While there are many investment strategies that have the potential to make investors richer over time, few have a better track record of success than dividend-paying stocks.
Companies that pay a dividend are often profitable on a recurring basis and have a proven track record (meaning they’ve proven they can weather a recession…or 10). Plus, they have a clear history of outperforming their publicly listed peers that don’t pay a dividend.
In 2013, JP Morgan Asset Management released a report comparing the performance of companies that launched and increased their non-dividend equity payouts over a 40-year period (1972-2012). The end result was an average annual return of 9.5% for income stocks versus a meager average annual return of 1.6% for non-dividend companies.
However, not all dividend stocks are created equal. While the following six stocks may not offer the highest returns to their investors, they are among the highest nominal dollar dividend payers on the planet. Together, these six stocks distribute nearly $83 billion a year in dividend income to their shareholders.
1. Microsoft: $18.5 billion in annual dividends paid to shareholders
Yield isn’t everything – just ask Microsoft (MSFT 0.53%) shareholders. Even though Microsoft’s return is a pedestrian of 0.9%, the second largest publicly traded company in the United States is analyzing the largest annual payout ($18.5 billion).
Microsoft’s success reflects the combination of its legacy software operations with its high-growth initiatives. For example, the company’s Windows operating system is not even close to the growth story of two decades ago. Nevertheless, that hasn’t stopped Windows from accounting for about three-quarters of the global desktop operating system market share. The cash flows generated by these legacy segments fund acquisitions (eg, LinkedIn) and high-growth investments.
Speaking of high-growth investments, Microsoft is betting everything on cloud services. According to Canalys estimates, Microsoft Azure accounted for 21% of global cloud services spending in the first quarter (#2 worldwide). Other cloud initiatives are also bearing fruit, with Dynamics sales growing 24% year over year, as of June 30, 2022.
2. Apple: $14.78 billion
Another tech stock with a deceptively generous dividend policy is the linchpin of innovation Apple (AAPL 0.63%). Even though Apple’s return is less than 0.6%, the world’s largest publicly traded company distributes nearly $14.8 billion a year to its shareholders.
Apple is a company Warren Buffett likes because it checks all the right boxes of a great long-term investment. The Apple brand is well known, its customer base is extremely loyal, and the company’s innovation drives its results. Since Apple unveiled its 5G-enabled iPhone in the fourth quarter of 2020, it has had at least 50% or more of the smartphone market in the United States, save for a quarter.
However, Apple’s future lies in subscription services. CEO Tim Cook is overseeing this ongoing transition which will further improve customer loyalty, drive higher margin recurring revenue, open doors to unique possibilities (i.e., build the foundations of the metaverse), and minimize the peaks and troughs associated with product replacement cycles. .
3. ExxonMobil: $14.68 billion
If there’s one thing Big Oil is known for, it’s skyrocketing dividends. Integrated oil and gas giant ExxonMobil (XOM -1.79%) is no exception. This is a company that has increased its basic annual dividend for 39 consecutive years and distributes nearly $14.7 billion a year to its shareholders.
What makes ExxonMobil such a consistent revenue generator is the “integrated” aspect of its operations. While there is no doubt that drilling for oil and natural gas is where the highest margins can be achieved, ExxonMobil also operates downstream assets, such as refineries and chemical plants. If and when the price of oil and natural gas declines, input costs for these downstream segments decline and consumer/business demand generally increases. Indeed, the company is well protected against sudden fluctuations in the prices of energy commodities.
The company also benefited from prudent leverage. It reduced its capital expenditures when commodity prices fell, while continuing to invest in its most promising projects. For example, Guyana’s environmental protection agency gave ExxonMobil the green light for its most productive oil project (Yellowtail) in April. When completed by the middle of the decade, this deepwater drilling project will generate 250,000 barrels of oil per day.
4. Johnson & Johnson: $11.89 billion
Another company with an amazing dividend is the healthcare conglomerate Johnson & Johnson (JNJ 0.48%). J&J, as the company is more commonly known, has increased its base annual payout for 60 consecutive years and is on track to distribute nearly $11.9 billion in dividends to its shareholders over the next 12 months.
Johnson & Johnson is a company that really benefits from the continuity and defensive nature of the healthcare industry. On that last point, people will always need prescription drugs, medical devices, and healthcare services, regardless of rising inflation or the poor performance of the U.S. economy and stock market. .
As for continuity, J&J has only had 10 CEOs since its inception 136 years ago. Having key executives around is what has helped the company thrive for so many decades.
It also doesn’t hurt that J&J has complementary operating segments. For example, pharmaceuticals generates most of its growth and its operating margin. However, branded drugs have a limited period of sales exclusivity. To counter this, Johnson & Johnson can leverage its medical devices segment, which is well positioned to take advantage of an aging domestic population and an international market where access to medical care is improving.
5. JPMorgan Chase: $11.72 billion
Currency Center Bank JPMorgan Chase (JPM 0.27%) is also a big dividend payer. Based on an annual dividend of $4/share, JPMorgan expects to pay more than $11.7 billion to its loyal shareholders over the next year.
Generally speaking, bank stocks are slot machines. Although financial stocks are cyclical and therefore likely to decline during economic downturns, the reality is that recessions don’t last very long. On the other hand, periods of economic expansion are almost always measured in years. This allows JPMorgan Chase and its peers to grow their loans and deposits fairly steadily over time. Growth in loans and deposits is the bread and butter of increasing bank profits.
JPMorgan Chase and most of the banking sector should also benefit from an aggressive change in monetary policy. As the Federal Reserve rapidly raises interest rates in an effort to rein in historically high inflation, bank stocks are expected to see a sharp increase in net interest income, thanks to their outstanding floating rate loans.
6. Rafters: $11.13 billion
Did I mention Big Oil pays big dividends? In addition to ExxonMobil, Chevron (CLC -1.90%) distributes large salaries to its shareholders. With an annual payout of $5.68, Chevron investors bring in just over $11.1 billion.
Like ExxonMobil, Chevron’s greatest attribute is its integrated operations. Chevron owns midstream assets, such as oil and gas transmission pipelines, that rely on fixed price or volume-based contracts to produce highly predictable cash flows. It also has refineries and chemical plants which provide an excellent hedge against downward fluctuations in crude oil and natural gas prices.
Chevron also deserves kudos for its prudent balance sheet management. While most integrated oil and gas companies have gone into debt, Chevron has one of the lowest debt ratios among the majors. This means greater financial flexibility to undertake projects, such as the Wheatstone and Gorgon natural gas projects designed to supply the Asia-Pacific region, or to make profitable acquisitions.