Dividend investing is one of the most reliable ways to generate passive income from your portfolio. But how much of that income you actually keep depends heavily on one factor — taxes — and specifically whether your dividends qualify for the preferential tax treatment the IRS calls "qualified" status.

Depending on your income level, you may owe nothing on your qualified dividends. But even at high-income levels, the taxes will almost always be lower than what you pay on most other investments.

Dividend tax rules here are quirky and can make a major difference in how much of your dividend income you actually get to keep.

So, let's get to it. We're covering the basics you need to know and go over a few tips on how to use the tax code to maximize your income and minimize your tax bill.

Ordinary dividends vs qualified dividends: what you need to know

Before you start considering how to manage your investment income, it's important to know the difference between ordinary dividends vs qualified dividends.

Ordinary (non-qualified) dividends are taxed as regular income, no different than interest or short-term capital gains. If you're in the 35% tax bracket, then that's what you're paying on your ordinary dividends, plain and simple.

Dividends from money market or bond funds (which are essentially repackaged bond interest), dividends paid by most real estate investment trusts (REITs), dividends paid by most foreign companies or dividends on shares that you held for too short of a period to qualify will all generally be taxed as ordinary dividends.

Qualified dividends benefit from preferential tax rates: 0%, 15% or 20%, depending on your income. The brackets change from year to year, but as of 2026, single taxpayers with taxable income of up to $49,450 and married taxpayers with taxable income up to $98,900 pay nothing on their qualified dividends.

Single taxpayers with taxable income between $49,451 and $545,500 and married taxpayers with taxable income between $98,901 and $613,700 pay 15%. And taxpayers with incomes above those levels pay 20%.

To be categorized as "qualified," a dividend must meet two core conditions. It must be paid by a U.S. corporation or a qualifying foreign corporation whose stock trades on a U.S. exchange and whose home country has an income tax treaty with the United States. And you must have held the stock for more than 60 days during the 121-day window surrounding the ex-dividend date.

That second condition is a little confusing, so it's probably best explained by example. Let's say your stock's ex-dividend date is June 15. Your 121-day window would extend from April 16 to August 14. You would need to have held the stock for more than 60 days within that window. (Don't worry, you don't need to keep track of this yourself. Your broker will handle the accounting.)

If you're a long-term, buy-and-hold dividend investor, you can assume you're meeting the holding period requirements for qualified dividend status.

Minimizing your dividend tax bill

With that as background, let's go over a few strategies to squeeze the most value out of the tax code.

We'll start with the most obvious: Don't engage in short-term trading with your dividend stocks.

There's nothing wrong with short-term trading, of course. In fact, if done with discipline, it can actually reduce the risk of your overall portfolio. Just be sure that you're not actively trading the stocks you intend to hold for dividend income.

If you're still working and don't yet need the income for your living expenses, consider automatically reinvesting the dividends in new shares. This turns your income stocks into compounding machines, and when the day comes to start taking distributions, you'll be doing so on a larger base of shares.

Here's where the real planning starts. Where you hold your dividend-paying stocks is ultimately the biggest factor in the taxes you pay.

Let's say your investment accounts are a mix of tax-advantaged retirement accounts and regular taxable brokerage accounts.

Remember that all investment earnings in an IRA are tax-free. You only pay taxes on the distributions you take out of your traditional IRA in retirement, and those distributions are taxed at ordinary income tax rates.

So, to the extent you can move things around, it makes sense to hold your lowest-taxed investments, such as index funds and stocks paying qualified dividends, in your taxable accounts, and save your higher-taxed investments including non-qualified dividend stocks, REITs, foreign stocks or active trading strategies that generate short-term gains for your IRAS.

Let's use a hypothetical example. Say you have $10,000 in an IRA and $10,000 in a taxable brokerage account and that you want to buy $10,000 of Altria (MO) – a high-yielding stock that generally pays qualified dividends – and $10,000 in Realty Income (O) – a REIT that typically pays non-qualified, or ordinary, dividends.

The smart move would be to hold Altria in the taxable account and Realty Income in the IRA. You'd owe no capital gains taxes on the Altria position until you sold it, and the dividends would be taxed at a low rate (or not taxed at all, depending on your income).

The higher taxes you'll pay on Realty Income dividends, meanwhile, will get deferred until you take distributions from the IRA, at which point you're paying the same amount. Non-qualified dividends are taxed at the same rate as IRA distributions.

