If you look at the world of dividend-growth stocks, you’ll find a lot of bullish sentiment from the Wall Street professionals tasked with researching these companies.
It’s not difficult to see why.
A dividend program, in and of itself, is a powerful statement by corporate management about their company’s ability to generate profits—specifically, it implies that they expect to produce enough in earnings on a regular basis that they can share some of it with us. Now imagine what it means when a company builds a track record of growing those dividends each and every year.
However, as bullish as “the Street” might be about dividend growers as a whole, research firms clearly favor some dividend-growth stocks more than others … and those are the stocks we’re interested in talking about today.
Read on as I introduce you to some of the best dividend-growth stocks you can buy, as measured by consensus ratings across dozens of Wall Street analysts.
Editor’s Note: The tabular data presented in this article is up-to-date as of May 12, 2026.
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Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Table of Contents
3 Reasons to Value Dividend Growth
Let’s say you owned shares of the presently fictional Woodley Federated Holdings (WFH). If one day, WFH suddenly informed shareholders that it would be paying, say, a dollar per share per year from now on, we’d be pretty happy campers—after all, a dollar per year of returns we couldn’t really count on before.
But if Woodley Federated Holdings started paying us a dollar per share one year, then raised it every year after that, we’d be downright euphoric. Why? Well, I can think of three reasons:
- A higher dividend over time means a higher “yield on cost” for us. Let’s say you bought a WFH share for $100. That $1-per-share annual dividend would equal a 1% yield on your purchase. If the stock price and dividend both doubled, to $200 per share and $2, respectively, new investors would still be buying at a 1% yield. But you? You’d be earning 2% on your original $100 purchase.
- A higher dividend over time fends off inflation. In most years, you experience inflation, which is when the worth of our currency slightly declines. So $1 worth of groceries, gas, etc. this year will generally buy you slightly less groceries, gas, etc. next year. High inflation over the past few years really drives home this point—according to the U.S. Bureau of Labor Statistics, in January 2025 you would need $1.88 to buy what $1 could have bought in January 2020, right before the COVID pandemic hit a fever pitch. So if you receive $1 in dividends every year in perpetuity, your dividend income will lose its value over time. But if that initial $1 dividend is raised enough every year, your income could keep pace with (or even outrun) inflation.
- A higher dividend can be a sign of quality. Just like initiating a dividend says “we have so much money that you can have some,” a track record of raising dividends typically signals a company’s ability to continue growing its bottom line.
Put simply: Regular dividend growth signals a higher caliber of operations (and thus potentially a higher caliber of stock), and it puts more money in our pockets. That’s a lot to love.
Keep an Eye on Dividend Payout Ratios
No matter what kind of dividend stock you’re looking at, you’ll want to consider its “dividend payout ratio,” or just “payout ratio.”
The dividend payout ratio—usually the percentage of profits is being used to pay the dividend (though some people prefer to use free cash flow instead) is a quick-and-dirty way for the average investor to get an idea of how sustainable a dividend is. It’s a simple calculation: dividends per share (DPS) / annual earnings per share (EPS) = dividend payout ratio.
I’ll use extreme examples to get the point across:
- Company A pays $1 per share in annual dividends and is expected to finish the year with $10 per share in earnings. $1 in DPS / $10 in EPS = 10% payout ratio.
- Company B pays $10 per share in annual dividends and is expected to finish the year with $10 per share in earnings. $10 in DPS / $10 in EPS = 100% payout ratio.
Which company do you think has a more sustainable dividend?
While an earnings-based payout ratio isn’t a perfect metric (dividends are technically paid from cash flow, not profits, and certain types of companies use more specialized measures of profitability), it’s generally fair to assume Company A has a safer payout than Company B. If Company A’s earnings suddenly fall by half in a given year, it can still pay its dividend with plenty of room to spare. If Company B’s earnings suddenly fall by half, however, it will be paying out nearly twice what it’s bringing in.
You can use this same logic to make an educated assumption about a company’s ability to grow its dividends going forward. If Company A and Company B—two companies in the same sector with a similar business model—have payout ratios of, say, 10% and 80%, you could reason that Company A has more runway to grow its dividend.
