Best Income Stocks to Invest in
In a soaring stock market, making quick capital gains through increases in share prices seems to be the most popular objective. Income stocks, on the other hand, may not look that appealing with their dividend yields. But, if investors ignore these dividend stocks completely, they could be missing a big opportunity. In this article, I am going to highlight the best income stocks for 2017.
A few percent of dividend yield does not seem like much when the overall market is gaining 15% a year. However, market risk always exists. Who knows when the next correction will come? And, when things do take a turn for the worse, owning a portfolio of previously high-flying stocks could make any investor panic. As we have seen numerous times, a common phenomenon during a market correction is a selloff in stocks that previously went up a lot.
This is where income stocks can come in handy. Investors own these stocks because of their dividends. Speculation may play a role, but the main reason of investing in income stocks is to collect a steady and hopefully increasing stream of dividends. It’s the companies themselves that decide how much in dividends they pay, not the stock market. So, when the market condition changes, solid income stocks can still deliver what their investors are looking for: dividends.
Of course, this doesn’t mean income stocks won’t take a hit when the market enters a downturn. It’s just that when things do go south, investors of the best income stocks could still see dividend checks coming in. It also makes it easier to decide what to do with their portfolio. For instance, during the last financial crisis, investors who held onto solid income stocks would likely have seen their portfolio value increase substantially since the recovery began in 2009.
So, where can investors find income stocks?
Well, several sectors are known for producing income stocks. These sectors include utilities, financials, real estate, and energy. However, as you will see from the list below, income stocks can also be found in several other industries. At the end of the day, for a company to be an income stock, it’s not really about what kind of business it does. Rather, it’s about how solid its business is when it comes to supporting a steady stream of dividend payments.
Another thing to keep in mind is that income stocks and growth stocks don’t have to be mutually exclusive. Sure, companies that are considered growth stocks may require a lot of ongoing capital investments, and those investments could affect the companies’ willingness and ability to pay generous dividends. However, when a company reaches a stage that growth can happen without the need for oversized investments (we’ll look at a few in the list below), it might be able to deliver both current income and growth potential. Companies that have been raising their payout for decades are good examples of this.
Last, but certainly not least, the highest-yielding stocks are not necessarily the best income stocks. Just like the case with bonds, the highest-yielding ones almost always carry the highest risk. I’m not saying that income investors need to settle for a low yield but, when you see a stock yielding 25%, chances are that other people see it too, and the reason they are not buying it is the concern that the payout would not be sustainable.
Without further ado, let’s take a look at the best income stocks for 2017.
Income Stocks List
| Company Name | Stock Symbol | Dividend Yield |
| Wells Fargo & Co | WFC | 2.78% |
| Toronto-Dominion Bank | TD | 3.81% |
| Realty Income Corp | O | 4.53% |
| Welltower Inc | HCN | 4.97% |
| Johnson & Johnson | JNJ | 2.74% |
| Buckeye Partners LP | BPL | 7.3% |
| AT&T Inc. | T | 5.1% |
Income Stocks 2017
1. Wells Fargo & Co
Wells Fargo & Co (NYSE:WFC) is a familiar name to American consumers. With $2.0 trillion in assets, it is the third-largest bank in the country.
The reason why Wells Fargo is one of the best dividend-paying stocks lies in the nature of its business. Wells Fargo has a huge presence in the retail banking industry. It has more than 8,500 branches, 13,000 ATMs, and offices in 42 countries and territories. Retail banking might not sound as exciting as wholesale banking, as the latter can generate huge profits with a small number of accounts, but note that retail banking is known for its high barriers to entry.
Wells Fargo is currently serving one in three households in the United States. A huge branch network and existing customer base means it would be very difficult if someone wants to challenge Wells Fargo’s entrenched position.
The company has also been growing its business. Its most recent earnings report showed that net interest income, a key contributor to a retail bank’s revenue, came in at $12.3 billion in the first quarter, representing a five-percent increase year-over-year. Wells Fargo also managed to grow both its total average loans and total average deposits in the first quarter, which could help the bank further grow its interest income in the future. (Source: “Wells Fargo Reports $5.5 Billion In Quarterly Net Income,” Wells Fargo & Co, April 13, 2017.)
Right now, WFC stock has a quarterly dividend rate of $0.38 per share, translating to an annual yield of 2.78%.
2. Toronto-Dominion Bank
Toronto-Dominion Bank (NYSE:TD) is another retail-focused financial institution. The company is headquartered in Toronto, Ontario, Canada, but also has a significant presence in the U.S. TD is listed on both the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE).
TD operates through three main business segments: “Canadian Retail,” “U.S. Retail,” and “Wholesale Banking.” In the first quarter of TD’s fiscal-year 2017, Canadian Retail and U.S. Retail were responsible for generating 87% of the company’s earnings. (Source: “TD Bank Group Reports First Quarter 2017 Results,” Toronto-Dominion Bank, March 2, 2017.)