Timing matters too

Most taxpayers will never pay the 20% dividend rate, given the high income threshold. But the $98,900 level separating 0% and 15% is roughly at the 60th income percentile for a married couple. That's the definition of a regular, middle-class American.

If you earn significantly more than that, there's really not much you can do. But if you're right at the threshold, there are a few things you should watch out for.

Let's say you're considering a Roth conversion — moving funds from a pre-tax retirement account, such as a 401(k) or traditional IRA, into a Roth IRA. This could be a great idea for any number of reasons, but it could also very easily push you into the higher income bracket. Those dividends you were expecting to get for free are now coming with a 15% haircut.

The same could be true with appreciated stock. Let's say you have some stocks in your portfolio that you've owned for years and are now sitting on substantial capital gains. If you're considering selling, you might want to wait to sell until next year or sell over multiple tax years to keep your income from landing in a higher tax bracket.

In the end, you're never going to escape taxes completely. And you can comfort yourself knowing that paying taxes means that you made money. But strategically using qualified dividend tax rates to your advantage can help you keep your tax bill tolerably low.

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Mastercard (MA) shareholders might not be too thrilled with the stock's more recent run, but few names have treated buy-and-hold investors to better returns over the long haul.

The world's second-largest payments processor has lost some of its luster over the past few years, but that's more to do with the legal and regulatory landscape than the company's operations. Threats to Mastercard's duopoly with Visa (V) are overblown, bulls say, and shares are priced for future outperformance for patient investors.

Buy-and-hold types who've been in the blue chip stock for ages can attest to Mastercard's strength. And while its competitive moat might not be quite as wide as it once was, the company's global brand remains as powerful as ever.

That's no small feat. A firm that was launched more than 50 years ago by a consortium of regional banks to compete with Visa today operates in more than 210 countries and territories. Nearly 40 million businesses accept Mastercard credit cards, of which there are 3 billion in circulation.

Payments processors aren't all that sexy, but Mastercard has indeed notched some nifty wins for capitalism. In the 1980s, the company issued the first international payment card in the People's Republic of China, as well as in what was then the Soviet Union.

Mastercard also has a history of innovation in security features, pioneering the now-standard practice of putting laser-etched holograms on cards. Later, it spearheaded the global rollout of the chip technology that today makes cards far more secure.

But investors were best served by the company's transition from a bank-owned cooperative to a publicly listed company in 2006. Anyone who invested in Mastercard during those early post-IPO days should have no problem paying off their purchases.

True, shares are lagging the S&P 500 by a wide margin over the past year or so. MA hasn't kept up with the broader market over the past half-decade either. Partly, that's a function of the way the tech sector — and all things related to artificial intelligence (AI) — have soared since ChatGPT debuted at the end of 2022.

MA is also contending with industrywide concerns. Persistent scrutiny of swipe fees has been a headwind for years. And now, the bipartisan Credit Card Competition Act of 2026 threatens Mastercard and Visa's lucrative duopoly. Calls to cap interest charges, while unworkable, are also spooking investors. (Shares in Visa have likewise underperformed the market for years now.)

You can see these anxieties playing out in Mastercard's valuation. Shares currently trade at less than 22 times estimated earnings. That's 20% lower than their five- and 10-year averages. A stock that once commanded hefty premiums thanks to its high operating margins (nearly 60%) and wide competitive moat has been repriced to reflect rising risks.

Interestingly, Berkshire Hathaway (BRK.B) sold its stakes in both Mastercard and Visa during the first quarter of 2026. The payments processors had been a couple of Warren Buffett's favorite stocks since 2011. Apparently, CEO Greg Abel, who is now calling the shots, sees things differently. Make of that what you will.

The bottom line on MA stock?

As noted above, Mastercard stock has been disappointing for more recent investors. Shares lag the broader market on an annualized total return basis (price change plus dividends) over the past one-, three- and five-year periods. Heck, over the past 52 weeks, MA stock is off about 4% vs a 30% gain for the S&P 500.

Beyond those recent periods, however, the returns have been priceless.

Over the past decade, MA stock leads the broader market by almost 3 percentage points. Over the past 15-year period, it beats the S&P 500 by more than 7 points.

Which brings us to what $1,000 invested in Mastercard stock 20 years ago would be worth today. Spoiler alert: a lot.

