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How to find the best dividend stocks for 2021

When it comes to finding the best stocks for your own investment portfolio, high-dividend stocks are high on the list of priorities. If you succeed in identifying the best dividend stocks, you can benefit twice: once in the form of the price increase and once in the form of the dividend payment.

The stock dividend can also be used to reinvest it in stocks or other forms of investment. Or you can use it as a regular additional income. For example, dividend reinvestment represented 42% of the total return on the Standard & Poor's 500 index since 1930.

Picking the best dividend stocks can be overwhelming at first, but there are a few guidelines to use to make the selection process easier. We want to look at these in the following.

Buy dividend stocks

What are dividend stocks?

Dividend stocks (alternatively also dividend stocks or dividend stocks) are shares of stock corporations through which one acquires the right to participate in the profit of the company. A dividend is usually paid quarterly and in cash. For example, BlackRock Inc., the world's largest ETF provider, paid out $ 14.52 per dividend share in 2020 as of April 20, 2021.

In Germany there is the so-called dividend season, in which the distribution for the past financial year is usually made after the annual general meeting of a company.

What is the dividend yield?

The dividend yield is a simple calculation that looks like this:

Dividend yield = annual dividend / share price

In the case of BlackRock Inc., you would multiply the quarterly dividend by 4 to get the annual dividend, which is $ 4.13 x 4 = $ 16.52. The last dividend payment date in 2021 was March 4th. The company's share price was then at $ 682.18. The dividend yield was therefore USD 16.52 / USD 682.18 = 0.024 = 2.4%.

How can we use the information from the dividend yield to find the best dividend stocks? Let's take a look.

What Makes the Best Dividend Stocks?

Before we compile a list of high dividend stocks, it's important to understand what criteria to look out for as an investor when looking for the best stocks for your dividend strategy.

Criterion 1: dividend growth

Stocks with growing dividends usually perform better than stocks with steady or shrinking dividends. The comparison of the S&P 500 Dividend Aristocrats Index with the S&P 500 Index shows this. The Dividend Aristocrats Index includes companies from the S&P 500 that have been paying growing dividends for at least 25 years. These companies are called "aristocrats" in this context. Companies that manage to pay dividends for 50 consecutive years are called "kings".

Source: Bloomberg - SPDAUDT Index, data range: 1990 - 2019. Please note: Charts like these are not a reliable indicator of future results or future performance.

Overall, stocks with high dividend yields outperform those in the S&P 500 index. You should always keep in mind that some companies do not pay dividends, and those that do may cut dividend payments in times of poor economic development.

Criterion 2: dividend yield

A company's dividend yield can be a useful metric. It shows the percentage of the return on an equity investment. Some investors make the mistake of only looking for high-dividend stocks, sometimes looking only at the dividend and not the stock price.

There are usually good reasons for a low share price. For example, a study by the American investment firm Heartland Advisors has shown that between January 1928 and December 2019 the fourth return quintile of the dividend stocks considered (those dividend stocks that offer the second highest dividend yield) brought in better results than the first and fifth. That means picking mid-range dividend stocks is more worthwhile than picking the high or low end. The following graphic illustrates this:

Source: Heartland Advisors - Biggest and Smallest Payers, data range: 1928 - 2016. Please note: Charts like these are not a reliable indicator of future results or future performance.

Companies with the highest predicted dividend yield often don't pay out the estimated amount. Stocks with very high yields should be avoided by most investors, as there is usually a large gap between the estimated and actual dividend yield, as the following chart shows:

Source: CNBC - Yield Bait & Switch - 20 Year Equal - Weighted Average for Stocks in the S&P 500, data range: 1996 - 2015. Please note: Graphs like these are not a reliable indicator of future results or future performance.

Now we know the pros and cons of dividend and dividend yield, which helps us find the best dividend stocks. But what else should you pay attention to when choosing? We'll look at that in the next section.

This is what you should keep in mind when choosing your dividend stocks

When looking for the right dividend stocks, one should not only look at the dividend yield or the absolute dividend, but above all that the company in which one wants to invest is stable and sustainable. The regular distribution of dividends can not only be viewed as an indicator of the long-term increase in value of a company, but also helps to limit the price risk in the event of high volatility on the stock exchanges.

