Editor’s note: This article was first published in September 2021, and its dividend-yield tables are labelled as updated in 2021. Yields change daily, and several companies have since cut dividends, merged or been renamed, so the lists should not be read as current.
Some people think dividends are a scam, although the arguments used to suggest that a dividend investing strategy doesn’t deliver much for an investment portfolio don’t hold up. In this article we list the companies with the highest dividend yields.
Despite what many people believe, one of the most profitable investment strategies, used by great investors and by some investment funds, is dividend investing. That is, investing in shares that pay a good dividend, and a solid one at that.
In this article we explain some of the steps for putting together a dividend investing strategy. We update which companies are paying the best dividends right now and look at why, contrary to what some people say, dividends are one of the most profitable ways to invest in the stock market. We also keep risk to a minimum without giving up returns.
5 steps for building a dividend investing strategy
1. A high dividend isn’t enough: it has to be sustainable
If we’re looking for solid dividends, we shouldn’t rule out buying shares in the most solid companies in the world. We can also get exposure to the biggest global consumer brands, such as McDonald’s, Coca-Cola and Procter & Gamble, which pay solid dividends.
There are other companies with higher dividend yields, but with these giants, even if the dividend is somewhat lower, at least we have peace of mind about getting paid, given the kind of companies they are. Basically because, in Coca-Cola’s case, it has been on the market for more than 100 years.
How can you tell whether a company’s dividend will be sustainable over time?
For that, we recommend following the guidance of the best value investors. Both Warren Buffett and Benjamin Graham preferred solid companies that paid excellent dividends, so their way of analysing companies tended to lead them to businesses with solid dividends.
How to analyse a company’s shares before investing in it
2. Follow the 10-year horizon rule
First, remember Buffett’s words: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” If we set our investment horizon at 10 years and the company is solid, we shouldn’t worry at all about whether its share price goes up or down. In fact, if it falls, we can take the opportunity to buy more shares.
We talk about a 10-year horizon because you can take any 10-year interval on the main stock indices and you’ll find that, with a diversified portfolio held for 10 years, nobody would have lost money in the stock market.
3. Think like an owner, not a gambler
As we’ve said hundreds of times, the stock market is not a casino. If you only think short term, this investment strategy isn’t for you. To follow it, you mustn’t get obsessed with the twists and turns of the market; the only thing you need to keep in mind is the company’s earnings, and therefore its dividends. If the company grows steadily, the dividends will undoubtedly keep coming.
4. Reinvest the dividends
For this strategy to be really profitable, especially if you’re young and in the wealth-building phase, we should reinvest all of the company’s dividends in new shares of the company. When we have the option of taking the dividend in cash or swapping it for shares, always choose the shares.
See also: 5 false beliefs that give away “rookie” investors
5. This investment system is 100% conservative, even though we’re in equities
Investing in the stock market doesn’t have to be risky; what ends up becoming a risk is the way you invest.
It should be said, by the way, that this investment system requires patience (a quality that sets good investors apart). We’re not going to have fun with this kind of investing, but we will make money.
If we invest for the long term, collecting dividends, benefiting from price appreciation and averaging down on the dips, it’s estimated that you can achieve an average annual return of more than 10%. Of course it depends on a few other factors, but it’s a very feasible scenario.
Should you take dividends in cash or in shares?
If you’re a small investor in the process of building personal wealth, the sensible thing, without a doubt, is to turn the cash into new shares so that compound interest can start doing its work. Obviously, if you’re not Warren Buffett, as the years go by we’ll get round to taking the dividends in cash, because the idea is to turn dividends into an asset that generates passive income for us.
And now, since I imagine you’re wondering which companies meet the requirements of a high dividend, here is an update of the companies paying the best dividends (but heed the warning we give below).
Which companies will pay the best dividends in 2021, in the United States and in Spain?
If we look at the United States, the companies with the highest dividend yields right now would be the following (updated in 2021).
Highest dividend yields in the S&P 500
- Oneok Inc (OKE): 12.8%
- CenturyLink Inc (CTL): 10.3%
- Simon Property Group Inc (SPG): 10.1%
- Occidental Petroleum Corp (OXY): 9.64%
- Coty Inc (COTY): 9.45%
- Exxon Mobil Corp (XOM): 8.37%
- Altria Group (MO): 8.15%
- Williams Companies (WMB): 7.98%
- Vornado Realty Trust (VNO): 7.97%
- Tapestry Inc (TPR): 7.88%
Highest dividend yields in the Dow Jones
- Exxon Mobil Corp (XOM): 8.37%
- Dow Inc (DOW): 6.81%
- Chevron Corp (CVX): 6%
- IBM (IBM): 5.28%
- Walgreens Boots Alliance (WBA): 4.6%
- Verizon Communications (VZ): 4.34%
- Pfizer (PFE): 3.92%
- 3M Co (MMM): 3.89%
- JPMorgan Chase & Co (JPM): 3.72%
- Coca-Cola Co (KO): 3.49%
The best dividend payers in Spain in 2021
Enagás would be the company paying the best dividend, with a dividend yield of 9.23%. It would be followed by:
- Telefónica: 7.93%
- Mapfre: 7.64%
- Naturgy: 7.26%
- ACS: 6.95%
- REE: 6.67%
- Endesa: 5.82%
- Repsol: 5.75%
A warning before investing for the dividend alone
That said, you need to understand and analyse the fact that companies may often be paying out high dividends because it’s the only way to attract investment. If the dividend is funded through capital increases, these shares may not be all that attractive to invest in.
Further reading
Featured image: Warren LeMay from Cincinnati, OH, United States, CC0 1.0, via Wikimedia Commons.
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