These are the best dividend stocks for 2020.
When the year began, stocks were about 11 years into the longest-ever uptrend in Wall Street history, with the American economy looking equally robust. The unemployment rate, at 3.5%, was the lowest in 50 years. Now, a few months later, interest rates have fallen to zero, the 10-year Treasury is yielding around 0.7% and weekly unemployment claims have hit an all-time high. As income investors struggle to find decent sources for yield, U.S. News has highlighted 15 of the best dividend stocks to buy for 2020. Each offers the potential for capital appreciation and yields that 10-year Treasurys can't provide. Overall, the list has proven less volatile than the market at large.
Bristol-Myers Squibb (ticker: BMY)
Pharmaceutical giant Bristol-Myers Squibb, fresh off a year in which it gobbled up "pharma tour de force" Celgene and gained 28%, looks like one of the best dividend stocks to buy for 2020. As is frequently the case with drugmakers, the strengths of BMY lie in its current drug portfolio and its pipeline. Its anticoagulant Eliquis and cancer treatment Opdivo both take in nearly $2 billion each quarter. The Celgene acquisition gives it a $10 billion annual cash cow in Revlimid, and analysts expect BMY to grow earnings 15% annually over the next five years.
Market capitalization: $127 billion
Dividend yield: 3.4%
Payout ratio: 75%
The best dividend stocks to buy are often ones that can both afford to pay shareholders a meaningful quarterly dividend -- preferably a sustainable and growing one -- and offer a shot at solid capital gains. Medifast, which sells healthy meals as a part of company-designed weight-loss programs, checks both boxes. As the payout ratio indicates, it only pays out about half its earnings to finance its dividend, using the rest to grow its business. Expected to grow earnings about 20% annually over the next half decade, MED shares trade for about 11 times earnings, making their appreciation potential more impressive than their dividend.
Market capitalization: $750 million
Dividend yield: 6.5%
Payout ratio: 51%
Energy Transfer LP (ET)
Also tapped as one of the top energy stocks to buy for 2020, Energy Transfer is a natural gas pipeline company operating as a master limited partnership, or MLP. This structure, similar to a real estate investment trust, allows MLPs to use a pass-through structure in which the entity avoids corporate taxes and instead distributes its available cash flows to investors. This makes for large payouts, and Energy Transfer's 12,000-plus miles of pipeline are generating plenty of cash flows, as ET collects a toll for everything it transports. In an era of incredibly low interest rates, ET and its 25% yield goes down as one of the best dividend stocks for 2020. The COVID-19 downturn poses some legitimate concerns over demand, but even the gloomiest analyst price targets imply roughly 25% upside.
Market capitalization: $12.2 billion
Dividend yield: 25.5%
Payout ratio: 89%
British American Tobacco (BTI)
While the energy sector is often flush with high-yielding investment opportunities, the tobacco industry has also been a famous cash flow generator since time immemorial. Only a handful of global giants in this space have the global presence of British American, which is worth more than $100 billion in normal times. The portfolio of brands includes Camel, Lucky Strike, Dunhill, Pall Mall, Newport, Natural American Spirit, Kool, Grizzly snuff and Vuse e-cigarettes, to name a few. Although shares gained more than 40% in 2019, BTI remains oversold following a brutal vaping-driven 2018 overcorrection and 2020's COVID-19-driven bear market. At under eight times forward earnings, this Steady Eddie and its 8% yield is a perfect option for conservative investors.
Market capitalization: $73 billion
Dividend yield: 8.3%
Payout ratio: 65%
One of just two names among the best dividend stocks to buy for 2020 that also made the cut last year, mega-cap pharmaceutical AbbVie makes the world's bestselling drug, Humira. AbbVie's 2019 returns were jeopardized by the company's surprise $63 billion buyout of Botox-maker Allergan (AGN) at a hefty 45% markup. Markets worried that the Chicago-based ABBV was overpaying for Allergan, but shares rebounded sharply from those mid-year woes. Even after the coronavirus-inspired sell-off, shares are about 15% above 2019 lows. Still, shares go for just seven times forward earnings. ABBV pays a sustainable dividend and has raised its payout annually for 47 straight years.
