Many investors anticipate a roller-coaster in 2023. With high inflation and a Federal Reserve that appears committed to fighting it regardless of whether a soft landing is possible, it’s impossible to predict where the stock market or the economy will go.
In uncertain times, many investors prefer dividend stocks because of their perceived stability in comparison to more volatile investments.
Key Takeaways When Buying Dividend Stocks
- During times of economic uncertainty, dividend stocks are perceived to be a conservative investment.
- Dividend reinvestment during bear markets can quickly turn into compound growth.
- Consider dividend-focused ETFs and mutual funds for dividend income and diversification.
What Are Dividend Stocks and Why Do They Interest Investors?
Dividends are regular payments made by corporations to their shareholders. These payments are frequently made quarterly or annually and are used by businesses to distribute profits.
Companies that pay dividends (especially those that are consistent or growing) are typically larger, more established businesses. Profits are typically retained by newer and growing businesses and reinvested in growth. That’s why companies like Coca-Cola pay dividends while growing tech companies like Uber don’t.
As a result, many investors regard dividend stocks as more stable and less likely to experience price drops, even when the economy turns pivots downwards.
Some investors choose to use their dividend payments to invest in other things or to cover their living expenses. Others reinvest their dividends by purchasing additional shares of the dividend-paying company. As a result, they increase their investments and receive larger dividend payments, allowing their growth to compound.
Chevron is a multinational energy corporation and Standard Oil’s second-largest direct descendant. Chevron is involved in nearly every aspect of the oil and gas industries, including exploration, production, refining, transportation, and marketing.
Chevron performed well in 2022, with the S&P 500 Energy Index gaining approximately 50% during the year. Investors who believe that oil and gas prices will remain high should consider Chevron, which has a 3.25% dividend yield.
Johnson & Johnson (J&J)
Johnson & Johnson is a dividend index member and a consumer health and medical company. That means it has increased its dividend every year for at least 50 years, which is no small feat given that only 40 other companies can make the same claim.
The company experienced some volatility in 2022, but ended the year at roughly the same price as it started — a far better performance than the market average. It also has a respectable 2.6% dividend yield.
Real Estate Income Corporation
Realty Income Corporation is an investment trust (REIT). It invests in single-tenant commercial properties in the United States and the United Kingdom. as well as Spain.
As a REIT, the company is required to distribute 90% of its taxable profits in the form of dividends. This results in a solid 4.65% dividend yield for the company.
Verizon is a large telecommunications company with a 6.3% dividend yield. Following a rough 2022 in which its price fell by about 25%, the company may present a good buying opportunity for interested investors.
Telecommunications is a unique industry in that it is difficult for competitors to enter while being absolutely necessary for almost everyone. While Verizon is unlikely to be a huge winner with a skyrocketing stock price, it should be a relatively steady pick that provides solid income through dividends.
Coca-Cola is one of the first companies that comes to mind when people think of dividend stocks. Coke is one of the world’s most popular beverages, and the company has a more than century-long track record of success.
Coca-Cola, like Johnson & Johnson, is a dividend giant with 61 years of consecutive dividend increases. It currently has a dividend yield of 2.81%.
Bottomline in Buying Dividend Stocks
Investing during a recession can be challenging, which is why some people turn to dividend stocks for their stability.