When talking about investments, it is necessary to take a closer look at the aspect linked to dividends. In fact, not all types of investments guarantee them and, those that do, must be carefully evaluated according to various criteria. In the following, we are going to take a closer look in particular at high dividend stocks and we will see together which opportunities are present on the market at this moment.
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What are Dividend Stocks
When we invest in a stock or in an ETF, we are becoming to all intents and purposes owners of a very small part of the company (or companies) whose securities we have purchased. The dividend is nothing more than the compensation that the company in question pays to each investor who, by maintaining possession of the share(s) over time, proves to believe in the project.
Usually the payment of dividends in the long term is a sign of corporate stability. Conversely: if a company that has been paying dividends for a long time decides not to do so anymore, it could be synonymous with financial problems. There is a very interesting category of stocks that you can invest in and these are the high dividend stocks.
What is meant by High Dividend Stocks
HDYs can be defined as financial instruments that are capable of generating steady liquidity due to the presence of stable earnings. Owning High Dividend Yields stocks can be considered an excellent strategy because, as time goes by, the dividend payout cushions market declines. But what are the risks of such an operation?
The Risks of Investing in HDYs
The risks are all related to the high volatility of the instrument in question: being shares with great growth potential, they are subject to great volatility. The long term would go a long way in mitigating a wrong entry, but you need to pay close attention to the short term, because wrong timing on volatile instruments could lead to the loss of your capital.
How to Value Stocks
But now comes the fun part: what are the best high-dividend stocks? We’ll start with the Italian ones and then move on to the American ones, but before we do that, let’s list the 5 criteria we followed in identifying what we’re going to look at next:
- Stable and continuous growth. In fact, it brings much more security to a company that pays increasing dividends over time and, as a result, is continuing to increase its profits.
- Low debt. Even if it were the most prosperous of companies, but sees unbridgeable chasms behind it, it all falls apart as soon as something doesn’t go its way. So evaluate the company’s debt before buying a share of it.
- Competitive advantage. A company that offers services that are not easily replicated (competition could lead to a price war, wiping out profits and leading to bankruptcy) can consider itself to have a distinct competitive advantage.
- High-dividend stocks. We’re looking for just that, so let’s check that the company we have our eye on pays substantial dividends and, more importantly, that it does so consistently and sustainably over time.
- Long-term profitability. A company may experience dips and bounces, but the average of its profitability must always be solid and long-lasting.
The Best Italian High Dividend Stocks
Brembo: Dividend Yield 1.9% – Payout Ratio 30.4%.
Rightfully on the list given the wide worldwide use of its components and the prestigious partnerships entered into, for example, with Lamborghini.
Enel: Dividend Yield 2.17% – Payout Ratio 70%.
Fundamental analysis indicates that on the basis of the upcoming profit distribution, it will be possible to give a forecast of its future performance.
Eni: Dividend Yield 5.21% – Payout Ratio 71.47%.
In order to untie itself from oil alone, Eni is investing heavily in renewable energy, which is the future of the energy sector.
Ferrari: Dividend Yield 0.45% – Payout Ratio 21.89%.
Iconic and established brand despite not being a mass-market asset. Needs no introduction.
Luxottica: Dividend Yield 1.63% – Payout Ratio 39.74%.
Long-standing company and world leader in the production of sunglasses and eyeglasses.
Best HDY USA
Coca-Cola: Dividend Yield 3.26% – Payout Ratio 94%.
Increasing dividend value for the past 58 years.
Johnson&Johnson: Dividend Yield 2.5% – Payout Ratio 75%
J&J, like Coca-Cola, has also been increasing its dividend for 58 years.
McDonald’s: Dividend Yield 2.3% – Payout Ratio 82%.
The famous fast-food company has been increasing its dividend for 43 years, always aiming for big investments.
Nestlé: Dividend Yield 2.63% – Payout Ratio 64%.
Continually expanding market and dividend growth for 25 years.
Procter&Gamble: Dividend Yield 2.39% – Payout Ratio 60%.
Has been increasing its dividend for 68 years and continues to be on a roll.
Stocks with Growth Potential
As for the following stocks, on the other hand, in addition to the 5 points mentioned earlier, it was necessary to do some fundamental analysis of each stock, to try to predict what their performance could be during 2022 based on what will happen in the economic calendar.
The 4 most promising companies of 2022 could be:
Growing for over 10 years and with revenues of over 125b in 2020.
Company with much more cash than debt. The payout ratio is low and this gives room for big increases in value for the dividends it pays.
Has been paying dividends for only 10 years, given its rapid expansion from 2007 (when the first iPhone was released) to 2012, years in which it reinvested all of its profits. It is continually expanding.
Included in this list because, being a REIT, it is strongly affected by the upward trend of housing tenure in the US.