Investing in the stock market can help you build long-term wealth, but it can take years or even decades to see substantial returns.
With shares that pay dividends, however, you will not only get long-term returns on your investments, but you will also receive dividend payments each year or quarter. Whenever you receive dividends, you can either reinvest that money to buy more shares or you can withdraw them to create a source of passive income.
It is important to invest wisely when choosing dividend stocks. Not all shares are created equal and some investments are better than others. Although each of these three companies has experienced setbacks, they consistently pay high dividends – making them a smart choice for many investors.
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1. AbbVie
AbbVie (NYSE: ABBV) is a biopharmaceutical company with a strong dividend history. It is a member of the Dividend Aristocrats, which is a group of S&P 500 shares that have increased their dividend payout for at least 25 consecutive years.
AbbVie has been a favorite with dividend investors for years, as it is known for its high dividend yield and for consistently increasing its dividends. One possible red flag is that its best-selling drug, Humira, is losing exclusivity in the United States in 2023, which could result in a drop in Humira sales. However, the company already has several other drugs generating strong revenue growth, which could offset the potential losses from Humira. For this reason, AbbVie is still in a strong position and should continue to increase its dividends.
The stock has a relatively high annual dividend payment of $ 1.30 per quarter, which equates to $ 5.20 per year. It also costs about $ 106 per share at the time of this writing. If you invested, say, $ 5,000 in AbbVie shares, that’s about 47 shares. In that scenario, you would be earning about $ 244 a year in dividend revenue.
Of course, $ 244 a year is hardly enough to pay the bills. But remember that investing is a long-term strategy. The more you invest, the more you earn. If you reinvest your dividends to buy more shares, it can boost your dividend payments.
2. IBM
IBM (NYSE: IBM) has been paying dividends since 1913, making it one of the highest paying dividend shares in existence. Although the company went through a difficult quarter in late 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 willing to wait, because this restructuring may result in greater growth potential.
The company also boasts a hefty quarterly dividend payment of $ 1.63 (or $ 6.52 per year) and is currently trading at $ 120 per share. If you were to invest $ 5,000 in IBM shares now, you would own about 41 shares. With a dividend of $ 6.52 per year, that investment would yield about $ 267 each year in dividend payments.
In addition, remember that as companies increase their dividends, this also increases their annual payments – even if you don’t invest more money. By investing in strong companies that increase their dividends each year, you can increase your passive revenue with zero effort.
3. ExxonMobil
ExxonMobil (NYSE: XOM) is another member of Dividend Aristocrats, having increased his dividend annually for 37 consecutive years. It has a slightly lower dividend payment of $ 0.87 per quarter ($ 3.48 per year), but it also has a lower share price of just $ 53 per share at the time of this writing.
This action is on the riskier side, because the company had a difficult year with the fall in oil prices in 2020. In the past, ExxonMobil tried hard to protect its dividends, choosing to contract more debt to avoid cuts in the payment of dividends. But if the company continues to fight, the dividend could be at risk.
However, the company is under pressure to focus more heavily on renewable energy and is considering making changes to its board of directors and investing more in sustainable energy. This can result in stronger growth in the long run, which is a good sign for investors.
Currently, investing $ 5,000 in ExxonMobil would buy 94 shares. At $ 3.48 per share in dividends, you would be earning $ 327 a year in dividend payments. If you are a risk-averse investor, this may not be the best option. But if you are willing to bet on the recovery of the company, this can be a potentially profitable decision.
When choosing dividend stocks, focus primarily on the overall health of the company. Organizations that are paying dividends consistently and making moves to increase revenue growth are more likely to be solid long-term investments. And long-term investing is the key to generating wealth from dividend stocks.