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Which Stocks for Dividends and Passive Income?

Some investors may favor stocks that increase in value over time. Others may prefer stocks that pay regular dividends. We have listed here some stocks which are traditionnally popular for dividend payments.

Dividend stocks are typical of a long term revenue building strategy. There are two main ways to invest in dividend stocks: Through mutual funds (such as index-funds or exchange-traded funds — that hold dividend stocks), or by purchasing individual dividend stocks.

Dividend ETFs or index funds offer investors access to a basket/selection of dividend stocks within a single investment. That means with just one transaction, the investor can own a portfolio of multiple dividend stocks. The fund will then pay out dividends to the investor on a regular basis, which you can take as income or reinvest.

Dividend funds offer the benefit of instant diversification — if one stock held by the fund cuts or suspends its dividend, you can still rely on income from the others.

Individual stock investing require more work and due diligence.

Some companies of the S&P 500 are known as 'Dividend Aristocrats'. To be part of this group/index, these companies must fulfil three comulative criteria:

1/ To have increased their dividends every year for the past 25 years; and

2/ To have a float-adjusted market cap of at least $3 billion; and

3/ To have an average daily trading value of at least $5 million.

In order to build a dividend stock portofolio, you will need to do your homework and research which stocks are dividend-paying stocks and evaluate the stock. There may be an issue if the payout ratio is too high (for instance above 80%). While dividend payments are expected here, any such payments should be safe and not jeopardize the company's future activity. They should be reasonable compared to similar companies in the same sector.

You will also need to diversify your portfolio among different stocks and different sectors to build some resilience in your portfolio. This is risk management.

The S&P 500 average yield is 1.4%. The following companies offer some of the highest paying dividend stocks:

- Altria Group Inc. (MO) - Tobacco and related products - Dividend $0.86 - Dividend Yield 6.95%

- Iron Mountain Inc. (IRM) Enterprise information management services company- Dividend $0.62 - Dividend Yield 6.79%

- Gaming and Leisure Properties Inc. (GLPI) - Real estate investment trust specializing in casino properties - Dividend $0.65 - Dividend Yield 6.27%

- Universal Corp. (UVV) - Entertainment - Dividend $0.77 - Dividend Yield 5.49%

- International Business Machines Corp. (IBM) - Information Technology - Dividend $1.63 - Dividend Yield 4.99%

- Edison International (EIX) - Dividend $0.66 - Dividend Yield 4.42%

- Safety Insurance Group Inc. (SAFT) - Dividend $0.90 - Dividend Yield 4.33%

- LyondellBasell Industries NV (LYB) - Dividend $1.05 - Dividend Yield 4.11%

- NorthWestern Corp. (NWE) - Dividend $0.62 - Dividend Yield 3.89%

- Principal Financial Group Inc. (PFG) - Dividend $0.56 - Dividend Yield 3.87%

- ALLETE Inc. (ALE) - Dividend $0.63 - Dividend Yield 3.75%

- Omnicom Group Inc. (OMC) - Dividend $0.70 - Dividend Yield 3.74%

- Spire Inc. (SR) - Dividend $0.65 - Dividend Yield 3.60%

- American Electric Power Co Inc. (AEP) - Dividend $0.74 - Dividend Yield 3.48%

- Southwest Gas Holdings Inc. (SWX) - Dividend $0.60 - Dividend Yield 3.47%

- Life Storage Inc. (LSI) - Dividend $0.74 - Dividend Yield 3.45%

- AvalonBay Communities Inc. (AVB) - Dividend $1.59 - Dividend Yield 3.44%

- Sturm Ruger & Co Inc. (RGR) - Dividend $0.71 - Dividend Yield 3.43%

- Black Hills Corp. (BKH) - Dividend $0.57 - Dividend Yield 3.43%

- Sempra Energy (SRE) - Dividend $1.10 - Dividend Yield 3.41%

- Equity Residential (EQR) - Dividend $0.60 - Dividend Yield 3.37%

- Kimberly-Clark Corp. (KMB) - Dividend $1.14 - Dividend Yield 3.36%

- DTE Energy Co. (DTE) - Dividend $1.09 - Dividend Yield 3.32%

- Ryder System Inc. (R) - Dividend $0.56 - Dividend Yield 3.18%

- Crown Castle International Corp (CCI) - Dividend $1.33 - Dividend Yield 3.17%

- Coca Cola - considered a "Dividend King" which have increased its dividends for more than 50 consecutive years - Dividend Yield 3.1%.

N.B.: On January 22nd, 2021, International Business Machines (IBM), NextEra Energy (NEE), and West Pharmaceutical Services (WST) were added to the Dividend Aristocrats Index. Carrier Global (CARR), Otis Worldwide (OTIS), and Raytheon Technologies (RTX) were all removed, leaving the total count at 65.

The Dividend Aristocrats are appealing to most investors as they offer a rare combination of high total returns with low volatility.

Disclosure: The author held no positions in the aforementioned securities at the original time of publication.

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