Have a look at the above chart and you'll see that a thousand bucks invested in MA stock two decades ago would today amount to almost $121,000. That's good for an annualized return of more than 27%.

By comparison, the same sum socked away in an S&P 500 index fund would be worth about $8,600 today – or 11.4% annualized.

That's remarkable outperformance. Happily for bulls, Wall Street analysts think Mastercard is priced to resume its winning ways.

"Solid quarterly earnings again underscored the resilience of MA's operating model amid a more mixed payments and macro backdrop," writes BofA Securities analyst Matthew O'Neill, who rates shares at Buy. "The underlying constant currency demand outlook remains intact, supporting confidence in Mastercard's long-term earnings durability and capital return profile."

O'Neill has plenty of company on the Street. Of the 39 analysts covering MA stock surveyed by S&P Global Market Intelligence, 29 rate it at Strong Buy, seven say Buy and three call it a Hold. That works out to a consensus recommendation of Strong Buy, with high conviction to boot.

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Target (TGT) is one of the oldest and most iconic brands in American retail, but shares in the national discount chain have been a bad buy-and-hold bet for ages.

The big-box chain that came to define the concept of "cheap chic" traces its roots to a single family-owned department store in the early days of the 20th century. Six decades later, a rapidly expanding middle class in the midst of the baby boom drove consumer demand for one-stop shopping at value prices. It's no coincidence that Target shifted to a discount format at the same time that Walmart (WMT) and K-Mart entered the market.

A merger and decades of expansion set Target up to be the comparatively upscale alternative to Walmart during the heyday of big-box chains at the end of the 20th century. Whereas Walmart's slogan was "Always Low Prices, Always," Target led with "Expect More. Pay Less."

By the beginning of the 21st century, the Minneapolis-based chain was a certified national retail behemoth. And then things started to go wrong.

The onslaught of Amazon.com (AMZN) and other e-commerce companies took a toll on all brick-and-mortar retailers. Chronic underinvestment in its digital strategy caused Target to fall far behind Walmart in the rapidly growing channel. Today, Walmart is the second-largest U.S. e-commerce retailer after Amazon – albeit a distant second. Target, meanwhile, ranks fifth.

A massive data breach in 2013 that exposed the financial information of as many as 110 million Target customers certainly did the company no favors. Even worse was Target's abortive expansion into Canada. The foray, which lasted only two years, ended in 2015 with the company shuttering 133 stores and taking a $5.4 billion quarterly loss.

Target's product mix also makes it more sensitive to economic ups and downs. Where Walmart's and Costco's (COST) top lines benefit from consumer staples that tend to hold up better when consumer spending slows down, Target depends more on discretionary items. Food, toilet paper and diapers are more recession-proof than apparel and consumer electronics.

More recently, Target's margins have been hampered by shrink – the loss of inventory due to theft, damage or administrative error – and tariffs. A decade ago, the company enjoyed gross profit margins north of 27%, or more than two percentage points higher than they run today.

It should come as no surprise that a turbulent couple of decades haven't been great for TGT stock.

The bottom line on TGT stock?

True, Target is a dividend-raising machine. Equity income investors have seen their payouts rise annually for more than five decades. As a member of the S&P 500 Dividend Aristocrats, there's no doubt that TGT is one of the best dividend stocks for dependable dividend growth.

Sadly, a poor track record of price appreciation wipes out the benefit those dividends contributed to shareholders' total returns.

For its entire life as a publicly traded company, Target generated an annualized total return (price change plus dividends) of just 5.4%. That lags the S&P 500 by more than 5 percentage points.

And while the consumer staples stock is up 38% over the past 52 weeks – vs 31% for the broader market – every other standard time frame is a dud. Shares in TGT generated negative total returns over the past three- and five-year periods. As for the past 10- and 15-year periods, TGT lags the S&P 500 by wide margins.

Which brings us to what you'd have if you invested a grand in TGT stock a couple of decades ago.

Spoiler alert: not nearly enough.

Take a look at the chart above and you'll see that if you put $1,000 into TGT stock 20 years ago, it would be worth about $3,900 today. That's good for an annualized total return of 7%.

The same sum sitting in a low-cost S&P 500 index fund over the past two decades would be worth almost $8,000 today, or 10.8% annualized.

There's no way around it: Target has been a buy-and-hold bust for truly long-term investors.

