Need investment income? Dividend stocks are obviously your best bet. They're not just built to pay a perpetual stream of cash. For most quality dividend payers, these payments also grow over time, at least keeping up with inflation -- if not outpacing it.
With that as the backdrop, if you've got a couple thousand extra bucks -- or any other amount of money -- you're ready to put to work producing immediate income, here are three top-notch dividend stocks to consider buying.
1. British American Tobacco
There's little doubt that anti-smoking activists are winning the war against tobacco usage. But not as much or as quickly as you might think. Even within the United States, where the cessation effort is gaining the most traction, data from the CDC indicates that nearly 1 of out every 5 U.S. adults is a regular tobacco user. And the movement's progress is slowing even more outside of the U.S. The World Health Organization reports there are still roughly 1.25 billion smokers worldwide, versus 2000's count of 1.36 billion. Moreover, the organization predicts there will still be almost 1.2 billion smokers come 2030.
In other words, while the tobacco business as it stands isn't exactly growing, it's probably going to be around for a long, long while longer.
Enter British American Tobacco(NYSE: BTI), which isn't nearly as "American" as the name implies. Although its Camel and Newport are a couple of well-known cigarette brands offered within the U.S., its Pall Mall, Dunhill, and Lucky Strike brands are largely international-facing. That's important simply because a little more than half of British American's business is done outside of the United States.
Perhaps this stock's real litmus test as an income investment, however, is its dividend track record. Not only has the company paid one like clockwork for decades, but it's raised its annual payouts on regular basis, too.
Sure, at some point the tobacco industry will struggle to turn a profit. You don't want to be anywhere near it when that time comes. In the meantime and for the foreseeable future, however, you're plugging into a solid dividend stock with a forward-looking yield of just over 7.6%.
Just bear in mind that as a U.S. investor holding shares of an England-based company that reports its results in British pounds (not to mention does a great deal of international business of its own), fluctuating exchange rates could inflate and deflate the size of these payments. That's OK though. The dividend pedigree is still worth it.
2. Pfizer
Pfizer(NYSE: PFE) was one of only a handful of pharmaceutical companies able to come up with a COVID-19 vaccine quickly enough to matter. And its stock's heroic performance during the pandemic indicated its achievement, more than doubling from its pre-pandemic trough to pandemic-prompted peak.
This drugmaker had next to nothing in its portfolio to replace its coronavirus vaccine business once it hit its eventual inevitable wall, however. Since their late-2021 high, Pfizer shares have been more than halved, and remain within sight of the multiyear low made in November.
Perhaps the market's keying in on last year's lack of revenue growth, and the likely lack of sales growth in the cards for this year.
As is so often the case though, the sellers have arguably overshot their target because they're looking right past the bigger bullish picture.
It could take several more years for comparisons to its year-earlier results to stop being crimped by its COVID vaccine business. The analyst community doesn't even anticipate any real revenue growth at least until after 2027, in fact.
There are a handful of compelling prospects in its developmental pipeline, however, like its well-proven Elrexfio as a treatment for multiple myeloma, while Atirmociclib and Vepdegestrant hold promise as a first-line answer to breast cancer. Adcetris and Padcev are a couple of other of its oncology drugs that may be currently underestimated as well.
Indeed, Pfizer's management feels that eight of its cancer drugs currently undergoing research and development if not already in its portfolio could become blockbusters (meaning they could generate sales of more than $1 billion per year) by 2030. In the meantime, the company's still working on an entry into the weight loss race with a once-daily pill called danuglipron, exposing it to an arena worth tens of billions of dollars.
Problem? Capitalizing on these opportunities will require a little more time than investors are currently willing to give the company. That's a mistake you can take advantage of though, allowing you to step into this stock while its dividend yield is a healthy 6.4%, and while shares are priced dirt cheap at only 9.1 times this year's expected per-share earnings of $2.95.
3. Verizon
Finally, add Verizon Communications(NYSE: VZ) to your list of dividend stocks to buy if you've got some available cash you'd like to use to generate investment income.
There's no denying Verizon hasn't been a fan favorite of late. Despite a respectable run-up from 2023's multiyear low, shares are still down nearly 30% from their 2020 peak. That's in strangely stark contrast with rival AT&T's stock, which just hit a five-year high.
What gives? It's not easy to say. Verizon's growth has been anemic, but that's nothing unusual for the highly saturated telecom industry with limited opportunity for meaningful growth (other than population growth). It's arguable that investors are collectively concerned about the company's major capital expenditures on a fiberoptic network and 5G connectivity tech that rivals are now matching. More specifically, the market may fear the company just isn't poised to a collect the return on its investment it once seemed like it was.
Much like they did with Pfizer, however, investors might not be looking far enough down the road, undervaluing Verizon stock in the meantime as a result.
The fact is, while Verizon, AT&T, and T-Mobile are mostly just swapping consumer wireless customers these days, Verizon is revving a couple of important growth engines. One of them is industrial or institutional (private) wireless networking. The other is fixed wireless broadband, or at-home broadband service that doesn't require any physical lines being run to a home, a market that Credence Research predicts will grow at an annualized pace of 27% through 2032. As of the end of last year the company boasted 4.6 million of these customers, cutting into a market once commanded by the likes of Comcast and Charter.
Don't misread the message. Neither of these efforts are high-growth opportunities either, and both will eventually hit the same wall that the consumer wireless market now stands.
All of these businesses drive plenty of reliable, recurring cash flow though, supporting equally reliable dividend payments that also grow at least as much as inflation does. To this end, the company's now upped its annual dividend payout for 18 consecutive years. Newcomers will be buying into Verizon stock while it's not only offering a forward-looking dividend yield of 6.3%, but is bargain-priced at less than 10 times this year's projected per-share earnings.
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James Brumley has positions in AT&T. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends British American Tobacco P.l.c., Comcast, T-Mobile US, and Verizon Communications and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