To be clear, though: There’s no “exactitude” as it pertains to dividend payout ratios. But if you need a general guide? Depending on who you’re asking, anywhere between 30% and 60% is perfectly healthy with room to grow, below 30% implies miles of runway, between 60% and 80% might be sustainable but probably not much room to grow, and between 80% and 100% could be worrisome from dividend-growth and dividend-safety perspectives.
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Dividend-Growth Stocks That Wall Street Loves
Here’s how I came up with today’s list of highly rated dividend-growth stocks.
I started with a “selection universe” of the 500 companies within the S&P 500 Index. Next, I included only companies with 10 or more years of uninterrupted annual dividend growth. (These companies are frequently referred to as “Dividend Achievers.”)
From there, I excluded any company with a consensus analyst rating (provided by S&P Global Market Intelligence) of Hold or below. S&P boils down consensus ratings down to a numerical system where …
- 1 to 1.5: Strong Buy
- 1.5 to 2.5: Buy
- 2.5 to 3.5: Hold
- 3.5 to 4.5: Sell
- 4.5 to 5: Strong Sell
In fact, every dividend-growth stock on this list has a rating of 2 or less, indicating that at worst they enjoy a very firm consensus Buy rating, if not an outright Strong Buy rating.
From there, I selected some of the highest-rated dividend stocks that qualified, but with a firm eye on creating a somewhat diversified list. Specifically, no sector is represented by more than two stocks.
You might have noticed that yield wasn’t even a consideration. Dividend growers often don’t have a high current yield—and if you’re taking the long view, they don’t necessarily need to. If a company yielding 1% today has a commitment to robust dividend growth, that same stock could yield 3%, 4%, or even more as the years roll by.
The stocks are listed below, in descending order of their consensus rating (from the “worst” rating to the best).
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Best Dividend-Growth Stock #10: Equinox
- Sector: Real estate
- Market cap: $105.8 billion
- Dividend yield: 1.9%
- Consensus analyst rating: 1.58 (Buy)
Equinix (EQIX) is a real estate play on numerous technological megatrends, including cloud computing, big data, and artificial intelligence.
EQIX is the largest global data center and colocation provider for enterprise networks. In other words, Equinix is responsible for the actual server rooms that house all the bits and bytes that power all the content and software we offload to “the cloud” without really considering where the cloud is.
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Considering the fact that cloud-based software is now just the normal way of doing business, that creates a massive opportunity for Equinix as one of the largest specialized firms in the space. This digital infrastructure provider boasts 513,000 interconnections to more than 10,500 customers, with a global reach of 77 metro areas in 36 countries. Those numbers will surely grow, with the company currently working on 46 projects in 32 markets across 22 countries.
“We continue to expect strong demand for the data center category over the next few years given core and cloud infrastructure needs, as well as expanding demand for GenAI workloads,” says Citi analyst Michael Rollins, who rates the stock at Buy. That’s just one of 26 Buy-equivalent ratings on the stock, which compares well to just five Holds and only one sell.
As for the dividend growth? Equinix just clears the bar with 11 consecutive years of annual dividend growth. But that growth has been explosive, with the quarterly distribution rocketing a cumulative 205% higher since EQIX started paying regular dividends in 2015.
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By the way: EQIX is a real estate investment (REIT), which is a specially structured business that exists to empower the general public to invest in real estate. The upside? REITs must pay at least 90% of their taxable income to shareholders, which usually results in above-average yields. The downside? While many stocks’ dividends are usually “qualified” and thus taxed at more favorable long-term capital gains tax rates, REITs’ dividends (including Equinix’s) are generally non-qualified and thus taxed at less favorable ordinary income tax rates.
REITs are also different from a payout ratio perspective. REITs frequently use a non-GAAP (generally accepted accounting principles) metric called “funds from operations” (FFO) to express their profitability, and they’re typically a better gauge of dividend health than regular earnings. In EQIX’s case, it’s paying 50% of estimated adjusted FFO (AFFO), which implies the dividend is plenty secure.
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Best Dividend-Growth Stock #9: Avery Dennison
- Sector: Consumer discretionary
- Market cap: $12.3 billion
- Dividend yield: 2.5%
- Consensus analyst rating: 1.55 (Buy)
Avery Dennison (AVY) is a materials science and digital identification solutions provider—an odd bird, but one with a ton of practical applications.
