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High-Yield Dividend Stocks

To say that times are uncertain is like saying that the ocean is wet.

Thanks to the Fed, interest rates are resting at all-time lows and are poised to stay that way for the foreseeable future. 

This means that long-term investors should consider searching for new ways to invest. In a low-interest rate environment, certain investments may not perform as well as others.

Just take a look at Treasury bonds...

Long considered the quintessential safe haven, Treasury bonds are not even keeping up with inflation.

Unless you want to watch your savings wash away with the tides of time, you should start looking for yields elsewhere.

This is where high-yield dividend stocks come into play.

High-yield dividend stocks are great for a variety of reasons...

If you are a patient long-term investor, these stocks can pay off handsomely in the long run.

In 2022, these stocks outperformed the general market. And given time, high-yield dividend stocks could offer generous income and a healthy retirement.

And if you are averse to risk and are looking to remove some from your portfolio, dividend stocks could be great ways to keep making profits without the panic.

But there's a little more to it than simply looking for high-yield dividends...

You'll want to keep in mind a few things:

  • First, even with a great dividend yield, you don't want to overpay for a stock.
  • Second, the company in question should have minimal risk of a dividend cut.
  • Third, in order to start growing your investment for real, you should search out a company that has a high probability of increasing its dividend.
  • And finally, as with any kind of portfolio, you'll need to be diversified. Dividends won't save you if you have all your assets in one sector and that sector crashes and burns.

With this in mind, let's check out some dividend aristocrats — companies that have raised their dividends every year for at least 25 years...

Keep in mind: Traditionally, a high-dividend stock yields 2–6% annually. This being said, in our era of low-interest rates, the stocks mentioned below are still generating great dividends on a yearly basis. This has earned them places in some of the biggest investing portfolios in the world, including Berkshire Hathaway’s.

Now, on to the list...

1. Coca-Cola (NYSE: KO)

The iconic soft drink maker owns or licenses more than 500 beverage brands. The company has raised distributions for over 50 years in a row. The stock trades at 27.68 times earnings and yields 2.80%.

The Coca-Cola Company is one of Warren Buffett's favorite dividend stocks, comprising the biggest position of his Berkshire Hathaway portfolio.

2. Johnson & Johnson (NYSE: JNJ)

Johnson & Johnson is one of the world's biggest healthcare companies. It engages in the research and development, manufacture, and sale of a range of products in the health care field. The company has raised distributions for over 50 years in a row. The stock trades at 24.48 times earnings and yields 2.58%.

Prem Watsa (the "Warren Buffett of Canada”) has had the company in his portfolio since 2007.

3. Campbell Soup (NYSE: CPB)

I doubt Campbell Soup needs much introduction... The iconic American soup company is also the maker of juices in the U.S., biscuits in Australia, and even farm products in Europe, Canada, Latin America, and China.

A 2.59% yield and a P/E ratio of around 21 make Campbell ripe for any dividend-based portfolio.

4. ConocoPhillips (NYSE: COP)

This oil and gas producer boasts a 2.15% dividend yield with a P/E of 8.15.

ConocoPhillips explores, produces, and transports crude oil, natural gas, natural gas liquids, and liquefied natural gas — big business right now, to say the least. It holds assets in North America, Europe, Asia, and Australia.

5. Altria (NYSE: MO)

The rebranded company, formerly known as Philip Morris, has increased its dividend for over 40 years straight. It also boasts a 8.08% dividend yield.

And we're not only talking about cigarettes. Altria also produces and sells Chateau Ste. Michelle and Columbia Crest wine.

For beginners, it may be overwhelming to have to diversify a portfolio of a dozen-plus high-yield dividend stocks.

This is where exchange-traded funds (ETFs) can come in handy...

If you want a grab bag of high-dividend stocks, the SPDR S&P Dividend ETF (NYSE: SDY) is a one-stop shop for some of the world's best dividend players. Using ETFs is a relatively new yet very popular way to diversify your holdings without having to follow dozens, if not hundreds, of companies.

The SPDR S&P Dividend ETF holds multiple companies that have increased dividend yields every year for at least 25 years.

Its 12-month yield is 2.49%.

So whether you're a bull or a bear, there's a place in your portfolio for high-yield dividend stocks.

Many of the companies that I mentioned above have one thing in common: maturity.

When a company decides to issue a high dividend, this means that it has chosen to return income to investors. Other companies choose to distribute more income to investors because of tax purposes.

With this considered, before we reach the end of our high-yield dividend resource page, it’s worth noting some of the red flags that you may encounter when researching stocks outside this list...

Red Flags in High-Yield Dividend Stocks

Unlike many investment tools, high-yield dividend stocks are easy to find information on.

In fact, all you have to do is search “top high-yield dividend stocks” and you'll be bombarded with lists of promising companies. Many of the companies mentioned above could be on those lists.

This being said, there are a few red flags that investors should be on the lookout for...

For instance, I mentioned above that most companies provide high-yield dividends when they have matured or have adjusted their business model to do so.

But some companies offer high-yield dividend stocks to create mirages. Perhaps they aren’t doing well and they want to trick investors into investing in sinking ships.

In these cases, the high-dividend yields being offered are not sustainable.

You can make sure that you don’t fall into this trap by checking companies' dividend histories. Do they have a history of paying stable dividends? Or did they just start offering them out of the blue?

You should be wary of companies that dangle high-dividend yields like juicy carrots. The underlying company should be sound.

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