In this article, we discuss 11 best quality dividend stocks to buy. You can skip our detailed analysis of dividend stocks and their performance over the years, and go directly to read 5 Best Quality Dividend Stocks to Buy.
During periods of uncertainty, such as recessions or inflationary environments, dividend stocks often become a preferred choice for investors. This is because dividend stocks can provide a certain level of stability and income even in turbulent times. When it comes to dividend stocks, investing in high-quality companies offers several advantages. Quality dividend stocks are those that have a track record of consistent and reliable dividend payments. These companies are well-established and have histories of generating steady cash flows, strong earnings growth, and solid balance sheets.
Dividend growth rate plays a significant role in dividend investing by showcasing a company's capacity to raise its dividend payments over time. When companies can consistently increase their dividends at a healthy rate, it signals their strength and stability as investments. This growth reflects a strong and expanding cash flow, demonstrating their commitment to delivering value to shareholders. Moreover, dividend growers also showed robust performance in the past, compared to their counterparts. In our article titled 25 Things Every Dividend Investor Should Know, we mentioned data from Ned Davis Research and Hartford Funds, which revealed that dividend growers achieved a return of 9.62% from 1972 to December 31, 2018. In contrast, dividend cutters experienced a negative return of 0.79%. During the same period, the S&P 500 had an average annual return of 7.30%, indicating that dividend growers outperformed the broader market.
Investors showed great interest in stocks with substantial dividends last year, considering them popular trades in the stock market. However, this preference for dividend-heavy stocks has lost momentum since then due to growing investments in artificial intelligence (AI). According to data by Ned Davis Research, non-dividend-paying stocks in the S&P 500 have experienced a collective gain of approximately 18% in 2023, as of July 1. In contrast, income-generating companies have only seen a modest 4% advance. This marks the weakest first-half performance for dividend-paying stocks compared to non-dividend-paying stocks since 2009.
However, it is important to note that the situation could change in the future, especially since dividend-paying stocks have historically demonstrated a tendency to outperform during periods of economic slowdown. According to a report by Wall Street Journal, there are concerns that the Federal Reserve's interest rate hikes could potentially lead the economy into a recession. If such a scenario unfolds, defensive companies with substantial dividends could once again outperform. This is because, during an economic downturn, consumers tend to prioritize essential expenses.
Analysts also continue to support the stance on dividend stocks, as they see potential and favorable prospects for these stocks throughout the year. Paul Baiocchi, chief ETF strategist at SS&C ALPS Advisors, spoke with WSJ and said that a significant part of the market’s total return has been generated by compounded dividends over time, rather than the price appreciation of the stock market itself. NextEra Energy, Inc. (NYSE:NEE), The Sherwin-Williams Company (NYSE:SHW), and Walmart Inc. (NYSE:WMT) are some of the best dividend stocks with decades-long dividend growth track records. In this article, we will further discuss quality dividend stocks to consider.
For this list, we scanned Insider Monkey's database of 943 hedge funds as of Q1 2023 and selected blue-chip dividend companies with robust balance sheets. From this pool, we further narrowed down the companies that have consistently increased their dividend payments for 40 years or more. By highlighting these companies, we aim to showcase their quality and long-standing commitment to rewarding shareholders. The stocks are ranked in ascending order of hedge funds having stakes in them.
Medtronic plc (NYSE:MDT) is an American medical device company with legal headquarters in Ireland. The company operates in various healthcare sectors and offers a broad range of products and services to improve patient outcomes and quality of life.
In fiscal Q4 2023, Medtronic plc (NYSE:MDT) reported revenue of $8.5 billion, up 5.6% from the same period last year. In FY23, the company generated $6.03 billion in operating cash flow and its free cash flow for the period came in at $4.5 billion. It also returned $4 billion to shareholders in dividends and share repurchases in FY23.
Medtronic plc (NYSE:MDT), one of the best dividend stocks, has raised its dividends by 38% in the past five years. The company overall holds a 46-year streak of consistent dividend growth and currently pays a quarterly dividend of $0.69 per share. The stock's dividend yield on July 12 came in at 3.15%. Other dividend stocks grabbing investors' attention include NextEra Energy, Inc. (NYSE:NEE), The Sherwin-Williams Company (NYSE:SHW), and Walmart Inc. (NYSE:WMT).
At the end of Q1 2023, 52 hedge funds in Insider Monkey's database reported having stakes in Medtronic plc (NYSE:MDT), worth collectively over $1.64 billion. With over 5.4 million shares, First Eagle Investment Management was the company's leading stakeholder in Q1.
Appleseed Fund mentioned Medtronic plc (NYSE:MDT) in its Q1 2023 investor letter. Here is what the firm has to say:
“During the most recent quarter, Appleseed Fund added three new equity holdings: Medtronic plc (NYSE:MDT), Stanley Black & Decker (SWK), and Synovus Financial (SNV). Medtronic is the world’s largest device manufacturer, and it holds the number one or number two market share in most of its product segments. Medtronic’s business is heavily weighted towards complicated in-patient procedures, which are typically quite profitable. Industry dynamics are quite attractive with an aging global population and the growth of improved healthcare in emerging markets; furthermore, most of its segments are highly concentrated with just 2-3 players that split each segment’s market share, affording the key participants with significant economies of scale and pricing power. The Company has been recently addressing several temporary headwinds including a strong dollar, inflation, a delayed recovery in surgical volumes from the coronavirus pandemic, and supply chain issues. Once these issues reach the rearview mirror, the Company’s growth and margin expansion plans should transform into reality.”