Market capitalization: $109 billion
Dividend yield: 6.5%
Payout ratio: 81%
Like AbbVie, telecom giant AT&T is one of the elite members of the dividend aristocrats, a list of S&P 500 companies that have raised their dividends for at least 25 straight years. As one of the major players in the oligopolistic wireless business, AT&T's staying power is rivaled by few companies in America. On top of internet and cell service, AT&T is vertically integrated, owning cable and satellite TV services and -- after the $104 billion purchase of Time Warner in 2018 -- much of the content distributed over those services, too. After a post-acquisition hangover in 2018, shares rebounded in 2019. The bear market of 2020 has T stock trading at levels rarely seen since as far back as 2012, making this dividend stock a tempting buy for conservative investors.
Market capitalization: $215 billion
Dividend yield: 7%
Payout ratio: 108%
Discover Financial Services (DFS)
The oft-forgotten fourth credit card company behind Visa (V), Mastercard (MA) and American Express (AXP), DFS is a company that tends to grow regularly year after year. DFS' 2.1% dividend has more than doubled to 4.6% following what appears to be a hyperbolic decline in the share price in the first quarter of 2020. Since it currently needs only a fifth of its earnings to fund that dividend, there is plenty of room to grow its payout. Setting aside yield much higher than the 10-year Treasury, the potential for capital appreciation is what makes DFS one of the best dividend stocks to buy for the rest of 2020. The stock's 4.2 price-earnings ratio is well below its five-year average P/E of 10.8, and DFS' price-earnings-growth ratio of 0.4 indicates extreme value.
Market capitalization: $11.3 billion
Dividend yield: 4.6%
Payout ratio: 19%
Johnson & Johnson (JNJ)
The economy seemed fine heading into 2020 -- the U.S. had added jobs for 10 straight years, the longest streak ever in the 80 years of data available -- but there's simply no way to know when things can turn south. JNJ is well-positioned to outperform the market in a downturn, as health care stocks often outperform in late bull markets and recessions. Aided by its gargantuan size, impressive diversification and a 57-year streak of dividend increases, Johnson & Johnson was beating the S&P 500 by about 7% in 2020's first quarter. That gulf is likely to grow after JNJ announced it had a leading COVID-19 vaccine candidate.
Market capitalization: $346 billion
Dividend yield: 3%
Payout ratio: 66%
Brookfield Renewable Partners (BEP)
Named one of the best energy stocks to buy this year, Brookfield Renewable differs from the rest of 2020's top dividend stocks. First off, technically BEP is an MLP, which allows the company to avoid corporate taxes by paying out mandatory dividends. Traditional P/E ratios aren't relevant here, as the funds from operations and not the earnings are what matters. Brookfield Renewable is a hybrid of sorts between an energy and a utility company, selling electricity it generates through hydropower, wind, solar and other renewable sources. BEP aims to increase its distribution by between 5% and 9% annually. It trades for less than 10 times FFO, which rose 13% last year.
Market capitalization: $7.4 billion
Dividend yield: 5.3%
Payout ratio: 89% of FFO
Healthpeak Properties (PEAK)
Like Brookfield, Healthpeak Properties is a little different from most other names on this list due to its structure: PEAK is a real estate investment trust, which, like an MLP, can avoid corporate taxes if it abides by certain rules. One such rule is that PEAK must distribute at least 90% of its income to shareholders each year. A way for investors to indirectly participate in the real estate market, PEAK specializes in high-quality health care real estate, focusing on senior housing, medical offices and life sciences. Trading at 14 times FFO, PEAK was named as one of the best stocks to buy for 2020, in part due to its potential to stabilize and hedge a broader portfolio. The coronavirus pandemic has challenged that thesis year to date.
