Dividend stocks that pay out regular amounts just for holding their shares aren’t just stodgy investments for retirees. These income-producing investments promise regular earnings and lower risk than stocks with better growth prospects, while actually outperforming the broader market.
That’s especially true for high-yield dividend stocks that deliver more than 4% dividend yield, which have a strong track record of outperforming the S&P 500 (SNPINDEX:^GSPC) over the long term. That’s right: Investors looking for the best stocks for long-term growth shouldn’t skip dividend stocks. A company with the ability to make a regular dividend payment and even deliver dividend growth can offer better returns than you’ll find elsewhere.
Whether you’re looking for the dividend payment as a source of income or to reinvest and grow your portfolio, the best high-yield dividend stocks could be exactly what you need. This guide will show you what makes a dividend stock qualify as high yield, define important terms for dividend investors, teach you how to identify the best investments, and dive into the top five high-yield dividend stocks for this year…
What is a high-yield dividend stock?
In short, a high-yield dividend stock is one that pays a dividend yield — a company’s annual dividend payments expressed as a percentage of its share price — that’s higher than certain key benchmarks. For instance, the S&P 500, an index that tracks the largest 500 public companies in the U.S., is a common benchmark for the performance of the U.S. stock market, and its component stocks currently have an average dividend yield of 2%. By comparison, any stock paying more than 2% annually would be considered a higher-than-average dividend payer.
However, there’s a better benchmark than the average stock: bonds. Investors looking for high yields don’t limit themselves to stocks, usually branching into bonds, and particularly federal government bonds, which are constitutionally guaranteed.
A popular holding for investors seeking long-term income known as the 10-year Treasury has historically been used as a benchmark for yield. The 10-year Treasury bond yields 2.64% right now. But with interest rates well below historical averages, even the 10-year Treasury at its current yield isn’t necessarily a good benchmark for high yields…
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