As for where TGT stock goes over the next 12 months or so, Wall Street is very much split on the name. Of the 37 analysts covering the stock surveyed by S&P Global Market Intelligence, 9 call it a Strong Buy, two say Buy, 23 have it at Hold and three rate it at Sell. That works out to a consensus recommendation of Hold.

More Stocks of the Past 20 Years

• If You'd Put $1,000 Into Walmart Stock 20 Years Ago, Here's What You'd Have Today
• If You'd Put $1,000 Into Costco Stock 20 Years Ago, Here's What You'd Have Today
• If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have Today

It's got all the drama of a movie, only it's playing out in boardrooms instead of theaters. First came the $82.7 billion offer from Netflix (NFLX) to buy the film and TV studios of Warner Bros. Discovery (WBD) in December. Warner's Discovery Global unit, which includes CNN, Discovery and TNT Sports, would have been spun off to the public in late 2026.

Though not all rejoiced at the union, the two seemed destined to plight their respective troths, until Paramount Skydance (PSKY) showed up like a suitor shouting objections at the altar with a competing, hostile offer to buy all of Warner Bros. Discovery for $108.4 billion, which it then raised to $111 billion.

The cliffhanger was resolved in late February after Netflix bowed out, declining to raise its offer. The Hollywood deal is just one of an increasing number playing out on Wall Street, which turns out to be good news for investors looking for a low- volatility way to diversify their portfolio.

Merger arbitrage, an alternative investment strategy that seeks to profit from the gap between the price of an acquisition target's stock and the takeover price after a deal is announced, tends to deliver returns that are a few percentage points above cash levels, independent of the stock or bond markets, says Mark Steffen, an alternatives strategist with Wells Fargo Investment Institute who currently recommends the strategy.

The more deals there are, the more opportunities, and deals are on the upswing after a few slow years following a blockbuster 2021.

"The third quarter's number was good — a continuation of the momentum we've seen," says Steffen. Increased volume, stable premiums over the target price and an easier regulatory climate that is helping to close deals more quickly all provide support for M&A, he says, adding that lower interest rates will help with financing.

A market-neutral approach for investors

A good way to invest is via the Merger Fund (MERFX). And "now is a good time," says Roy Behren, longtime co-manager of the fund.

"If you think the market has gotten ahead of itself, or things look a little toppy with AI, or the market has had a great run and you want to take some money off the table — the strategy's value lies in its ability to be a diversification tool for someone's portfolio," he says.

Gaps can persist between a target's price and an offer price because there's always some uncertainty about whether a deal will receive the regulatory approval, shareholder votes or financing it needs. The fund's payday comes when the deal goes through.

"If a transaction closes, we make money regardless of whether the market goes up, down or sideways," says Behren. "It's a market-neutral investment."

Behren and co-manager Michael Shannon are skilled at handicapping the odds of completion. "We're fairly disciplined. We only invest in announced transactions; we don't speculate about future targets or invest on rumor," he says.

The fund has returned 8.4% over the past 12 months. That might not seem like much compared with 18.1% for the S&P 500, but during the market's early 2025 tariff tantrum, the fund was essentially flat while stocks sank 12% and bonds dropped 1%.

In 2022, when the S&P 500 cratered 18% and the Bloomberg U.S. Aggregate bond benchmark lost 13%, Merger Fund eked out a 0.7% gain. The fund carries a sales charge of 5.5% but can be purchased load-waived with no transaction fee at platforms including Fidelity and Schwab. The expense ratio is 1.56%.

For the record, Behren, who says the fund has a stake in Warner Bros., had no spoilers about how the current bidding war would end when we talked to him. "I think it's going to play out with a higher price for Warner Bros.," he says.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Some time ago, I had a prospective client meeting with a gentleman whose daughter had special needs. The goal of his investment strategy was to leave enough money for her.

That makes sense, but what didn't make sense was his "how" — he planned to live off dividends and pass the principal along to her.

Even if you can afford to do this, I don't think it's advisable, for a few reasons.

1. Dividend yields are low

As of October 2025, the dividend yield of the S&P 500 is less than 2%. Of course, you can find dividend yields over 2%, but that typically requires a more concentrated portfolio.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

For today's purposes, let's pretend you have a diversified portfolio with a dividend yield of 2% that you plan to use for your monthly expenses. Say you need $15,000 a month or $180,000 a year. To generate that entire amount from dividends would require a portfolio of $9 million.