For instance, it offers pressure-sensitive label materials, performance tapes, and other adhesive-based materials. It provides graphics and reflective products for commercial sign companies, digital printers, and architectural firms. It makes reflective films that are used in traffic and safety, pressure-sensitive vinyl and specialty materials for digital imaging. But it’s also a leader in radio-frequency identification (RFID), which companies like Walmart (WMT) can use in inventory management and supply chain visibility.
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Avery Dennison technically belongs to the consumer discretionary sector, but it has elements of materials and industrials. All of that still makes it a cyclical business whose top and bottom lines can ebb and flow from one year to the next. Regardless, it has built up a 16-year streak of consecutive dividend increases, including a 6% improvement, to $1.00 per share, announced in late April 2026.
That announcement came just a couple days after it reported a strong first quarter.
“AVY posted a better set of 1Q results than expected and a better guide than feared,” says John P. McNulty, U.S. Chemicals Analyst at BMO Capital Markets, who rates the stock at Outperform (equivalent of Buy). “With a conservative bar set for 2Q, solid handle on price/cost issues, as well as an acceleration of growth in 2H for its IL business, we see the outlook for AVY as positive as the year progresses.”
BMO is one of nine Buy calls on the stock, which compares well to just two Holds and no Sells.
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Best Dividend-Growth Stock #8: Walmart
- Sector: Consumer staples
- Market cap: $1 trillion
- Dividend yield: 0.8%
- Consensus analyst rating: 1.44 (Strong Buy)
Walmart (WMT) needs no introduction, but I’ll give it one anyways.
Walmart is a global retailing behemoth, recently eclipsing $1 trillion in market capitalization. It operates nearly 11,000 stores and clubs in 19 countries, including 4,600 stores—not just Supercenters, but also discount stores, Neighborhood Markets and small-format stores—in the U.S. That doesn’t even include its 600 Sam’s Club warehouse-club locations.
WMT is frequently contrasted with fellow big-box store Target—the former is considered a lower-priced but lower-quality retailer, while the latter is pricier but perceived to be more upscale. But Walmart has been addressing this in numerous ways over the past few years, including improving store standards and widening price gaps.
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Now, Walmart is going after beauty.
“Management believes it can double the size of its beauty biz, noting that while WMT already serves the beauty shopper, ~60% of her spend still occurs elsewhere,” says a team of Jefferies analysts, which rates shares at Buy. “That gap represents a meaningful wallet-share opportunity as assortment improves and the in-store experience elevates. WMT US digital is expected to lead growth and drive share gains.”
Also helping Walmart is its continued rapid technological adoption to address changing consumer interests. For instance, its AI partnership is expected to benefit from reports that OpenAI is retreating from its idea to introduce direct shopping within ChatGPT, instead directing product checkouts to retailer apps.
“We view this as a net positive for Walmart,” say BofA Global Research analysts Christopher Nardone and Madeline Cech (Buy). “This change would bring about an integrated commerce solution that’s similar to Walmart’s partnership with Google’s Gemini (announced in January). There will likely be fewer retailers (at first) with this integrated app capability and once Sparky is integrated within the platform, Walmart should have an advantage showing up in searches given its low pricing and vast product assortment.”
Walmart is also a leader among dividend-growth stocks. In February 2026, the company announced it would juice its distribution by 5%, to 24.75¢ per share. That marked its 53rd consecutive annual dividend increase, which not only easily puts it among the ranks of the S&P 500 Dividend Aristocrats (S&P 500 companies that have raised their payouts without interruption for at least 25 years), but makes it a Dividend King (a company that has done the same for at least a half-century). The payout represents just a third of Walmart’s projected earnings for this year.
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Best Dividend-Growth Stock #7: Xcel Energy
- Sector: Utilities
- Market cap: $50.0 billion
- Dividend yield: 3.0%
- Consensus analyst rating: 1.42 (Strong Buy)
Xcel Energy (XEL) is a regulated utility provider that serves 3.9 million electricity and 2.2 million natural gas customers across eight states, primarily in the Midwest. It generates electricity through natural gas, oil, wind, nuclear, hydroelectric, solar, and other energy sources. The company also develops and leases natural gas pipelines, as well as storage and compression facilities.
