Should you hold dividend stocks long term?
Yes, dividend growth could be a great option if you want to take advantage of dividend payouts. The dividend growth rate, or the percentage of growth of a particular company's stocks over a period of time, can give you a great hint as to whether dividend stocks might make sense for you.
But what exactly is a dividend payment? A dividend payment refers to how a company's excess profits are returned to its shareholders. Dividends usually go to shareholders in the form of cash but sometimes also go toward shareholders in the form of company stock.
In this piece, we’ll walk through what it means to hold dividend stocks long term, whether dividend stocks are good for long-term investing, making a living off dividend stocks, the advantages and disadvantages. We’ll also give you some ideas of the top dividend stocks to buy and hold in 2022.
What Does it Mean to Hold Dividend Stocks Long Term?
Buy-and-hold investing means that you keep an investment over a long period of time and in lieu of stock trading, you hold onto it and anticipate that the price will rise over time. Buy-and-hold investing might also mean that you reduce transaction fees and reduce short-term capital gains taxes, which cost you more than long-term capital gains taxes.
Are Dividend Stocks Good for Long-Term Investing?
As long as you choose dividend stocks based on a company’s success, including taking a look at the company’s fundamentals, balance sheet (including earnings and sales), strength of the company’s management and its position in that industry, you can have great success with dividend payers.
Can You Make a Living off Dividend Stocks?
Yes, you can make a living off dividend stocks but you’ll need a lot of money invested to create enough income from dividends.
Dividend yield is the metric you use to compare the income stream of various securities. Here’s how you determine the dividend yield of a particular stock. You can use the following formula:
Dividend Yield = Cash Dividend per Share / Market Price per Share x 100
You can use the dividend yield calculator from MarketBeat to determine your dividend yields. For example, if a company has $4 in dividends for the year and is currently trading at $100 per share, the dividend yield is 4%. You can calculate from there how much money you’ll make based on the number of shares you own. Let’s say you have 10,000 shares. In this case, you’d receive $40,000 in dividend income for that particular year.
Dividend yields vary widely between different publicly traded stocks but typically range historically fluctuates somewhere between 2% and 5%, depending on market conditions. If it’s a really high dividend, it’s not always a good sign. Something else may be going on with the company.
One of the best ways is to make sure you have ample diversification — invest in a combination of dividend-paying stocks, mutual funds and dividend stocks exchange-traded funds (ETFs).
Here’s an example of a portfolio size, dividend yield (in this case, we’ll use a 4% dividend yield) and dividend income:
Investment portfolio size: $500,000
- Dividend yield: 4%
- Annual dividend income: $20,000
Investment portfolio size: $1,000,000
- Dividend yield: 4%
- Annual dividend income: $40,000
Investment portfolio size: $2,000,000
- Dividend yield: 4%
- Annual dividend income: $80,000
Ultimately, what are the advantages of owning dividend stocks? You can profit in two ways through dividend stocks. Not only through dividends can you benefit from dividend stocks, you can also make money through the appreciation of the stock price.
On the other hand, what are the risks of investing in dividend stocks? Dividend investing comes with tax consequences no matter what. You can hold it for longer in order to get better tax treatment, but you’ll still have to pay taxes.
Best Dividend Stocks for the Long Term
Which long-term dividend stocks might you want to put into your portfolio? A company’s dividend track record may give you a good start in helping you determine the right stocks. You may want to consider the Dividend Aristocrats or Dividend Kings in your research.
AT&T Inc., headquartered in Dallas, provides telecommunications, media and technology services all over the world through wireless voice and data communications services. The company sells the following:
- Handsets and hands-free devices
- Wireless data cards
- Wireless computing devices
- Data, voice, security, cloud solutions
- Customer premises equipment companies
- Broadband fiber and legacy telephony voice communication services
- Wireless services in Mexico and video services in Latin America
AT&T completed a spinoff of its entertainment division through Warner Bros Discovery, which means the company is going back to its original “roots” and closing the curtains on the entertainment business. This poses the company toward a stronger, more purposeful company moving forward. It will also improve your valuations.
The dividend yield of AT&T Inc. is currently 5.68%, according to MarketBeat.
The beverage behemoth, the Coca-Cola Company, which is headquartered in Atlanta, manufactures, markets and sells nonalcoholic beverages including soft drinks, flavored and enhanced water and sports drinks, juice, dairy and plant-based beverages, tea, coffee and energy drinks.