Market capitalization: $12 billion
Dividend yield: 5.9%
Payout ratio: 84%
Duke Energy Corp. (DUK)
The best dividend stocks are the "set it and forget it" type of investments -- companies you can buy, own and forget about, sleeping soundly at night while dreaming of your quarterly dividend check. This degree of safety is largely what made regional utility Duke Energy a member of both this list and U.S. News' Best Blue-Chip Stocks to Buy for 2020. The company, which sells electricity and natural gas to nearly 10 million customers in the Carolinas, Florida and the Midwest, trades for 16 times earnings. Utility stocks like DUK are a favorite of income investors seeking stability and predictability. That thesis hasn't changed with all the chaos of 2020, as utilities like DUK have easily outperformed the broader market. Sadly, for many Americans, the checks stop coming but the bills don't.
Market capitalization: $60 billion
Dividend yield: 4.7%
Payout ratio: 74%
This next pick is far different from the average dividend-payer on this list. For one, it's a tech stock. Secondly, it's Chinese. Third, the e-commerce and online-gaming company has a new dividend policy, and it's only suitable for more aggressive, growth-seeking income investors. NetEase is best thought of as an online-gaming company, offering many of the most popular PC and mobile games in Asia. This specialty allowed NTES to largely avoid the 2020 bear market, with shares trading sideways year to date through the end of the first quarter. A special dividend makes the payout ratio look bloated right now, but NTES plans to pay out between 20% and 30% of quarterly earnings as a dividend.
Market capitalization: $39 billion
Dividend yield: 1.4%
Payout ratio: 209%
Intel Corp. (INTC)
Another (quite different) tech company that makes the cut as one of the best dividend stocks to buy for 2020 is Intel, the semiconductor giant and Dow member that is one of just two stocks that made both the 2019 and 2020 U.S. News Best Dividend Stocks lists. INTC is trying to reinvest and reposition itself with a focus on data, where its data center business now accounts for about 33% of all revenue. Its focus has driven a fourth-straight year of record revenues and the company, at 11 times earnings, is not only a blue-chip dividend stock but a well-priced one. Another income stock that's handily outperforming a tanking market, through late March, INTC was down just 7% year to date, far better than the S&P's 20% decline.
Market capitalization: $235 billion
Dividend yield: 2.5%
Payout ratio: 26%
McDonald's Corp. (MCD)
It's not McDonald's' 3.1% yield that makes shares worthy of consideration for income investors, it's the staying power. The fast-food giant has grown its dividend payout annually for 43 straight years and, in the depths of the Great Recession in 2008, MCD outperformed the S&P by 46 percentage points as consumers and investors alike flocked to the Golden Arches. Although shares may seem fully valued at 21 times earnings, investors are willing to pay up for sturdy cash cows in almost any market, making MCD one of the best dividend stocks to buy for 2020. Shares, despite losing ground, have indeed beaten the wider market in 2020's coronavirus-driven decline.
Market capitalization: $125 billion
Dividend yield: 3.1%
Payout ratio: 60%
Last but not least among the best dividend stocks for 2020 is Novartis, the large Swiss drugmaker that also made the cut as one of the best blue-chip stocks to buy this year. With fast-growing drugs like Cosentyx (+28%) and Entresto (+71%) boosting its portfolio last year, revenue rose 9% overall. Modestly priced around 13 times forward earnings, NVS has made a series of bold acquisitions since CEO Vas Narasimhan took over in early 2018. The most recent acquisition, The Medicines Co., developed a potential cholesterol and cardiovascular drug that's already set to go before U.S. and European Union regulators.
Market capitalization: $183 billion
Dividend yield: 3.8%
Payout ratio: 56%
The best dividend stocks to buy for 2020:
-- Bristol Myers-Squibb (BMY)
-- Medifast (MED)
-- Energy Transfer LP (ET)
-- British American Tobacco (BTI)
-- AbbVie (ABBV)
-- AT&T (T)
-- Discover Financial Services (DFS)
-- Johnson & Johnson (JNJ)
-- Brookfield Renewable Partners (BEP)
-- Healthpeak Properties (PEAK)
-- Duke Energy Corp. (DUK)
-- NetEase (NTES)
-- Intel Corp. (INTC)
-- McDonald's (MCD)
-- Novartis (NVS)