Like many utility companies, XEL has seen its fortunes improve alongside artificial intelligence (AI) companies’ ravenous demand to churn out power-hungry datacenters. But other drivers are powering Xcel ahead.
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“We are favorable on nuclear generation, which can further save costs and receive favorable regulatory outcomes. In fact, recent favorable electricity regulatory increases have helped offset older decisions in which some customers paid rates tied to wholesale prices,” says Argus Research analyst Marie Ferguson, who rates the stock at Buy. “The company should expect to see stronger demographics as the economy improves and Denver remains a popular growth region. XEL is projected to see above-average growth in data center demand by 2028.”
Argus’ Buy call is one of 17 on the stock. Meanwhile, XEL only has one Hold call, and one Sell call.
Xcel also offers a stereotypically above-average dividend yield of 3% right now. That dividend reached 23 years of uninterrupted growth in February 2026, when the company announced it would hike its payout by 4% to 59.25¢ per share. This amounts to less than 60% of its 2026 earnings estimates, which is generally comfortable, certainly for a utility company.
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Best Dividend-Growth Stock #6: Cardinal Health
- Sector: Health care
- Market cap: $43.0 billion
- Dividend yield: 1.1%
- Consensus analyst rating: 1.41 (Strong Buy)
Cardinal Health (CAH) is an essential cog in the health care machine, providing both products and services to hospitals, health care systems, pharmacies, ambulatory surgery centers, physician offices, even home patients.
Just a small sample of its offerings include distributing branded, generic, and specialty pharmaceutical, medical supplies, over-the-counter health care products, and consumer products; pharmacy management services; Cardinal Health-manufactured and branded medical, surgical, and laboratory products; and supply chain services.
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Cardinal shares rocketed higher in 2025, up 76% on a total-return basis (price plus dividends). It’s down by double digits in 2026, however; but you can’t blame its fiscal third-quarter earnings report, released in late April.
“We view the CAH thesis as unchanged with underlying growth trends across the Pharma and ‘Other’ segments remaining strong as management continues to execute and deliver earnings beats and guidance raises,” says Jefferies analyst Brian Tanquilut, who rates the stock at Buy. “We read early FY27 commentary from management positively and believe they should initially guide to at least the +12% to 14% EPS growth [long-range plan].”
The consensus is for more of the same; Tanquilut is one of 15 Buys on the stock, in contrast to two Holds and no Sells.
Cardinal Health isn’t just one of the best dividend-growth stocks right now. It’s one of a handful of Dividend Aristocrats on this list. CAH extended its streak of payout increases to 30 years in May 2026, when it improved its cash distribution by 1% to 51.58¢ per share. Moreover, a low dividend payout ratio of just above 20% of 2026’s projected earnings means there’s plenty of headway for further increases.
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Best Dividend-Growth Stock #5: Smurfit Westrock
- Sector: Consumer discretionary
- Market capitalization: $21.4 billion
- Dividend yield: 4.4%
- Consensus analyst rating: 1.33 (Strong Buy)
It’s one of the best value stocks right now. It’s one of the best growth stocks, too. So why not add another honorary by calling it one of the best dividend-growth stocks on the market?
Smurfit Westrock (SW)—the product of a 2024 merger of Ireland’s Smurfit Kappa and America’s Westrock—is a global manufacturer of consumer packaging, corrugated packaging, and a variety of paper products. And by virtue of that merger, the combined entity is now one of the largest packaging providers in the world, with operations in 40 countries.
Consider Smurfit Westrock an interesting beneficiary of technological trends—specifically, the continued rise of e-commerce. As people increasingly move away from buying in brick-and-mortar stores and toward online shopping … well, those products have to get shipped in something, and that’s precisely where Smurfit comes in.
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“[We estimate] that the industry will remain strong, and we see modest expansion at a compound annual growth rate of 3%-4% through 2028,” writes Argus Research analyst Alexandra Yates, who is one of 15 analysts covering Smurfit, all of whom rate the stock at Buy. “We favor companies with pulp, paperboard packaging, and corrugated product lines, and expect this segment to show continued long-term growth through 2030.