Its brands include Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, Fanta, Fresca, Schweppes, Sprite, vitaminwater, Powerade, Minute Maid, Simply, FUZE TEA and Gold Peak brands. The company has a network of independent bottling partners, distributors, wholesalers, and retailers, as well as through bottling and distribution operators.
Coca-Cola has increased and paid out a dividend for 60 consecutive years and dividend investors will also likely see continued increases in its share price. Note: Warren Buffett is a long-term Coca-Cola investor.
The dividend yield of Coca Cola Company is currently 2.72%, according to MarketBeat.
Exxon Mobil Corporation, headquartered in Irving, Texas, explores for and produces crude oil and natural gas all over the world. The company also manufactures, trades, transports, and sells crude oil, natural gas, petroleum products, petrochemicals (including olefins, polyolefins, aromatics) and other specialty products. The company also stores carbon, hydrogen and biofuels. direction of oil prices.
Even though the situation internationally remains difficult, crude oil prices will likely stay high. In 2021, the company recorded $36.1 billion of free cash flow and though it increased its debt load during the pandemic, ExxonMobil paid down $19.7 billion in debt.
The dividend yield of Exxon Mobil Corporation is currently 4.17%, according to MarketBeat.
Johnson & Johnson, based in Brunswick, New Jersey, and researches, develops, manufactures and sells health care products worldwide under various brands, such as JOHNSON'S, AVEENO, LISTERINE, CLEAN & CLEAR, NEUTROGENA, SUDAFED, MOTRIN IB, PEPCID and NEOSPORIN. Johnson & Johnson also offers products that treat immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension and cardiovascular and metabolic diseases.
Johnson & Johnson will spin off its customer segment into a new, publicly traded entity in order to change up its business strategies and accelerate its growth in a new way, especially because pharmaceuticals and medical devices generate more revenue for the company.
The dividend yield of Johnson & Johnson is currently 2.39%, according to MarketBeat.
The Procter & Gamble Company, headquartered in Cincinnati, Ohio, provides branded consumer packaged goods all over the world in beauty, grooming, health care, family care and other segments, such as shampoos and conditioners, antiperspirants and deodorants, personal cleansing and skin care products. Here are a few examples of its brands: Head & Shoulders, Herbal Essences, Pantene, Olay, Old Spice, Safeguard and Secret.
Even during market downturns, the household products industry thrives because people must still buy the basis. Even as a result of pandemic volatility, the Proctor & Gamble Company succeeded by a wide margin over the last year — the company claims the lion’s share of that particular market.
The dividend yield of the Procter & Gamble Company is currently 2.35%, according to MarketBeat.
Verizon Communications Inc., headquartered in New York, New York, offers communications, technology, information and entertainment products and services worldwide. It offers postpaid and prepaid service plans, internet access on notebook computers and tablets, smartphones, internet devices, network access, connectivity products, unified communications and collaboration tools, management and data security services, voice calling, messaging services and other products and services.
Verizon stands out with its 5.27% dividend yield, one of the largest with S&P companies. The company racked up $10.4 billion over the past year and adjusted EBITDA approached $12.1 billion.
Should You Invest in Dividend Stocks for the Long Term?
There are many reasons to consider investing in dividend stocks, from hikes in dividends that result in high-yield payouts, a great asset management approach, the opportunity for diversification (as long as you invest in a wide variety of assets) as well as interest rate returns.
It’s a good idea to take your goals into consideration in order to determine whether dividend increases make sense for your particular needs. Note that it also often pays to be patient as you wait for continual earnings growth.
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About Melissa Brock
Experience
Melissa Brock worked as an associate editor & contributing writer for DividendStocks.com from 2021 to 2024.
She currently works as a full-time freelance writer and financial editor covering higher education, investing, personal finance, mortgages, college savings, insurance, and more.
Areas of Expertise
Dividend Stocks, Retirement
Education
Bachelor of Arts in Communication Studies, Central College, Pella, Iowa
Past Experience
Melissa graduated summa cum laude with a bachelor of arts in communication studies with minors in psychology and Spanish from Central College. She's a longtime member of the National Association of College Admission Counseling (NACAC). While working in college admission, Melissa Brock pursued a freelance writing and editing career.