This oversimplifies the issue, but if I were to build a financial plan for someone who came into my firm and said, "I need $15,000 a month, so how much money do I need to retire?" the number would be far less.

Most financial planning software will use a total return approach. You can access a free version of what we use online.

2. When you search for yield, you invite risk

If you are buying stocks based only on the dividend yield, you are likely inviting a lot of risk into your portfolio. Dividend yield is calculated by dividing the annual dividend by the share price.

So, as share prices decrease, dividend yields increase. If you are searching for yield, you may just be filtering for companies that have seen significant drops in their share price.

If you can find high yields without significant price drops, my guess is that these companies are concentrated in sectors of mature stocks that have a history of high dividends.

Think utilities, financials, energy and so on. This is not to say these are bad investments, but you are betting on specific sectors, which may lead to a bumpy ride.

This is not unique to stock investing. If you are buying a bond with a significantly above-market coupon, there is risk that you are being paid for. That's why high-yield bonds were called junk bonds until the marketing department got its hands on them.

3. They are just giving you your own money back

If you had $1 million in the bank and went in every quarter and took out $5,000, it would be tough to call this an income strategy. But in a way, this is the same structure as dividend investing.

If you own a stock worth $100 that pays a 2% dividend, when it pays the quarterly dividend of $0.50, the stock drops by that amount; i.e., your $100 stock is worth $99.50. Just as your bank account would contain $995,000 after taking out one quarter's income.

Of course, this is not totally apples-to-apples. In a bank account, your remaining funds are in a deposit account. In the dividend example, you are staying invested in the stock with 98% of the money.

The important point is that dividends aren't "free money." They are giving you your money.

4. The tax consequences

I'm both a CFP® professional and an IRS enrolled agent, so tax planning is a huge part of our value proposition for our clients and prospective clients. Prospective clients often come to our firm to get a second opinion on a new tax strategy that another adviser is proposing.

Nine times out of 10, it is a permanent life insurance policy with a new marketing name. The point is that it is very hard to avoid taxation altogether. You just want to make sure that your income strategy is efficient.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

Dividends are taxable whether or not you reinvest them. Some dividends are taxable at capital gains rates. Others are taxable at income tax rates, which are higher.

Either way, if you have a significant yield, you will show a significant amount of income on the front page of your 1040.

You may be better off holding those high-dividend payers in a tax-sheltered vehicle, such as an IRA.

Additionally, if you are in a high tax bracket, it may make sense to live off a municipal bond portfolio and hold the stocks in your retirement account.

5. It's going to be a roller coaster

Dividends are typically generated by mature stocks. "Stocks" is the key word. If this is your entire strategy, then, in theory, your entire portfolio is in stocks.

Our retirees typically have 60% to 70% in stocks. While this could never be guaranteed, a portfolio of 60% stocks is likely to experience a smoother ride than one of 100% stocks.

There is an ever-increasing number of dividend strategies that make sense in certain situations.

For example, a Dividend Aristocrat strategy buys stocks that have historically increased dividends. When you reinvest those dividends, you have historically done well.

I also regularly come across clients with six figures or more in utility stocks that they basically forgot about but have been reinvesting dividends for several decades.

The common thread among these effective strategies is that they are effective for accumulation. When it comes to decumulation, I believe there are better ways.

The examples provided are hypothetical and for illustrative purposes only.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I’ve long admired the popular Pacer U.S. Cash Cows exchange-traded fund (COWZ). Less well known is that Pacer employs its free cash flow and dividend strategy overseas. In a year when U.S. stocks lag European stocks, Latin American stocks, most Asian stocks and our own expectations, Pacer Developed Markets International Cash Cows 100 (ICOW) and Pacer Global Cash Cows Dividend (GCOW) are up 17% and 13%, respectively. (The first is 99% non-U.S. and the second is 75% foreign, hence the difference. “Global” funds include U.S. issues; “international” ones do not.)

More to the point, the international ETF yields 4.4% and the global option yields 3.9%, twin reminders that foreign companies also bundle pallets of cash for their shareholders. And with the dollar off in 2025, dividends in euros or yen or Swiss francs or Polish zlotys or Malaysian ringgit mean a U.S. fund can pass along a few extra bucks on the currency exchange. Hence a bunch of international ETFs that emphasize dividends are doing even better in 2025 than the Cows.

