Investors have long been drawn to dividend stocks due to their financial stability and impressive returns, which have consistently outperformed other asset classes over the years. While these stocks may be underperforming at the moment, their long-term returns make them an attractive choice for investors. This means that building wealth through dividends requires patience, as the rewards accumulate over time rather than delivering instant results. The long-term performance of dividend stocks highlights their importance. According to a report by Hartford Funds, over the past several decades, dividends have been a major contributor to investor returns. Since 1960, reinvested dividends and the power of compounding have accounted for 85% of the cumulative total return of the broader market. The report also mentioned that in the 1940s, 1960s, and 1970s—periods when total returns were below 10%—dividends made a significant contribution to overall returns.
Investors often gravitate toward dividend-paying stocks during market downturns or periods of economic uncertainty. Companies with substantial payouts, such as those in utilities and consumer staples, are known for generating consistent earnings regardless of market conditions. However, during market rallies, these stocks typically underperform. This trend has been particularly noticeable since 2020, as mega-tech stocks have frequently driven the market to record highs.
Chris O’Keefe, a portfolio manager at Logan Capital Management, suggested that the growing performance gap between the broader market and dividend stocks this year presents an ideal opportunity for investors to consider buying dividend stocks. In addition to O'Keefe, several analysts are urging investors to focus on dividend stocks, citing their favorable outlook. The Dividend Aristocrats Index, which tracks 66 companies that have consistently increased their dividends annually for the past 25 years, has struggled to keep up with the broader market since 2020. Dividend-paying stocks experienced a resurgence in 2022, as recession fears prompted investors to turn to stable sectors like utilities and consumer goods. However, the rebound was short-lived. By 2023, rising interest rates pushed bond and money-market returns higher than dividend yields, leading major companies to adopt a cautious approach and tighten cash reserves amid economic uncertainty. This year, many of the same leading stocks from the Covid era have once again propelled the market to record highs.
The Dividend Aristocrats Index has risen nearly 5% since the beginning of 2024, while the broader market has returned 24%. Despite underperforming, dividend stocks remain a preferred choice for investors. A Morningstar report revealed that US exchange-traded funds (ETFs) focused on dividends held nearly $500 billion in investor assets by the fourth quarter of 2024, with additional billions in actively managed equity income funds. These funds have seen inflows this year, though much smaller compared to the $70 billion they attracted in 2022, which was a strong year for dividends.
Bank of America analyst Ohsung Kwon believes a resurgence in dividend stocks could be on the horizon. His team anticipates that the companies in the broader market will collectively boost their dividend payouts by 10% in 2025, driven by investor demand for cash. Reflecting this trend, even major tech firms have begun distributing dividends.
A factory worker monitoring a conveyor belt of specialty chemicals being produced.
Our Methodology
For this list, we scanned holdings of First Trust Morningstar Dividend Leaders Index Fund (FDL), which tracks the performance of the 100 highest-yielding stocks with consistent growth in dividends and can maintain their dividends in the future. From this list, we further refined our selection criteria by identifying stocks with a projected upside potential of over 15% based on analyst price targets, as of December 19. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
LyondellBasell Industries N.V. (NYSE:LYB) is a multinational chemical industry company that specializes in plastics, chemicals, and refining. Despite facing challenging global macroeconomic conditions, the company was able to capitalize on its strong North American operations, benefiting from favorable ethylene margins in the region. Demand for polyethylene and polypropylene in North America rose by over 7% and 4%, respectively, through September, compared to 2023 levels. In the third quarter, the company’s volumes were bolstered by high operating rates at its crackers, enabling it to take advantage of improved margins from merchant ethylene sales. Its quarterly revenue totaled $10.32 billion, marking a 2.8% decline from the same period last year.
In addition to reporting strong earnings, LyondellBasell Industries N.V. (NYSE:LYB) took a major step forward in its sustainability efforts by starting construction on its MoReTec-1 facility in Germany. This project highlights the company's dedication to advancing the industry's transition to a circular economy.
LyondellBasell Industries N.V. (NYSE:LYB) currently pays a quarterly dividend of $1.34 per share and has a dividend yield of 7.35%, as of December 19. The company continues to be a popular choice for dividend-focused investors, backed by its strong cash reserves that enable substantial dividend payouts. In the third quarter of 2024, the company returned $479 million to shareholders through dividends and share buybacks. It also generated $670 million in operating cash flow for the quarter.
The company's strong cash position has allowed it to increase its payouts for 14 consecutive years. In the past five years, it has raised its payouts at an annual average rate of nearly 5%. According to analysts, the stock has an upside potential of 30.7%.
LyondellBasell Industries N.V. (NYSE:LYB) was included in 38 hedge fund portfolios at the end of Q3 2024, as per Insider Monkey's database. The stakes held by these funds have a total value of over $546.2 million.
Overall, LYB ranks 4th on our list of the best dividend leaders according to analysts. While we acknowledge the potential for LYB to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LYB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
