Tuesday, May 24, 2022

5 Best U.S. Dividend Growth Stocks

In everything we do, we always want to be the best or be associated with the best. You never hear fans yelling, 'We're number 2, we're number 2', while holding two fingers in the air. The same is true when selecting dividend growth stocks.

This is an article that I started to write several times, but would always stop after getting mired in the details. My natural tendency is make every question an analytical exercise and solve it by modeling and crunching numbers.

This time, I will show some restraint and take a little different approach by relying more on my subjective instincts. To that end, here are my selections for the five best U.S. dividend stocks:

5. Main Street Capital (MAIN)
Main Street Capital Corporation is a business development company specializing in equity, equity related, and debt investments in small and lower middle market companies. This is a Golden Stock for me, that is, one that has paid me dividends in excess of what I originally paid for the stock. Since my first purchase in July 2012 the stock has generated an IRR of 14.7%. Yield: 6.6%

4. Realty Income Corporation (O)
O is an equity real estate investment trust that owns commercial retail real estate properties in the United States. I have held the stock since 2006 and it has done quite well, even during the financial crisis. As an extra bonus, the company pays dividends monthly instead of quarterly. Since my first purchase in May 2006 the stock has generated an IRR of 11.1%. Yield: 5.2%

3. Microsoft (MSFT)
Microsoft, the world's largest software company, develops PC software, including the Windows operating system and the Office application suite. I first purchased the stock in October 2011 at $27 per share. As I write this, it is trading at $254 a share - more than nine times the original cost. The share price is not the only thing that has grown. With its growing dividend, the first shares I purchased in 2011 now have an 9.1% yield on cost (overall MSFT's YOC is 8.0%). I haven't purchased any shares since 2015, and actually sold some in 2018, but MSFT continues to be my largest position at 13.8% of my Dividend Growth Stocks portfolio. The stock has generated an IRR of 29.0%. Yield: 0.9%

2. Abbvie Inc. (ABBV)
Abbvie Inc. is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. Abbvie's key drug is Humira for rheumatoid arthritis. This stock will be a Golden Stock before the year ends. At 5.4% of my portfolio, it is my second largest position. Since spinoff in January 2013 the stock has generated an IRR of 24.0% and an eye-popping yield on cost of 18.2%. Yield: 2.5%

1. Raytheon Technologies Corporation (RTX)
Raytheon Technologies Corporation, the world's fifth largest military contractor, specializes in making high-tech missiles, advanced radar systems and sensors, defense electronics, and missile-defense systems. This may seem like a strange pick for the top spot, but the U.S. is always involving itself in wars, and companies like RTX (and its shareholders) benefit from it. Since my first purchase in June 2012 the stock has generated an IRR of 18.4% and a yield on cost of 7.8%. Yield: 2.8%

That's my five best U.S. dividend stocks. These are based on what stocks I believe will perform well as income investments over-time. Some may be not a good buy today, but as a group they are ones that I am always watching. Obviously, there is a great deal of subjectivity in a list like this. I would love to see your five best dividend stocks (doesn't have to be U.S. based.)

Full Disclosure: Long MAIN, O, MSFT, ABBV, RTX,

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