In this article, we discuss 12 best dividend stocks with high upside potential. You can skip our detailed analysis of dividend stocks and their past performance, and go directly to read 5 Best Dividend Stocks with High Upside Potential.
The current state of the US economy is uncertain with many analysts gravitating toward the idea of a recession occurring this year. Citi’s chief US economist, Andrew Hollenhorst, highlighted significant challenges in his interview with CNBC, indicating that the country might fall into recession in the middle of 2024. He said that various factors like consumer weakness, high credit-card delinquency rates, and a weak labor market are indicators of deep-rooted issues within the economic landscape. In times like these, investors mainly focus on increasing their income-generating investments to ensure they have enough cash flow to sustain themselves. Dividend stocks offer reliability in this regard as these equities have proved their mettle in uncertain market conditions over the years.
One instance of the outperformance of dividend stocks occurred recently in 2022 when the S&P 500 declined by over 18% and dividend stocks experienced a relatively minor drop. The companies in the S&P 500 that paid dividends fell by 11.1% in 2022, while non-dividend payers plummeted by 38.7%. If we analyze historical data, we find that dividend stocks have maintained a stable performance over the long term as well. In our article titled 25 Things Every Dividend Investor Should Know, we cited data from Hartford Funds, which reviewed the returns of dividend stocks from 1973 to 2023. The report mentioned that dividend-paying companies achieved an annual average return of 9.17% during this period, compared with a 4.27% annual average return of those that did not pay dividends. The report also mentioned that companies that maintained their dividends during this timeframe fared better than non-dividend payers but underperformed dividend payers, returning 6.74%. AbbVie Inc. (NYSE:ABBV), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP) are some of the best dividend stocks that have been growing their dividends for years.
As mentioned above, income generation has always remained a top priority for investors, especially during certain market conditions. previous inflationary periods have brought dividend stocks into the limelight as these securities performed much better than their non-dividend counterparts. Hartford Funds did a detailed review of this performance and highlighted that in eight inflationary periods between 1970 and 2022, returns of dividend stocks have surpassed those of non-dividend stocks. The report further mentioned that the 1970s were a time of high inflation in the US, mainly due to rising oil prices. Dividends played an important role during this period, making up for nearly 73% of the S&P 500’s overall returns. In addition to this, dividend stocks have also outpaced inflation over the past 150 years. According to our research from BlackRock, dividends from US companies have delivered an annual average growth rate of 3.7%, surpassing the average annual inflation rate of 2%.
In 2023, dividend stocks didn’t perform as well as they did the year before, but analysts are still hopeful about their performance this year. This optimism comes from the fact that companies in the US distributed record amounts in dividends last year. According to a Dividend Forecast report by S&P Global, the US will contribute the most significant increase in annual dividends for the third consecutive year. The firm projects that an additional $28 billion will be distributed in 2024 across all 20 sectors, with an average growth rate of 6% in regular base dividends. This growth will partially be driven by companies that reinstated their dividends in 2023 following pandemic-related cuts. Considering analysts’ positive dividend forecast, we will take a look at some of the best dividend stocks with huge upside potential.
12 Best Dividend Stocks with High-Upside Potential
For this list, we first used a stock screener to identify dividend stocks with stable dividend yields and steady dividend histories. From this list, we selected dividend stocks with a projected upside potential of over 30% based on analyst price targets, as of April 15. The stocks are ranked according to their upside potential. Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Yum China Holdings, Inc. (NYSE:YUMC) is a Shanghai-based fast-food restaurant company that offers a variety of food and beverage options to its consumers. On February 7, the company declared a 23% hike in its quarterly dividend to $0.16 per share. It started paying dividends in 2017 and has paid regular dividends to shareholders since then. In FY23, the company returned $833 million to shareholders through dividends and share repurchases, which makes YUMC one of the best dividend stocks on our list. The stock has a dividend yield of 1.71%, as of April 15.