This is especially true of companies that generate above-average returns. Most of the time they grow moderately and can rely on a stable business foundation. Compared to other companies in sectors such as technology, they do not require high investments, which is why there is more volume that can be distributed to shareholders.

This is why it can be particularly worthwhile to add dividend stocks from large established companies to your portfolio. They usually have the criteria mentioned here: a reliable business model, regularly foreseeable profits and a stable cash flow. The resulting surpluses can then be paid out regularly to shareholders in the form of dividends.

Many companies that meet these requirements come from the following industries:

  • telecommunications
  • Consumer staples
  • Finances
  • insurance
  • Industry
  • energy

Compared to so-called growth stocks, which are primarily about high price gains, dividend stocks often prove to be more resistant to crises, as the companies that issue these dividend stocks generate profits with greater predictability. On the other hand, the growth of these established company stocks is usually less.

Especially in times of crisis, large companies, which are usually also the ones who pay high dividends, prove to be more resistant than companies with small or medium market capitalization. That said, when choosing the right dividend stocks, one should always be aware of a company's long-term business prospects. If these point downwards, there is a risk not only of price losses on the stock market, but also of dividend cuts or even cancellations.

A final important metric is the operating earnings per share. This should always be higher than the dividend, which indicates that the company does not have to fall back on reserves in order to distribute the dividend, but can dispute this distribution from the profits.

Can you generate passive income with dividend stocks?

To anticipate it right away: If you as an investor only want to live on your savings, you need a high six- or seven-figure initial capital. Of course, this is out of the question for many small investors and investors. Much more realistic is to generate passive additional income through dividend stocks. A return of 4% p.a. can be achieved with a portfolio in which there are dividend stocks.

If you can raise a medium five-digit investment capital instead of six to seven-digit capital, you can generate three-digit additional earnings per month. Here is an example calculation: Let us assume that with an initial capital of EUR 30,000 you generate a return of 4% per year. That would be EUR 1,200 a year or EUR 100 a month. If you have a low six-digit amount available, for example EUR 120,000, the additional monthly income would already amount to EUR 400.

In the next chapter, let's take a look at what dividends stocks from the US, UK, Germany and Europe look at.

The best dividend stocks from the USA

The United States is home to some of the most famous companies in the world. With so many sectors to choose from, such as commerce, energy, and finance, there are plenty of candidates to make our list of top dividend stocks. Still, let's remind ourselves what criteria a company should meet before buying its dividend stocks:

  • A long history of consistent payouts
  • Increasing dividend growth
  • A dividend yield that is neither too high nor too low

In our opinion, the following dividend stocks from the United States fall into this category.

Dividend Stock # 1: JP Morgan Chase (JPM)

  • Dividend 2020: $ 3.60 per share
  • Dividend yield: 2.83% (as of April 20, 2021)

JP Morgan Chase, one of the largest banks in the world, has an impressive history of dividend payments. Before the financial market crashed in 2008, the investment giant paid an annual dividend of $ 1.52. Shortly after the crash, this was reduced to $ 0.20. Since then, the dividend payment has been growing from year to year and is currently at the highest level in the past 20 years.

In addition to the dividend payment, shareholders - with the exception of the Corona crisis - were able to enjoy a rising share price, which gives them further options. You can choose to view the dividend payments as extra income or reinvest them, buy more stocks and cumulate their returns like this:

Source: MetaTrader 5 #JPM weekly chart, data range: June 8, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:27 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

Of course, the share price has not moved up in a straight line. In times of falling share prices, the investor still has the income that he receives from the dividend payment.

Dividend Stock # 2: Johnson & Johnson

  • Dividend 2020: $ 3.98 per share
  • Dividend yield: 2.53% (as of April 20, 2021)

Many dividend stock buyers love Johnson & Johnson. While the company doesn't deliver the highest dividend yield in the market, it strikes a good balance between dividend growth and stable stock price. Not only has the company managed to increase its dividend for 56 consecutive years, but its stakes are classified as defensive stocks. Such stocks are known to perform well in both good and bad economic times.