“We see long-term upside potential and expect earnings growth congruent with growth in e-commerce and growth in demand for sustainable paper and packaging goods. We think that current valuation multiples are attractive given the company’s recovering earnings outlook through FY26.”
The company has only existed as Smurfit Westrock for a couple of years. However, both Smurfit and Westrock were dividend growers prior to the merger; applying Smurfit’s longer streak to the entire entity, the company boasts 14 consecutive years of dividend increases. Its most recent upgrade, announced in February 2026, was a 5% raise to 45.23¢ per share. That’s a fairly high 80% of the current year’s earnings estimates, but a far more comfortable 55% or so of Wall Street’s 2027 bottom-line prediction.
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Best Dividend-Growth Stock #4: Mastercard
- Sector: Financials
- Market cap: $443.9 billion
- Dividend yield: 0.9%
- Consensus analyst rating: 1.34 (Strong Buy)
Mastercard (MA) is one of the world’s top payment card networks, spanning some 3.7 billion Mastercard credit and debit cards accepted at more than 110 million locations in over 210 countries and territories. It’s not just individual consumers who swipe with Mastercard, either—many businesses actually purchase from other businesses using Mastercard’s plastic.
But what’s interesting about Mastercard is that, despite making it possible for literally $10 trillion-plus worth of annual transactions to go through, the company isn’t really responsible for any of the underlying funds. Mastercard itself is not a bank—instead, thousands of banks and other financial institutions use the company’s technology to give its customers the ability to spend anywhere, anytime. So, if you use a Chase Mastercard, Chase Bank is taking on the financial risk; Mastercard is just the middleman between merchant and bank.
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And it’s quite the middleman.
“MA continues to demonstrate strong innovation capabilities,” says Alexander Yokum, analyst at independent research firm CFRA (Buy). “Value-added services now represent nearly 40% of total revenue, making the business less sensitive to economic cycles. The company is also positioning itself for emerging opportunities in two key areas: agentic commerce, where it is prepared to capitalize on expected rapid growth, and stablecoins, where its proposed acquisition of BVNK would provide critical technology to send, receive, convert, and hold digital currencies.”
That’s just one of 36 Buy calls on Mastercard stock. The remaining three ratings on the stock are Holds.
Another reason why Mastercard is among the best dividend-growth stocks to buy right now? The card company has strung together 15 years of uninterrupted dividend hikes, delivering nearly 300% payout growth over that time. Its most recent hike was a substantial 14% boost to 87¢ per share, announced in late 2025 starting with the January dividend. That represents less than 20% of expected earnings for 2026, giving Mastercard the flexibility to keep the pedal down.
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Best Dividend-Growth Stock #3: Microsoft
- Sector: Technology
- Market cap: $3.0 trillion
- Dividend yield: 0.9%
- Consensus analyst rating: 1.31 (Strong Buy)
Microsoft (MSFT) isn’t just one of the best dividend-growth stocks according to Wall Street’s analyst community. It’s a dominant tech stock that has grown to $3 trillion in value.
Curiously, part of Microsoft’s growth can be chalked up to its attraction as a technological safe haven. It’s an extremely diversified company, boasting “sticky” enterprise software, cloud, business intelligence, video games, and more—not to mention it’s sitting on about $112 billion in cash and investments.
The other part of Microsoft’s growth? Good ol’ fashioned growth growth.
“Microsoft reported healthy beats across major metrics in its fiscal third quarter and offered a bullish outlook for its cloud business,” William Blair analysts (Outperform) wrote after the company’s fiscal third-quarter report released in late April. “Specifically, stronger-than-expected Azure guidance and rising Copilot usage reinforce confidence in the next phase of AI-driven growth and help justify historically elevated [capital expenditure] investments.”
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A partnership with Anthropic bodes well for Microsoft, too.
“For enterprise strength AI, vendors and developers will require many resources, services, and model choices to build out AI solutions. And this deal represents a widening of model choice with the addition of Anthropic,” says HSBC’s Stephen Bersey, Head of US Technology Research, who rates the stock at Buy. “Overall, the strategic announcement aligns with our thesis from last year that Microsoft is very well positioned for the AI mega-cycle as it has ample in-context data, cloud infrastructure, AI models, and AI fabric in order to orchestrate a complex AI agentic ecosystem.”
