Dividends are a key part of the total return equation. Indeed, adding some of the best dividend stocks to buy can boost your portfolio returns. At the same time, it can lower your overall portfolio volatility.
According to Fidelity, since 1930, dividends have accounted for 40% of the S&P 500’s total return. Even better, the return contribution was higher during inflationary periods. Notably, during the 1940s, 1970s and 1980s, when inflation soared, dividends contributed 54% of the total return.
Now, let’s select the best dividend stocks to buy for your portfolio. According to this Finviz screen, the following S&P 500 dividend stocks have a current yield above 3%. Even better, they will grow earnings over 5% annually during the next five years.
From a fundamental standpoint, these companies are in excellent financial shape. They offer steady revenue growth that supports bottom-line growth. And, with a history of dividend growth, you can expect further dividend hikes down the road.
Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) is one of the best dividend stocks to buy today. This money center bank has undergone a massive transformation to a steadier business model. Today, it is well-positioned for more growth in the years ahead.
Emerging from the financial crisis, the bank pivoted from trading and investment banking to wealth management. It began by acquiring Smith Barney, a brokerage and investment adviser, in 2009. That deal was followed by the acquisitions of money manager Eaton Vance, online brokerage and stock-plan manager Solium Capital, and E*TRADE.
These deals have collectively boosted wealth management revenues to 48%. As a result, the bank is no longer beholden to trading and investment banking revenues that swing widely with the economic cycle. Instead, it now earns fees on assets under management, which continue to rise as AUM increases.
Indeed, the wealth management unit has been an asset-gathering monster, boosting earnings. In turn, the company has grown dividends for 10 consecutive years. Additionally, the bank has an impressive 23% five-year dividend growth record.
As of this writing, Morgan Stanley yields 3.7%, yet it only has a 59% payout ratio. It closed 2023 with $6.6 trillion in client assets and targets over $10 trillion. As this growth happens, expect the dividend to keep up.
Philip Morris International (PM)
This tobacco giant is disrupting itself and, in the process, becoming a growth company. In 2015, Philip Morris International (NYSE:PM) saw an opportunity in smoke-free products and decided to pursue that revenue segment. As a result, smoke-free revenues have grown from under 1% of the total in 2015 to above 35% in 2023.
IQOS, its flagship smoke-free product, has seen tremendous growth. In 10 years, it has achieved $10 billion in revenues. In 2023, the company also completed the acquisition of Swedish Match. The deal brought in another blockbuster brand, ZYN.
Key milestones in Q4 2023 proved this rapid transformation. IQOS surpassed Marlboro in revenues, and ZYN became the fastest-growing smoke-free brand in the U.S. Additionally, smoke-free products have surpassed 50% of total revenues in over 25 markets.
In terms of dividends, the company pays a quarterly dividend and yields 5.7% as of this writing. It has grown the dividend for over 15 years. In 2023, Philip Morris International earned $6.01 in adjusted diluted EPS. Thus, at 15 times trailing earnings, PM stock is one of the best dividend stocks to buy. Management expects a 9% to 11% compounded annual growth rate in adjusted EPS between 2024 and 2026.
Realty Income (O)
If you are looking for monthly dividends, Realty Income (NYSE:O) is one of the best dividend stocks to buy. As of this writing, the company pays a 5.9% yield and is a member of the S&P 500 Dividend Aristocrats. What’s more, it has had 105 consecutive quarterly increases.
In 2023, U.S. REITs experienced pressure from tight lending. However, the best operators with solid balance sheets, like Realty Income, are on solid footing. It is one of the largest triple-net REITs with high-quality tenants. Besides U.S. exposure, it has a $10.1 billion European portfolio.
In terms of diversification, Realty Income has a highly diversified portfolio that reduces the risk from any individual tenant. Its top industries by annualized contractual rent are grocery stores, convenience stores, dollar stores, home improvement and drug stores. The largest industry accounts for 11.4% of revenue and no individual client exceeds 4% of total rent.
Growth-wise, management sees a significant opportunity in Europe in the public net lease space. In the U.S., emerging verticals like data centers and gaming will boost the addressable market. Finally, management expects to benefit from large-scale sale-leaseback transactions driven by capital requirements and higher rates.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.