Johnson & Johnson is one of the world's largest manufacturers and distributors of pharmaceutical and medical devices. The company's products are therefore always in demand - regardless of how the economy develops.

Source: MetaTrader 5 #JNJ weekly chart, data range: June 8, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:29 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

Investors in the group are enjoying rising share prices and stable dividends. In many investment portfolios, paper ensures a good balance. Between 1970 and 2016, the average annual return was close to 15%. During this time, there have only been 13 years in which prices have fallen, which means, conversely, that positive annual results were achieved in 72.2% of the cases.

Buy JNJ stock

Dividend Stock # 3: AT&T

  • 2020 dividend: $ 2.08 per share
  • Dividend yield: 7.23% (as of April 20, 2021)

The American telecom giant AT&T is one of the leading providers of telephone, cellular and Internet services in the USA and worldwide. In order to absorb the increasingly declining profits from classic telecommunications, the group has been expanding into the media industry for several years. In 2015 he bought the TV company DirecTV and in 2018 the media group Time Warner, which includes channels such as CNN and HBO.

This expansion has helped the company's profits increase over the past three years. Around 60% of these profits are distributed to the shareholders. In addition, AT&T belongs to the select group of dividend aristocrats, as it has been able to increase the dividend for at least 25 years in a row.

Source: MetaTrader 5 #T weekly chart, data range: June 1, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:35 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

In the past year, earnings per share were -0.75 USD due to the Corona crisis, and an increase to 2.22 USD is expected for the current financial year. It can be assumed that AT&T will continue to try to steadily increase the dividend payout in the coming years so as not to lose the title of aristocrat.

The best dividend stocks from the UK

The UK stock market is very popular with international investors looking for high-dividend stocks. Some of the world's largest companies are based there. It's no accident that some of the best stocks in the UK are some of the high-dividend stocks too.

Dividend Stock # 4: Unilever PLC

  • 2020 dividend: £ 1.48 per share
  • Dividend yield: 3.37% (as of April 20, 2021)

Unilever PLC can look back on an interesting history since it was founded in 1885. The consumer goods group combines well-known brands such as Dove, Lipton, Hellmann's, Ben & Jerry's and many more under one roof. Because the company sells its wide range of products all over the world, including in emerging markets such as Africa, China and India, its shares are among the best dividend stocks in Great Britain.

Source: MetaTrader 5 #ULVR weekly chart, data range: June 15, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:39 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

Unilever is listed on three stock exchanges worldwide, as the group is divided into two parts. Unilever NV is listed on Euronext in Amsterdam and on the US Stock Exchange, the New York Stock Exchange, and Unilever PLC is listed on the London Stock Exchange. Because different currencies are traded on each of these exchanges, resourceful investors can also use the exchange rates for themselves.

The most attractive feature of Unilever shares, however, is their rising price since 1990, which is shown in the chart above. Great dividend stocks from Great Britain rarely go hand in hand with such stable price growth. It doesn't have to go on like this forever, of course, but this stock is currently one of the best dividend stocks in the region.

Dividend Stock # 5: GlaxoSmithKline

  • Dividend: £ 0.80 per share
  • Dividend yield: 5.96% (as of April 20, 2021)

GlaxoSmithKline is one of the largest healthcare and pharmaceutical companies in the world with a market capitalization of £ 67 billion. The company's stock is on our list of the UK's top dividend stocks largely because of its estimated dividend yield of 4.48% for 2021. As an investor, however, you don't get the high dividend yield for free. The share prices of pharmaceutical companies tend to be highly volatile, as billions are often spent on researching new drugs without them ever reaching market maturity.

Source: MetaTrader 5 #GSK weekly chart, data range: June 15, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:39 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

As the chart illustrates, the GlaxoSmithKline share price can be very volatile. However, since 1991 the price has never broken its long-term bullish support line. Those investors who dare to identify the right time to enter the market and take advantage of the high dividend yield are sure to put this security on their list of the best dividend stocks.

