housing market has held up reasonably well with new home builds — which drive appliance demand — hanging in there. Shares trade for less than 11 times forward earnings, and analysts see the company returning to earnings growth in 2024.
Dividend yield: 4.6%
Public Storage (PSA)
Public Storage is America’s largest self-storage-focused REIT. Self-storage is an attractive category: People like to hoard their stuff, and Public Storage offers folks an easy solution for finding extra space. It’s not just the product that is in demand, though. Self-storage is cheap to build, allowing properties to function as a sort of land bank. It’s easy for a storage company to flip land to developers for offices, apartments or other higher uses as an urban area develops. Public Storage also performs surprisingly well during downturns. That’s because big drivers for new storage contracts are when people move locations, downsize their houses or apartments, face foreclosure and so on. PSA stock sold off sharply from its peak in 2022 and remains down amid the surge in interest rates. This has pushed Public Storage’s yield up.
Dividend yield: 4%
AvalonBay Communities Inc. (AVB)
AvalonBay is another REIT that makes for a solid dividend investment. Instead of owning storage units, AvalonBay owns apartment buildings. It currently operates more than 88,000 units. The firm has focused on top-tier markets such as Washington, D.C., San Francisco and New York City, 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 plunged.
That said, the housing market hasn’t fallen nearly as far as the bears had predicted and AvalonBay stock has also recovered somewhat. Still, shares are down more than 20% from their 2022 peak and are still on offer at 2019 levels today. That should be a solid entry point given how much rent prices have gone up over the past few years.
Dividend yield: 3.3%
Verizon Communications Inc. (VZ)
Verizon is one of the three dominant 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 in the aftermath of its ill-fated Time Warner acquisition. And while Verizon is in better shape than AT&T, the industry faces rising competition. This has limited profitability growth and raised concerns especially as mobile carriers are in a heavy investment cycle related to the roll-out of 5G technology. That said, the fear seems overdone with Verizon shares selling just a hair above multiyear lows. At this price, Verizon now goes for less than 7.5 times forward earnings while offering a 7.7% dividend yield.
Investors continue to sell the stock off in July following a Wall Street Journal report about potentially large liabilities faced by telecom companies due to thousands of lead-encased cables that have yet to be removed and which could cause public health risks. The stock could become even cheaper as investors evaluate VZ’s potential liability from these reports.
Dividend yield: 7.7%
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 Los Cabos. Concessions for the Mexican airports run until 2048 and are renewable until 2098. Pacifico saw a rapid traffic recovery 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 the growth is continuing. In the first half of 2023, traffic rose an additional 17.6% versus the first half of 2022. While analysts keep calling for a slowdown in travel, there’s no sign of it in the data yet. PAC stock has rallied over the past year but is still on sale for less than 17 times forward earnings — a bargain for a company growing this quickly. The company also has a variable dividend policy where it pays out nearly all of its free cash flow to its shareholders. Due to the lumpiness of dividend payments, its trailing yield is shown, which represents the dividend payments over the last 12 months divided by the most recent share price.
Dividend yield: 4.3%
Suncor Energy Inc. (SU)
Suncor Energy is one of Canada’s largest energy companies. It’s an integrated oil firm, operating a large production business, along with refineries, energy infrastructure and a large gas station chain. The firm’s core production assets are in the Alberta oil sands. These are attractive productive properties, as they have long reserve lives with limited decline rates. This casts a favorable comparison to fracking, where production rates decline rapidly after a new well is inaugurated. Suncor’s refining capacity is also useful since Western Canada has a shortage of pipeline capacity, which leads area firms to have to accept discounts on their oil sales. Suncor can avoid that by routing oil to its own refineries. Shares currently go for seven times forward earnings.
Dividend yield: 5.5%
State Street Corp. (STT)
State Street is a large American bank. Unlike many banks, however, it has little exposure to the recent industry jitters. That’s because State Street is a specialized bank focused on trust and custodial services. These are banks that hold assets for other institutions, charging an assets-under-management, or AUM, fee in exchange for safeguarding clients’ securities.
State Street also has an extensive ETF business through its SPDR ETF brand. Among its products is the massively popular SPDR S&P 500 ETF (SPY). As financial markets pick back up, State Street should see its AUM rise, leading to an improvement in profitability. In addition, State Street is on a growth spree, adding new offices and custodial services in markets such as Brazil, Chile and Colombia in recent years. Shares go for less than 10 times forward earnings.
Dividend yield: 3.7%
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. Shares had been depressed recently as investors fretted about how a potential recession might impact the company’s credit portfolio. However, consumer balance sheets have remained stronger than expected, and OneMain’s earnings results have held up nicely. While shares have rallied over the past quarter, they still remain at an attractive price, with shares going for 7.4 times forward earnings.
Dividend yield: 8.6%
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15 Best Dividend Stocks to Buy Now originally appeared on usnews.com
Update 07/17/23: This story was previously published at an earlier date and has been updated with new information.
