If you are in need of income, it’s hard to find it from fixed income these days.
So we turn to stocks that generate decent dividends as well as showing dividend growth over the last few years.
The first place we looked was the Vanguard Dividend Appreciation Index Fund ETF (symbol: VIG), which holds mostly blue-chip stocks with dividend yields currently between 2% and 4.5%.
The top 10 holdings: Microsoft, Visa, Walmart, Procter & Gamble, Johnson & Johnson, Comcast, McDonald’s, Abbott Laboratories, Medtronic and Union Pacific.
Interestingly, the Vanguard fund doesn’t hold any energy stocks, some of which are yielding dividends upward of 5%: BP’s current yield is 6.2%, Royal Dutch 5%, Exxon Mobil 4.6%, Duke Energy 4.2%, Schlumberger 5.1%, Sunoco over 9%, and Dominion Energy 4.7%.
Be aware, however, of public energy companies that trade in master limited-partnership form, since you may pay a higher tax rate on a partnership than on a straight stock dividend, which (generally) totals less than 20%. Check with your financial planner or broker before purchase.
Timber companies Weyerhaeuser and CatchMark Timber Trust also yield single-digit dividends, as do many banks and real estate investment trusts, such as Brandywine Realty Trust.
Of course, dividends are only one sign of a company’s financial health. Carnival Corp. saw its stock drop this year after Brexit hurt its overall earnings. Also, American tourist ships will be barred from going to Cuba under new White House policy, making Carnival and other cruise lines vulnerable.
That said, Carnival’s current dividend is 4.5%, and the dividend has grown an average of 9% a year over the last five years, according to Bloomberg.
In times of market uncertainty, dividend stocks allow investors to earn some rent from their portfolios.
Another interesting place to investigate companies with dividend growth: The Nasdaq US Dividend Achievers Select Index, composed of securities with at least 10 consecutive years of increasing annual regular dividend payments. More information is available at bit.ly/nasdaqinq.
There’s a Vanguard exchange-traded fund that tracks this Nasdaq index: Vanguard U.S. Dividend Appreciation Index ETF.
Also, you can set up your own dividend stock screen on most any online brokerage account. In times of turmoil, it’s nice to have some stable income.
Erin Arvedlund writes for the Philadelphia Inquirer.