The best dividend stocks from Germany

German companies are also in the focus of international investors.According to Statista, US $ 37.3 billion in dividends were paid out here in 2020, which meant a slight decrease compared to the previous year (US $ 43.8 billion), which can be attributed to the Corona crisis.

In 2021, dividends will again be paid out in this country, which could offset the potential price losses as a result of the corona pandemic. In the following, we would like to introduce you to two major German companies where investing in dividend stocks could be worthwhile.

Dividend share # 6: Allianz

  • Estimated dividend for 2021: EUR 10.10
  • Estimated dividend yield: 4.61% (as of April 20, 2021)

The insurance group Allianz is one of the most reliable dividend payers in the DAX. The dividend has been increased over the past seven years until the corona crisis hit. At least the dividend could be kept stable at the level of the previous year at EUR 9.60. Thanks to share buyback programs, Allianz has succeeded in increasing demand for the share since 2017, which also increases the arithmetical earnings per share.

The dividend increased by EUR 0.60 between 2018 and 2019, from EUR 9.00 to EUR 9.60. This year an increase to EUR 10.10 is expected. At the current share price of EUR 216.65 (as of April 20, 2021), this results in a dividend yield of 4.6%.

Source: MetaTrader 5 #ALV weekly chart, data range: June 15, 2014 to April 18, 2021, accessed on April 20, 2021 at 2:55 p.m. Please note: Past performances are not a reliable indicator of future results or future performances.

Dividend share # 7: BASF

  • Estimated dividend for 2021: EUR 3.35
  • Estimated dividend yield: 4.62% (as of April 20, 2021)

The world's largest chemical company, BASF, was able to increase its dividend ten years in a row. In 2010 it was EUR 2.20 per share, in the distribution year 2020 it was EUR 3.30. It is questionable whether this can be repeated next year. Some observers expect a small increase, for example to 3.35 EUR, while others expect a decrease, for example to 2.97 EUR. At the current rate of EUR 71.55 (as of April 20, 2021), the increase would still correspond to a good dividend yield of 4.6%.

Source: MetaTrader 5 #BAS weekly chart, data range: June 8, 2014 to April 18, 2021, accessed on April 20, 2021 at 3 p.m. Please note: past performances are not a reliable indicator of future results.

Buy BASF shares

The best dividend stocks from Europe

Europe has a wide variety of high-dividend stocks from a variety of sectors. This makes the continent an interesting place for investors in their search for the best dividend stocks. In April 2021, the blog European Dividend Growth Investor compiled the 30 best dividend stocks from Europe, which it called "Noble 30" based on the aforementioned aristocrats. The two most important criteria for inclusion in Noble 30 are:

  • Dividend growth or maintenance since before the 2008 economic crisis
  • Market capitalization of at least $ 5 billion

The Noble 30 Index looks like this (as of April 20, 2021):

Source: European Dividend Growth Investor

The companies included come from many sectors and have different dividend yields. From Germany, the DAX groups Munich Re (dividend 2020: EUR 9.80 / dividend yield 2020: 4.04%) and SAP (EUR 1.85 / 1.73%) belong to it, as well as the non-DAX company Henkel (1 , 85 EUR / 2.35%). (All information as of April 20, 2021).

Shrewd investors do additional research on each company. Whether with fundamental or technical analysis, identifying stocks with high dividends gives the investor an edge over their competition. To be in the best possible position for this, investors need the right research tools and the best investment platform like MetaTrader 5:

This is how to buy the best dividend stocks

If you are thinking of getting involved in the stock market to add high dividend stocks to your portfolio, you need access to the best investment products. One of them is Invest.MT5, which allows you to use the MetaTrader 5 trading platform to invest in stocks and ETFs on 15 of the world's largest stock exchanges. Further advantages are free real-time market data, free account management, dividend payments and low transaction fees.

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This material does not contain and should not be construed as investment advice, investment recommendation, offer or solicitation of any type of transaction in financial instruments. Please be aware that articles like this are not reliable predictions of current or future developments, as circumstances can change at any time. Before making any type of investment, you should seek the advice of an independent financial advisor to ensure that you have a proper understanding and assessment of the risks involved.

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