Top High Dividend Stocks to Invest in 2021

If you want to earn an income while ensuring your financial future is secure, high dividend stocks is one way to go around it.

Dividend stocks are publicly traded companies that share their profits with their shareholders. These companies are consistent in profit making and issuing of dividends. Investing in dividend stocks is therefore a sure way of earning passive income. What’s more, returns in investing in dividends increase overtime.

How do dividends work?

Well, to receive dividends, you need to own shares of companies of your choice. Now, let’s say you buy 100 shares at $30 each. You would shell out $3, 000. If each share bought earns $0.20 per annum, then you’d receive a dividend payment of $60.

You can use this money to buy other shares from the same or different company, pay bills, or save for future use, among other uses. As mentioned, payments of dividends is constant whether the stock price rises or drops.

While there are many reasons why companies disburse dividends, the main reason is to share profits with the shareholders. Besides, they can decide to pay dividends when they lack other means of reinvesting profits.

Key metrics to understand before buying dividend stocks

1. Dividend yield

This is the annual dividend return you’ll get from your investment. It is important to analyze yield history of a company before buying their stocks. There should be consistency in their yield, if not, avoid buying from them. While a higher dividend yield is ideal, you should also consider consistency in payout.

2. Total return

This is the increase in capital gains or stock price and dividend payout over a given period. This varies from company to company.

3. Payout ratio

This is the ratio of a company’s dividend to its total earnings. Ideally, a lower ratio indicates a health dividend and you should buy from such companies.

4. EPS

Also known as earnings per share, it is a metric used to normalize earnings of a company to the value of each share. Profitable companies are known to increase their earnings per share which translates to increase in dividends. It also shows that a company can withstand difficult economic times while holding the competitive edge.

5. P/E ratio

The price-to-earnings ratio is the difference between a company’s share price to its earnings per share. When combined with dividend yield, it shows how a company’s stock is valued.  


Key dates you need to know

As an investor, there are dates that you need to be aware of. They include:

Announcement date: this is the date when the company announces its plan on dividends.

Payment date: this is the day you will receive your payment.

Record date: when you are recorded as a shareholder of a company, you start receiving dividend from that day.

Ex-dividend date: this is the day where certain shareholders will cease to receive their dividends.

Dividend Aristocrats: what are they?

When investing in dividends, you are poised to come across the name Dividend Aristocrats. These are companies that have been consistently paying dividends for the at least 25 years. The 65 stocks are found in the S&P 500 index.

These companies can withstand difficult economic environment while paying their shareholder dividends quarterly. The benefit of investing in Dividend Aristocrats are reliability, minimum volatility, and since they are industry leaders, they tend to affect stock prices of other companies.


How to invest in dividend stocks

1. Decide on the dividend stock you want to buy

There are several dividend stocks you can choose from. Let’s look at a few:

2. ETFS and mutual funds

This is ideal if you are looking for a diversified portfolio. Buying high-yield ETFs and mutual funds will expose you to companies with high dividend yield. They allow you to generate a higher income compared to most available portfolios.

3. Individual company stocks

In addition to ETFs and mutual funds, you can opt to buy stocks from individual companies. There are many companies that have built a reputation of paying dividends in time. That said, you need to keeping mind the longevity, sustainability, and durability of the company so you can enjoy future dividend payouts.

4. Evaluate competitiveness of the stock

After deciding which stock to buy, you should evaluate its performance. You can do this by comparing its dividend yield to that of similar companies. If you find that the yield is higher than peer companies, you should avoid investing in it.

What is its payout ratio? Most companies have a payout ratio of up to 80%. This means that a company uses 80% of its income to pay dividends. If a company’s ratio is more than 80%, it means that it might incur debt paying dividends.

5. Decide the amount you’ll buy

Finally, decide on how much you are willing to invest. This will basically depend on your budget. Having said that, you should consider diversifying your portfolio to bolster your security. Again, keep in mind the risk of buying each stock.

You can buy more stocks from a stable company and vice versa. It is recommended that you invest in companies that have a yield of less than 5%. Otherwise, you might lose your investment in the short term.


Top dividend stocks to buy

1. AGNC Investment Corp.

This real estate investment trust (REIT), primarily invests in residential mortgage-backed securities. It also manages other related real estate assets. The stock is backed by companies such as Freddie Mac and Fannie Mae bolstering the security of your stocks.

It has a dividend yield of 8.90%, a payout ratio of 33.2% and a price cap of $16.18. the market cap of this company is valued at $8.5 billion. It uses repurchase agreements to fund its holdings.

2. Annaly Capital Management Inc. (NLY)

This capital management company primarily invests in finances commercial and residential assets. Investing in commercial real estate, residential real estate, mortgage-backed securities, and middle market lending, the company has a value capped at $93 billion.

The dividend yield is 10.89%, payout ratio is 31.5%, and total annual return is 29.5%. the price for each share is capped at $8.47 and the market cap is $11.9 billion.  

3. LTC Properties Inc. (LTC)

LTC Properties continues to dominate the market since its peak late 2019. Most experts estimate that the gradual rise in its stocks is expected to give high returns. The company primarily owns health care properties and senior housing around several states. Most of its properties are either nursing centers or community blocks. This is to ensure seniors get ample and professional help.

As the baby boomers continue to age, the demand of such housing is expected to grow. LTC Properties (LTC) currently has a 6.19% growth. Falling under the REIT category, you can never go wrong with real estate dividend stocks.

4. Main Street Capital Corp. (MAIN)

This is a private company that primarily deals with small private companies and debt capital. It is involved in refinancing, recapitalization, growth financing, management buyouts, and more. It is one of the companies that offer all services under one roof.

It is known to invest in companies with annual revenue of $10 million to $150 million. The Houston-based company was founded in 2007. Its current dividend yield is capped at 6.09% and its stock registered a 33% surge year over year.

5. PennantPark Floating Rate Capital Ltd. (PFLT)

The New York-based company deals with business development with its main aim being loan, debt, equity, and secondary direct investment. It invests much of its money in middle market companies in the country. It also invests in few non-USA companies pouring in funding of between $2 million and $20million.

Other investments include options, warrants, common and preferred stock. It primarily invests in companies that are not national-agency rated. Its shares are up 50% over the last year and the trend is expected to remain. It invests and manages the company for three to ten years.

6. Pembina Pipeline Corp. (PPL.TO)

The company is heavily involved in the energy sector through three of its segments. They include marketing and New Ventures, Facilities, and Pipeline. The company can store up to 11 million barrels of oil and transport up to 3.1million barrels per day. Its facilities segment deals with the distribution of natural gas liquids and natural gas.

And as the demand of oil and its price increases, its no doubt that this is an ideal stock to invest in. it has a track record of paying dividends in time.

Final thoughts

Dividend stocks are no doubt one of the safest ways to invest your money. You not only secure the finances of your future, but also get income on a regular basis. This is money you can reinvest in the stocks or use it for daily errands. Feel free to invest in either of the above high-dividend stocks.