Microsoft is one of the tech sector’s most established dividend payers, boasting 20 consecutive years of growth. The latest one was announced in September 2025—a nearly 10% improvement to 91¢ per share that represents less than 20% of 2026’s expected profits.
MSFT is one of the Street’s most-loved dividend-growth stocks right now, too, at an incredible 52 Buy calls versus three Holds and no Sells.
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Best Dividend-Growth Stock #2: S&P Global
- Sector: Financials
- Market cap: $125.6 billion
- Dividend yield: 0.9%
- Consensus analyst rating: 1.29 (Strong Buy)
S&P Global (SPGI)—parent of S&P Dow Jones Indices, which produces the S&P 500—is one of the highest-rated dividend stocks on the market, and the highest-rated Dividend Aristocrat of them all.
The S&P 500, of course, is America’s most ubiquitous index—literally trillions of dollars worth of fund assets are either indexed to it or benchmarked against it. (And as I point out every year in my list of the best ETFs, active managers have a really hard time beating it.)
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But S&P Global is more than just the S&P 500. It’s also responsible for the Dow Jones Industrial Average, the Dow Jones Transportation Index (the oldest index in use), and more than a million other indexes across a number of asset classes. It’s also home to …
- S&P Global Ratings: Credit ratings, research, and analytics
- S&P Global Commodity Insights: Information and benchmark prices for commodities and energy
- S&P Global Market Intelligence: A wide variety of financial markets and asset data and analytics, enterprise technology, and advisory services.
- S&P Global Mobility: Solutions for vehicle manufacturers, automotive suppliers, mobility service providers, and other companies in the automotive value chain. (Note: The company announced this year that Mobility will be spun off, likely sometime in 2026.)
SPGI took a big hit in early February on the back of a mixed fourth-quarter earnings report that further fueled worries about AI disruption, but the company put together better results in its Q1 2026 report.
“There are positive forward indicators for [Market Intelligence] growth to improve through the year, and Indices performance was strong due to market volatility and asset flows,” say Stifel analysts (Buy). “Importantly, the company’s AI efforts continue to progress and there were several notable volume metrics and contracting datapoints that indicate strong demand for SPGI’s AI-ready data. We continue to expect SPGI to be a beneficiary of the AI trend, and think disruption concerns are misplaced.”
Wall Street remains overwhelmingly bullish; 23 pros call it a Buy, versus one Hold and no Sells.
SPGI is one of the best dividend-growth stocks in large part because of these varied and growing sets of businesses, which have allowed S&P Global to pay dividends every year since 1937, and grow them for 53 consecutive years. SPGI’s latest improvement was a 1% uptick, to 97¢ per share, announced in January 2026. That’s less than 20% of the company’s expected annual profit this year, so SPGI has plenty of resources to keep its streak alive going forward.
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Best Dividend-Growth Stock #1: Broadcom
- Sector: Technology
- Market cap: $2.0 trillion
- Dividend yield: 0.6%
- Consensus analyst rating: 1.28 (Strong Buy)
Broadcom (AVGO) is one of the world’s largest semiconductor companies. It designs, develops, manufactures, and supplies semiconductor and infrastructure software products for a wide variety of uses, including (but hardly limited to) artificial intelligence (AI), data centers, networking, wireless, storage, and industrial automation.
The company has been an innovator in its own right, but you can also chalk up much of its scale to a history of aggressive merger-and-acquisition (M&A) activity. The company—itself the product of a 2016 merger between Broadcom Corporation and Avago Technologies (hence the AVGO ticker)—has swallowed up the likes of LSI Corporation, Brocade, CA Technologies, VMware, and Symantec’s enterprise security business.
Regardless of how it got there, the resulting entity is one of Wall Street’s most beloved chip stocks.
“We believe AVGO has one of the most strategically and financially attractive business models in semiconductors,” say Oppenheimer analysts, who rate the stock at Outperform. Among the reasons they love Broadcom are a “sustained competitive advantage in the high-end filter market, a ‘sticky’ non-mobile business, efficiently managed manufactury, and substantial earnings and free cash flow growth.
“We continue to see an attractive risk/reward equation for the stock in light of accelerating revenue growth over the coming quarters and likely upside to expectations as Broadcom benefits from an expanding set of AI ASIC and networking opportunities across its major hyperscaler customers,” add William Blair’s Sebastien Naji and Ana Bilbao (Outperform).