Having an increasing retail focus is a key reason to consider TD an income stock. During the last financial crisis, many bank stocks fell into the doldrums, some even cutting back their dividends. TD, on the other hand, managed to pay steadily-increasing dividends throughout the recession.
Earnings growth has also been quite impressive. Over the past five years, TD’s reported earnings have been increasing at a compound annual growth rate (CAGR) of 8.4%.
The company is currently yielding 3.81%.
3. Realty Income Corp
Real estate is another sector where investors can find quite a few income stocks. One of the reasons is that, for a company to qualify as a real estate investment trust (REIT), it is required by law to distribute at least 90% of its annual profits to shareholders in the form of dividends.
In the U.S., where more than 1,000 companies are structured as REITs, one of them stands out: Realty Income Corp (NYSE:O).
Headquartered in San Diego, California, Realty Income owns over 4,900 properties located across 49 states and Puerto Rico. The company’s portfolio is well diversified, with 250 commercial tenants operating in 47 different industries.
What makes the company stand out is its distributions. Realty Income calls itself “The Monthly Dividend Company” and rightfully deserves the title. It has made 561 consecutive monthly dividend payments and has raised its payout for 78 consecutive quarters. Since the company’s listing on the NYSE in 1994, Realty Income has delivered compound average annual total return of 16.9%. (Source: “Dividend Payment Information,” Realty Income Corp, last accessed May 10, 2017.)
With a current monthly dividend rate of $0.211 per share, this income stock is yielding a decent 4.53%.
4. Welltower Inc
Welltower Inc (NYSE:HCN) is another real estate stock, but it’s quite different from Realty Income. Welltower specializes in healthcare properties. To be more specific, it provides real estate capital to senior housing operators, post-acute care providers, and health systems. The company’s portfolio currently consists of 1,375 healthcare properties housing 210,000 residents and 16,000,000 outpatient medical visits.
Welltower pays quarterly dividends of $0.87 per share, translating to an annual yield of 4.97%.
Note that the demand for healthcare is relatively inelastic to how the overall economy is doing, adding stability to healthcare operators’ business and healthcare REITs’ revenue stream. Moreover, the aging U.S. population could boost the demand for long-term care in the future. As one of the biggest healthcare REITs, Welltower should have no problem continuing to reward income investors down the road.
5. Johnson & Johnson
Johnson & Johnson (NYSE:JNJ) has been one of the best dividend stocks for income investors. Its 2.74% dividend yield may not look that impressive at the moment but, when it comes to dividend stability and durability, few companies can match Johnson & Johnson.
Johnson & Johnson is a healthcare giant. The company commands over $300.0 billion of market cap and is a leading player in consumer goods, pharmaceuticals, and medical devices. In 2016, JNJ’s worldwide sales totaled $71.9 billion. (Source: “Johnson & Johnson Reports 2016 Fourth-Quarter Results,” Johnson & Johnson, January 24, 2017.)
JNJ is a top income stock because of its ability to return value to shareholders through thick and thin. The company has raised its dividend for 55 consecutive years and has grown its adjusted earnings every year for more than three decades. For investors looking for growth and income stocks, Johnson & Johnson is definitely worth considering.
6. Buckeye Partners, L.P.
With the downturn in oil and gas prices, energy stocks are far from being attractive. But companies in this sector can still be worth owning for income investors. Buckeye Partners, L.P. (NYSE:BPL) would be a good example.
Buckeye is a master limited partnership (MLP) headquartered in Houston, Texas. It owns and operates one of the largest independent liquid petroleum products pipeline systems in the U.S. Buckeye is also one of the largest independent terminal and storage operators in the country, with aggregate storage capacity of over 115 million barrels.
The beauty of the pipeline business is that pipelines are essentially energy toll roads. Companies pay Buckeye to move liquid petroleum products from one point on the pipeline to the next. With approximately 6,000 miles of pipeline, Buckeye is essentially running a cash cow business. And since Buckeye is not drilling new wells, it doesn’t need to worry about oil prices too much.
With a quarterly distribution rate of $1.25 per unit, Buckeye has an annual yield of 7.3%. That makes it one of the highest-dividend-paying stocks worth owning for income investors.
7. AT&T Inc.
Rounding off the list of the best income stocks for 2017 is AT&T Inc. (NYSE:T). And the reason is simple: AT&T offers a service that’s essential to consumers, and the barriers to entry in its industry are high.
AT&T is one of the biggest telecommunications companies in the country, reporting a consolidated revenue of $163.8 billion in 2016. For consumers, Internet, TV, and cell phone bills need to be paid every month. For AT&T, this means a steady stream of revenue.
The telecom industry is essentially an oligopoly. Due to expensive infrastructure investments and regulatory hurdles, the industry in the U.S. has just four main players: AT&T, Verizon Communications Inc. (NYSE:VZ), T-Mobile US Inc (NASDAQ:TMUS), and Sprint Corp (NYSE:S). The lack of competition could mean higher cell phone bills for consumers. But, for companies like AT&T, it translates to oversized profits.
AT&T currently pays quarterly dividends of $0.49 per share, or an annual yield of 5.1%.