Investing in the stock market can help you build long-term wealth, but it can take years or even decades to achieve significant returns.
However, with dividend-paying shares, you not only earn long-term returns on your investments, but you also receive dividend payments every year or quarter. Each time you receive dividends, you can reinvest the money to buy more shares, or you can pay it out to create a source of passive income.
It is important to invest wisely when choosing dividend stocks. Not all stocks are equal, and some investments are better than others. Although each of these three companies is experiencing setbacks, they consistently pay high dividends, making it a smart choice for many investors.
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1. AbbVie
AbbVie (NYSE: ABBV) is a biopharmaceutical company with a strong dividend record. It is a member of the Dividend Aristocrats, which is a group of S&P 500 shares that have each increased their dividend payment for at least 25 consecutive years.
AbbVie has been a favorite among dividend investors for years, because it is known for its high dividend yield and for consistently increasing its dividend. One possible red flag is that the top-selling drug Humira will lose exclusivity in the US in 2023, which could lead to sales of Humira. However, the company already has several other drugs that are generating strong revenue growth, which could compensate for the potential losses of Humira. For this reason, AbbVie is still in a strong position and should increase its dividend.
The stock has a relatively high annual dividend payout of $ 1.30 per quarter, which is $ 5.20 per year. This is also about $ 106 per share as of this writing. For example, if you invested $ 5,000 in AbbVie shares, that would be about 47 shares. In this scenario, you earn about $ 244 per year in dividend income.
Of course, $ 244 a year is barely enough to pay the bills. However, keep in mind that investing is a long-term strategy. The more you invest, the more you earn. Re-investing your dividends to buy more shares can turbo-charge your dividend payments.
IBM
IBM (NYSE: IBM) paid dividends since 1913, making it one of the longest paying dividend shares. Although the company experienced a difficult quarter at the end of 2020, it is expected to recover this year by focusing more on its cloud software solutions. This is a good sign for long-term investors who are willing to wait it out, as this restructuring could result in greater growth potential.
The company also boasts a solid quarterly dividend payout of $ 1.63 (or $ 6.52 per year) and is currently trading at $ 120 per share. If you were currently investing $ 5,000 in IBM shares, you would own approximately 41 shares. With a dividend of $ 6.52 per year, the investment earns you approximately $ 267 in dividend payments each year.
Also remember that as companies increase their dividends, it will also increase your annual payments, even if you no longer invest money. By investing in strong companies that increase their dividends every year, you can increase your passive income with no effort.
ExxonMobil
ExxonMobil (NYSE: XOM) is another member of the Aristocrats of the Dividend, which has increased its dividend each year for 37 consecutive years. It has a slightly lower dividend payout of $ 0.87 per quarter ($ 3.48 per year), but it also has a lower share price of just $ 53 per share as of this writing.
This stock is on the riskier side, as the company has experienced a rough year as oil prices fell in 2020. In the past, ExxonMobil has tried hard to protect its dividend, preferring to incur more debt to prevent dividend payments from being reduced. But if the company continues to struggle, the dividend could be in jeopardy.
However, the company is currently under pressure to focus more on renewable energy, and it has apparently been considering making changes to its board of directors and investing more in sustainable energy. This could lead to stronger growth in the long run, which is a good sign for investors.
If you now invest $ 5,000 in ExxonMobil, you will buy 94 shares. At $ 3.48 per share in dividends, you earn $ 327 per year in dividend payments. If you are a risk averse investor, this stock may not be the best option. But if you are willing to bet that the company will make a return, it can be a profitable decision.
When choosing dividend stocks, focus on the overall health of the company. Organizations that consistently pay dividends and move to increase revenue growth are more likely to be long-term investments. And investing in the long run is the key to generating wealth with dividend stocks.