Automatic Data Processing, Inc. (NASDAQ:ADP) is next on our list of the best dividend stocks. The management services company reported revenue of $5 billion in fiscal Q3 2023, which showed a 9% growth from the same period last year. Its operating cash flow for the first nine months of the fiscal year came in at over $3.02 billion, compared with $2.1 billion during the same period last year.
Automatic Data Processing, Inc. (NASDAQ:ADP) offers a quarterly dividend of $1.25 per share and has a dividend yield of 2.22%, as of July 12. The company has raised its dividends consistently for the past 48 years.
The number of hedge funds tracked by Insider Monkey owning stakes in Automatic Data Processing, Inc. (NASDAQ:ADP) grew to 53 in Q1 2023, from 49 in the previous quarter. These stakes have a collective value of over $3.7 billion.
Madison Investments mentioned Automatic Data Processing, Inc. (NASDAQ:ADP) in its Q1 2023 investor letter. Here is what the firm has to say:
“We eliminated Automatic Data Processing, Inc. (NASDAQ:ADP) from the portfolio due to concerns that the economy is close to a peak job market and interest income on the company’s float has also peaked along with interest rates. The company’s valuation does not reflect the potential downside in the job market from a weakening economy.”
Colgate-Palmolive Company (NYSE:CL) is a New York-based manufacturing company that specializes in the production and distribution of personal care, home care, and pet nutrition products. The company pays a quarterly dividend of $0.48 per share, having raised it by 2% in March this year. This marked the company's 61st consecutive year of dividend growth, which makes it one of the best dividend stocks on our list. The stock's dividend yield on July 12 came in at 2.55%.
In the first quarter of 2023, Colgate-Palmolive Company (NYSE:CL) reported revenue of $4.77 billion, up 8.4% from the same period last year. The company generated $735 million in operating cash flow, compared with $386 million in the prior-year period. Its free cash flow before dividends came in at $572 million.
At the end of March 2023, 55 hedge funds in Insider Monkey’s database owned stakes in Colgate-Palmolive Company (NYSE:CL), with a collective value of over $3.2 billion. With over 11 million shares, First Eagle Investment Management was the company's leading stakeholder.
Becton, Dickinson and Company (NYSE:BDX) is a global medical technology company that specializes in the development, manufacturing, and distribution of a wide range of medical devices, laboratory equipment, and diagnostic products.
On April 25, Becton, Dickinson and Company (NYSE:BDX) declared a quarterly dividend of $0.91 per share, which was in line with its previous dividend. The company has been raising its dividends for 51 years running. With a dividend yield of 1.41% on July 12, BDX is one of the best dividend stocks on our list.
In fiscal Q2 2023, Becton, Dickinson and Company (NYSE:BDX) reported year-over-year growth of 1.1% in its revenue at $4.8 billion. At the end of March 2023, the company had roughly $2 billion in cash and cash equivalents, up from $1 billion in the prior-year period.
As of the close of Q1 2023, 56 hedge funds tracked by Insider Monkey were bullish on Becton, Dickinson and Company (NYSE:BDX), up from 52 in the previous quarter. The stakes owned by these hedge funds are collectively valued at roughly $3 billion.
ClearBridge Investments mentioned Becton, Dickinson and Company (NYSE:BDX) in its Q1 2023 investor letter. Here is what the firm has to say:
“The selloff in the health care space provided an opportunity to add to our position in medical device company Becton, Dickinson and Company (NYSE:BDX). We believe the company maintains a strong position at hospital customers, where it is able to drive pricing given its differentiated consumable offerings and regulatory hurdles to replace existing solutions. While the company has struggled procuring components due to COVID-induced supply chain challenges, easing constraints should lead to revenue growth in the coming quarters combined with margin expansion as the company focuses on better integrating previous acquisitions, improving operations and reducing product SKUs.”
The Coca-Cola Company (NYSE:KO), an American beverage corporation, ranks seventh on our list of the best dividend stocks. The company's dividend growth streak currently stands at 61 years and it pays a quarterly dividend of $0.46 per share. As of July 12, the stock has a dividend yield of 3.07%.
Of the 943 elite funds tracked by Insider Monkey in Q1, 61 hedge funds owned stakes in The Coca-Cola Company (NYSE:KO), with a collective value of over $24.8 billion. Warren Buffett’s Berkshire Hathaway was the leading stakeholder of the company with 400 million shares at the end of Q1 2023.
An American fast food chain, McDonald’s Corporation (NYSE:MCD) reported strong earnings in the first quarter of 2023. The company's revenue for the quarter came in at $6 billion, which saw a 4.1% growth from the same period last year. Its global comparable sales grew by 12.6% year-over-year and system-wide sales showed a 9% growth from the same period last year.
McDonald’s Corporation (NYSE:MCD) is one of the best dividend stocks on our list with 46 years of consecutive dividend growth under its belt. The company pays a per-share dividend of $1.56 every quarter and has a dividend yield of 2.06%, as of July 12.
In addition to MCD, NextEra Energy, Inc. (NYSE:NEE), The Sherwin-Williams Company (NYSE:SHW), and Walmart Inc. (NYSE:WMT) are also popular among income investors.
At the end of Q1 2023, 64 hedge funds tracked by Insider Monkey reported having stakes in McDonald’s Corporation (NYSE:MCD), up from 57 in the previous quarter. These stakes have a collective value of over $4 billion.
