If You Like Dividends, You Should Love These 3 Stocks

If you don’t like dividends, you should. Between1960 and 2017, a whopping 82% of the total return of the S&P 500 index came from the compound growth of reinvesting dividends.

And if you do like dividends, you should especially love three stocks: AbbVie (NYSE:ABBV), AT&T (NYSE:T), and Welltower (NYSE:WELL). Here’s what makes these dividend stocks really attractive to income-seeking investors.

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1. AbbVie

AbbVie’s dividend currently yields 4.14%. The big pharma company takes pride in delivering solid dividend hikes year after year. Since 2013, AbbVie has increased its dividend by 140%.

There shouldn’t be a problem with keeping those dividend hikes coming. AbbVie’s payout ratio is a respectable 66%. The drugmaker uses only 42% of its free cash flow to fund the dividend program.

Even better, AbbVie appears to be in great shape to grow its earnings, providing even more flexibility to boost its dividend. The company claims the world’s top-selling drug — Humira. Sales of AbbVie’s cancer drug Imbruvica and hepatitis C drug Mavyret are soaring.

AbbVie also should have some promising new drugs on the way. Market research firm EvaluatePharma ranked the company’s pipeline as the second-best in the biopharmaceutical industry. Potential blockbusters in AbbVie’s pipeline include endometriosis drug elagolix and rheumatoid arthritis drug upadacitinib.

2. AT&T

Investors have liked AT&T’s dividend for a long time — and for good reason. The telecommunications giant’s dividend yield currently stands at 6.23%. AT&T is a member of the elite group of Dividend Aristocrats and has increased its dividend for 34 consecutive years.

Can AT&T keep that streak going for years to come? Probably so. The company currently uses only 40% of its earnings to pay out dividends. There are also a couple of factors that should enable AT&T to grow its earnings more in the future than it has over the last several years.

One of those factors is the company’s acquisition of Time Warner. AT&T expects significant cost synergies from the transaction — around $1.5 billion per year. The company will also be able to offer new bundled packages to its customers, which holds the potential to boost revenue.

Another key factor that should drive growth for AT&T is the launch of 5G networks. These high-speed networks could open up significant new markets for the company in self-driving cars, smart city applications, and virtual reality.

3. Welltower

Welltower’sdividend yield of 6.45% is even more attractive than AT&T’s. The company is the world’s largest healthcare-focused real estate investment trust (REIT), with more than 1,250 healthcare properties. Welltower has paid a dividend for 187 consecutive quarters — nearly 47 years running.

After eight years of hiking its dividend, the company appears to be keeping its dividend steady in 2018. That’s not surprising, considering that Welltower uses nearly 95% of its free cash flow to fund the dividend program and the company has focused on reducing its leverage.

Is the dividend in trouble? I don’t think so. Welltower can depend on steady cash flow from leasing properties to senior housing providers, skilled nursing facilities, and outpatient medical clinics.

Over the long run, Welltower’s dividend should look better and better. The number of Americans aged 85 and older is expected to double in the next two decades. The number of Americans aged 75 and over is projected to grow five times faster than the overall U.S. population. These trends should drive demand for senior housing, which in turn should enable Welltower to grow significantly.

My favorite

My personal favorite among these three great dividend stocks is AbbVie. Granted, its yield is lower than AT&T’s and Welltower’s. However, the drugmaker is increasing its dividend at a much faster rate. Also, AbbVie’s growth prospects are much better over the next few years. Dividends are key to delivering strong total returns, but it definitely helps for the stock price to appreciate nicely as well.

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