Like with many dividend stocks in the technology sector, Broadcom’s yield isn’t much to behold. But it’s a dividend-growth dynamo. The payout has doubled in just the past five years alone. In December 2025, AVGO hiked its dividend by 10%, to 65¢ per share, marking its 16th consecutive increase. And at less than a quarter of this year’s estimated profits, Broadcom has much more room to share.
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What Is Dividend Yield?
Perhaps the most important metric in the dividend universe is known as dividend yield. This is a simple financial ratio that tells you the percentage of a company’s share price that is paid out across a year’s worth of dividend distributions.
Expressed as a mathematical equation, it’s simply:
Dividend yield = annual dividend / price x 100
The idea here is to normalize dividend payments regardless of stock price, different quarterly payments, even different payment frequencies (quarterly is normal, but some dividend stocks pay monthly, while others pay semiannually or annually).
For instance, each of the following fictional stocks all have a dividend yield of 2.5%:
- Alpha Corp. currently trades for $40 a share. It pays a 25¢ quarterly dividend, for $1.00 per year in full. ($1 / $40 x 100 = 2.5%)
- Beta Inc. pays $1 in the first quarter, $2 in Q2, $3 in Q3 and $4 in Q4. That’s $10 in dividends for the full year. It trades for $400 a share. ($10 / $400 x 100 = 2.5%)
- Gamma Ltd. pays $2.50 just once per year. It trades for $100 a share. ($2.50 / $100 x 100 = 2.5%)
The idea is to focus on the percent of your initial investment you get back, and help you compare apples to apples.
Taking this math a step further, you learn that a company can suddenly feature a very high dividend yield through one of two very different ways: the share price falling very quickly, or the dividend growing very rapidly.
Alpha Corp., which trades for $40 per share, pays a 25¢ quarterly dividend that yields 2.5%. In a month, it yields 5.0%. Here are two ways that could have happened.
- Alpha Corp. doubled its dividend to 50¢ per share, for a full $2 per share across the year. The share price stays the same. ($2 / $40 x 100 = 5.0%)
- Alpha Corp. kept its dividend the same, but its share price plunged in half to $20 per share. ($1 / $20 x 100 = 5.0%)
Clearly, that 5% yield appears to be much safer and reliable in one scenario than the other.
What Is ‘Yield on Cost’?
When you look up a stock’s information, the dividend yield listed is based on the most recent dividend and the current stock price.
That yield is often actually different than the one current shareholders enjoy. That yield is called “yield on cost,” which is the payout based on what you paid, at the moment you invested.
Let’s say you buy a stock at $100, and it pays $1 per share. It yields 1.0% when you buy it ($1 / $100 x 100 = 1.0%).
In a year, that stock has doubled to $200 per share, and it also doubled its dividend to $2 per share. If you look up its information, its dividend is still 1.0% ($2 / $200 x 100 = 1.0%).
That’s not your yield on cost, however. You’re still receiving that higher dividend of $2 per share. But your cost basis is still the original $100 you bought the share at. So now, your yield on cost has doubled, to 2.0% ($2 / $100 * 100 = 2.0%)!
Related: What Are the Average Retirement Savings By Age?
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Related: 8 High-Quality, High-Yield Dividend Stocks
It’s difficult to resist the charm of high-yield dividend stocks. Their ability to generate outsized amounts of cash makes them the stuff of dreams for those living on a fixed income—as well as for any investors who simply want a little performance ballast during periods of rough stock-price returns.
But we prefer quantity and quality. For instance, our favorite high-yield dividend stocks deliver much sweeter yields than the average stock, show more signs of fundamental quality than most, and have the confidence of Wall Street’s analyst community.
Related: The 12 Best Vanguard ETFs for a Low-Cost Portfolio
Vanguard’s exchange-traded funds (ETFs) are among the most popular funds out there thanks to their low fees. But there’s more appeal to their ETF lineup than low costs alone.
Vanguard ETFs are big, liquid, and tend to track well-constructed indexes, meaning you’re not just paying low expenses … you’re actually getting some value out of your fees. And these Vanguard ETFs represent the best of the best.
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