At the end of Q4 2023, 22 hedge funds in Insider Monkey's database held stakes in Yum China Holdings, Inc. (NYSE:YUMC), compared with 29 in the previous quarter. These stakes have a total value of more than $784 million. With over 8.8 million shares, GuardCap Asset Management was the company's leading stakeholder in Q4.
International Game Technology PLC (NYSE:IGT) is an American gaming company that specializes in a variety of gaming products and offers related services to its consumers. It is one of the best dividend stocks on our list as the company has never missed a dividend since 1993. On March 12, the company declared a quarterly dividend of $0.20 per share, which was in line with its previous dividend. The stock's dividend yield on April 15 came in at 4.02%.
The number of hedge funds tracked by Insider Monkey owning stakes in International Game Technology PLC (NYSE:IGT) grew to 33 in Q4 2023, from 29 in the previous quarter. The total value of these stakes is over $293.3 million.
British American Tobacco p.l.c. (NYSE:BTI) is a multinational tobacco company that manufactures and sells cigarettes and other nicotine products as well. On February 13, the company hiked its quarterly dividend by 6.1% to $0.7431 per share. In FY23, it returned £5.05 billion to shareholders through dividends, which makes BTI one of the best dividend stocks on our list. The stock has a dividend yield of 10.31%, as of April 15.
Insider Monkey's database of Q4 2023 indicated that 22 hedge funds held stakes in British American Tobacco p.l.c. (NYSE:BTI), growing from 17 in the previous quarter. These stakes have a consolidated value of over $396 million. With roughly 8 million shares, Orbis Investment Management was the company's leading stakeholder in Q4.
With an upside potential of 37.8%, Brookfield Renewable Partners L.P. (NYSE:BEP) is next on our list of the best dividend stocks. The renewable energy company owns and operates renewable power assets. The company currently offers a quarterly dividend of $0.355 per share, having raised it by 5.2% in February this year. This was the company's 12th consecutive year of dividend growth. The stock has a dividend yield of 6.40%, as of April 15.
As of the close of Q4 2023, 17 hedge funds in Insider Monkey's database held stakes in Brookfield Renewable Partners L.P. (NYSE:BEP), up from 16 in the previous quarter. These stakes have a collective value of over $296.6 million. Among these hedge funds, Select Equity Group was the company's leading stakeholder in Q4.
Big 5 Sporting Goods Corporation (NASDAQ:BGFV) is a California-based sporting goods company that also specializes in outdoor equipment. The company offers a quarterly dividend of $0.05 per share and has a dividend yield of 6.35%, as of April 15. With an upside potential of over 41%, BGFV is one of the best dividend stocks on our list.
According to Insider Monkey's database of Q4 2023, 6 hedge funds held stakes in Big 5 Sporting Goods Corporation (NASDAQ:BGFV), up from 4 in the preceding quarter. These stakes have a total value of more than $3.4 million.
Jack in the Box Inc. (NASDAQ:JACK) is an American fast-food restaurant chain that offers a wide variety of menu items. On February 22, the company declared a quarterly dividend of $0.44 per share, which was in line with its previous dividend. It is one of the best dividend stocks on our list as the company has been paying regular dividends to shareholders since 2014. The stock's dividend yield on April 15 came in at 2.97%.
Jack in the Box Inc. (NASDAQ:JACK) was a popular buy among hedge funds in Q4 2023 with 21 funds holding stakes in the company, up from 14 in the preceding quarter, according to our database. These stakes have a total value of over $109 million. Israel Englander's Millennium Management was the largest stakeholder of the company in Q4.
Iridium Communications Inc. (NASDAQ:IRDM) ranks sixth on our list of the best dividend stocks with an upside potential of 47.3%. The American mobile phone operator company initiated its dividend policy in 2022 and has paid regular dividends since then. Its quarterly dividend currently comes in at $0.13 per share for a dividend yield of 2.14%, as of April 15.
At the end of the fourth quarter of 2023, 33 hedge funds held stakes in Iridium Communications Inc. (NASDAQ:IRDM), growing from 28 in the previous quarter. These stakes are collectively valued at over $425.4 million.
