The market’s always moving. The best dividend stocks to buy today might not be the best a few weeks from now. It’s always a game of price relative to value. In the words of Warren Buffett…
Whether socks or stocks, I like buying quality merchandise when it is marked down.
As stock prices move, good opportunities come and go. With that said, let’s look at some of the best income opportunities right now. These dividend stocks trade at attractive valuations and have high dividend yields. We’ll take a look at the dividend history for each company, along with the payout safety going forward…
Best Dividend Stock to Buy
- Verizon (NYSE: VZ)
- British American Tobacco (NYSE: BTI)
- 3M (NYSE: MMM)
If you’re checking out my YouTube video as well, I’d really appreciate it if you’d tap the like button, as well as subscribe. Because that helps with the YouTube search algorithm. It also motivates me to share more research 🙂
Up first, let’s look at Verizon…
I followed Warren Buffett on this one. He bought about $8.6 billion worth – via Berkshire Hathaway – back in late 2020. One of the many things he probably likes about the company is its long history of paying bigger dividends.
Here’s the annual dividend history of Verizon…
It’s a cashflow machine that’s continued to reward investors! Its dividend payout ratio is manageable as well. It comes in below 60% and the risk of a dividend cut is very low for the next few years.
Although, like any investment, it comes with some risks to consider. Warren Buffett isn’t impervious to making bad investments. He’s made plenty of them over the years. But on average, his track record is outstanding.
I was hesitant to buy right after Buffett because revenue hasn’t been growing much. All the while, debt has moved up in a big way. The company is leveraging up to invest in 5G and other technologies which might not pay off as expected. As a result, investors have beaten down the share price well below Buffett’s entry price. The increase in interest rates – discount rates – has likely played into Verizon stock dropping as well.
Berkshire Hathaway’s cost basis was around $59.24 per share and I picked up a few hundred shares on October 12 for $51.23 at a 5% dividend yield. That’s more than a 13% discount to one of the world’s best investors. Although, he has collected some dividends over that time. Nonetheless, a lower price – with all else equal – gives me a larger margin of safety.
For the next dividend stock to buy, you can collect an even bigger dividend yield…
British American Tobacco
With over an 8% dividend yield, British American Tobacco is a solid income opportunity. It’s hard to find this high of a yield that looks as safe as it does. Last year, the payout ratio was below 60% and this year, it’s bumped up but is still manageable.
Here’s the annual dividend history…
In this chart, the dividend jumps around a bit and this is largely due to currency differences. British American Tobacco is headquartered in London. Over the years, the value of the pound has changed relative to USD. Also, the company went from paying semi-annual dividends to quarterly a few years back.
Even with all the bad press, this sin stock continues to reward shareholders. Of course, there are plenty of regulatory risks with this company and cigarette smokers continue to decline… but I believe the risks are already well rolled into the share price. British American Tobacco is also transitioning away from cigarettes and seeing some success.
On top of that, the company’s balance sheet has gotten stronger over the past few years. Total debt and liabilities are down. Cash and cash equivalents have also climbed. These aren’t huge financial shifts but things are moving in the right direction.
Nonetheless, many investors won’t touch tobacco companies. So, this dividend stock isn’t for everyone… even though tobacco stocks have provided some of the best long-term returns for investors.
To learn more about investing in tobacco companies, check out why I bought Altria stock back in 2019. I cover 10 reasons why I bought and also more risks to consider. Some are company specific, but also many overlap with why I like British American Tobacco.
For the last of the best dividend stocks to buy in October, 3M made the cut. Historically, it’s not the cheapest it’s ever been. It’s hard to find great deals with the stock market near all-time highs. But it still offers a solid 3.3% dividend yield and it might be the safest on this list.
Here’s 3M’s annual dividend history…
And these dividend payouts go back much further. 3M is easily a dividend king with over 60 years of straight dividend increases. The recent increases haven’t been big but the long-term trend looks solid. There’s a good chance we see continued growth.
One benefit to 3M is the ability to pass along costs to consumers. As inflation picks up, it can increase its sales and the company is well diversified…
3M produces over 60,000 products and generates nearly 50% of its revenue from outside the Americas. Overall, the company’s financial position is solid and it should be able to reward shareholders for many years to come.
Top 3 Dividend Stocks
If you split a $100,000 investment evenly between each of these companies, it’d produce about $5,500 in annual dividend income. If the companies continue to increase their dividends, you’ll collect even more in the years ahead.
This high of a return is rare in our low-interest rate world. Of course, there’s risk with each of these dividend stocks, but the risk-to-reward looks solid. I might be adding British American Tobacco to my portfolio soon. And once again, I want to emphasize that there are risks with each of these investments.
I hope you’ve enjoyed these quick picks (although a lot of research has gone on behind the scenes). These dividend stocks are at the top of my buy list. Although, once again, the markets are always moving and these might not be the best income opportunities for long.
So, I hope you’ll stick around for more updates and the latest investing opportunities. Feel free to drop any comments down below as well.
Here’s a better breakdown of why I was hesitant to invest in Verizon. I’ve packed more research into that video. And as always, please let me know if you have any questions.