The 3 Best Dividend Stocks to Buy: November 2023

With the stock market being so volatile lately, many investors are looking for safer places to invest their money. One time-tested approach is to buy shares of strong, established companies that pay regular dividends. Though dividend stocks may not offer the explosive growth potential of high-flying tech stocks, they provide steady income and the reassurance that comes from owning slices of profitable, recession-resistant businesses.

In my view, dividend stocks are among the best investments right now, precisely because they offer stability during periods of instability. Companies that consistently pay dividends tend to be mature firms with durable competitive advantages, loyal customers, manageable debt loads, and seasoned leadership teams. They generate so much cash that they can afford to share the wealth with shareholders, while still investing to grow the business.

By reinvesting dividend payments over time, investors can turbocharge their returns through the power of compounding. Those regular cash dividends buy more shares, which in turn generate their own dividends, and so on. Before you know it, you’ve built up a sizeable portfolio just by letting your money work for you.

Of course, it’s important to be selective. You want to own shares in companies with long histories of dividend payments and annual increases. Here are three companies I’ve got on my radar right now.

IBM (IBM)

IBM (NYSE:IBM) remains one of the most stable tech stocks of the past decade. This is largely due to its huge enterprise customer base that provides a steady stream of recurring revenue. Many of IBM’s customers have relied on its products and services for decades and are unlikely to switch providers anytime soon. Of course, the flip side is that growth has been harder to come by of late.

That said, IBM has a massive cash hoard that allows it to not only pay substantial dividends, but also invest in emerging technologies and new business segments. The biggest potential growth driver for IMB is its quantum computing division, an area where IBM is arguably the most well-positioned company to make commercially-viable systems. If quantum computing takes off, it could be truly transformative for IBM’s bottom line, as companies seek out the company’s proprietary technology which allows for computations that are simply impossible with classical computers.

IBM already offers quantum computing access via the cloud to enterprise customers. It is steadily advancing its moat in this field, with innovations like its 1,121-qubit quantum processor expected this year. While universal fault-tolerant quantum computers are still years away, IBM is laying the groundwork to capitalize on this technology.

In the near-term, IBM’s focus areas include hybrid cloud, AI, and cybersecurity. For example, it recently unveiled AI solutions like the watsonx Code Assistant that leverages large language models to help developers be more productive. IBM can leverage its expertise in Enterprise IT to integrate AI into solutions tailored to the specific needs of its clientele.

Of course, shifting into new high-growth segments invariably comes with execution-related risks. However, IBM generates ample cash flow to fund future investments, while paying safe dividends today. The stock’s dividend yield stands at 4.5%, bolstered by a 28-year streak of payout raises. IBM reported third-quarter earnings that beat expectations, with earnings per share of $2.20 on revenue of $14.75 billion.

AT&T (T)

Telecom giant AT&T (NYSE:T) has been under heavy pressure for years, but is now staging a recovery that offers considerable value. No doubt AT&T has faced its share of challenges recently. Its ill-fated media acquisitions ended in disaster, forcing the company to cut its dividend and spin-off WarnerMedia last year. But after this massive shakeup, AT&T stock plunged nearly 50% from its decade highs. In my opinion, this created a compelling opportunity for a high-quality telecom leader.

AT&T provides wireless services to 223 million U.S. subscribers. While the company’s underlying business may lack pricing power due to competition, its services remain indispensable. People will continue to pay their phone and internet bills even in difficult economic conditions. Thus, AT&T generates ample recurring cash flow to support its operations and a 7% dividend yield. AT&T also reported Q3 results that beat expectations, with earnings per share of 64 cents on revenue of $30.35 billion. 

The company is also investing heavily in next-generation 5G and fiber broadband networks. Though this pressures free cash flow today, it will allow AT&T to better meet surging data demand in the long-run. AT&T expects to reach 130 million customers with midband 5G by the end of 2023. Its fiber network will likely pass 30 million locations by the end of 2025.

As its networks improve, AT&T should be able to attract and retain more customers. It just posted its lowest wireless subscriber churn on record, along with strong fiber broadband ads. While revenue growth is modest, margins are expanding thanks to cost-cutting initiatives. AT&T generated $10.4 billion in free cash through three quarters of 2023, up $2.4 billion year-over-year.

After massively underperforming this year, AT&T stock has pulled off a sharp recovery. Yet, shares still trade at just 6-times forward earnings. This valuation does not appear to fully reflect AT&T’s improving fundamentals.

As momentum accelerates, I believe now is a good time to buy this high-yielding telecom stock. AT&T generates plenty of cash to support its dividend with room left over for deleveraging. For income investors, it offers an optimal mix of safety, yield, and turnaround potential after years of struggles. I don’t think you’ll regret owning T shares five years from now.

Enterprise Products Partners (EPD)

Enterprise Products Partners (NYSE:EPD) is not as massive as IBM or AT&T at a $55 billion market cap. However, for investors seeking both high yields and safety, this midstream company is hard to top.

Enterprise operates an integrated network of pipelines, storage facilities, and other energy infrastructure across North America. As one of the largest midstream MLPs, it has a diversified asset footprint that provides stable fee-based revenue.

Not surprisingly, Enterprise Products Partners has been an extremely reliable stock over the years. It has raised its distribution for 26 consecutive years now. The stock’s current yield stands at a hefty 7.6%.

Meanwhile, the company retains solid distribution coverage of 1.7x along with an investment-grade balance sheet. Leverage of 3.0-times debt/EBITDA is right in the middle of Enterprise’s targeted range. Conservative financial stewardship provides peace of mind for income investors.

With U.S. oil and gas production surging this year, midstream companies like Enterprise are running near full capacity. In fact, the company’s pipelines transported record volumes in Q3 2023.

Looking ahead, Enterprise sees strong tailwinds continuing thanks to profitable shale drilling and global demand for exports. It just announced $3.1 billion of new Permian investments, including gas plants, pipelines, and other infrastructure to support production growth.

Between high distributions, a solid financial position, and strong industry tailwinds, Enterprise Products Partners checks all the boxes for a safe income stock. And at just 11-times forward earnings, the valuation seems very reasonable.

On the date of publication, Omor Ibne Ehsan did not have (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.