WisdomTree International High Dividend (DTH) is up 22%. GlobalX MSCI SuperDividend EAFE (EFAS), a large-cap, rich-world index fund, is having a year for the record books, returning 30% through June 20 with a 4.5% dividend yield. The GlobalX fund is tiny, and although it’s a passive fund, it has a propensity to swing in value more than the market overall. So I’m wary of overpromoting it instead of more-diversified and larger ETFs such as the Pacer pair or iShares International Select Dividend (IDV), which is up 26% for the year so far and pays more than 5%.

Will the foreign dividend boom continue?

These golden first-half-of-2025 results aside, relying on foreign stocks for essential and predictable income is a challenge.

Overseas companies pay dividends annually or semiannually, and the amounts have no connection to previous years; a reduction does not set off investor alarms as it does in U.S. circles.

And due to this timing, funds often make outsized distributions in June, for example, and then force you to wait until December for the next big check.

The Pacer International ETF is an exception because it pays quarterly and reasonably consistently. So does Vanguard International High Dividend Yield (VIHAX). Federated Hermes International Strategic Value Dividend (IVFAX), which is one of the few actively managed funds in this category, pays monthly, though in some months the distribution is less than 1 cent a share.

Where is this foreign dividend boom headed? I asked fund managers to predict upcoming distributions and increases, and their answers were so vague that I’ll skip repeating their word salads.

A Standard & Poor’s intelligence report, dated late May, estimates 2025 will end with European firms — which dominate these international dividend funds — dialing down payout growth from 7.5% in 2024 to 3.5% this year and then to 3.2% in 2026, with the taper led by banks and automakers, which are frightened by U.S. tariffs and Chinese electric vehicles. Financial firms are as much as 40% of the weighting in funds such as the Vanguard offering, so dividend austerity by banks will knock at least a percentage point off these funds’ yields.

However, there is also growth, and the Pacer, Vanguard and Federated Hermes funds seem set to keep beating the S&P 500 for a while.

The actively managed Federated fund complements Federated’s Strategic Value Dividend (SVAAX), its active domestic dividend fund. The foreign version is light on banks and favors utilities and drugs. Volatility is low, and the 4.9% yield is compelling. It is up 19% so far this year. Give it and the Pacer international fund a shot.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Warren Buffett likes to say that price is what you pay, value is what you get. But that doesn't mean blindly indexing to value stocks is a path to long-term success.

After all, value stocks have broadly lagged growth stocks for more than a decade and there's no telling when they'll catch back up.

Besides, value is in the eye of the beholder. It's not for nothing that, on average, about 30% of the stocks in the benchmark Russell 1000 Value Index are also found in the Russell 1000 Growth Index.

"The remaining 70% are assigned to be either all growth or all value," per FTSE Russell.

Passive investors in a broad market index that tracks the S&P 500 needn't worry about the style differences between value and growth. Such distinctions are of more concern to tacticians and traders.

Nevertheless, there is something unusual about value's long-term slump.

First, a quick recap on value stocks vs growth stocks: Value stocks are equities that are perceived to be trading at a discount based on metrics such as price-to-book ratios, price-to-earnings ratios, dividend payout ratios and the like.

Growth stocks tend to trade at premiums to these metrics, as investors are willing to pony up for accelerating future free cash flows.

It's important to know that classifying stocks as growth or value is not a straightforward matter.

Russell assigns a growth and value weight based on its valuation criteria, which is how so many stocks find themselves represented in both benchmark indexes.

As FTSE Russell notes, what started out as a way for active managers to benchmark their performance based on their investment styles became a tool for professionals to make "unbalanced allocations based on their strategic or tactical views."

In other words, the benchmark growth and value indexes are not pure plays, and haven't been for decades.

"Pre-conceived notions of 'growth' and 'value' aren't always reflected in indexes labeled growth and value," writes Liz Ann Sonders, chief investment strategist at Charles Schwab. "That has been both exacerbated and emphasized in the post-pandemic era, especially for a sector like technology, which is traditionally thought of as dominating the growth sphere but now has a hefty weight in some value indexes."

Is value investing dead?

"Value investing is based on the premise that paying less for a set of future cash flows is associated with a higher expected return," writes the equity investing team at Dimensional Fund Advisors. "That's one of the most fundamental tenets of investing."

Over the long haul, value stocks have indeed outperformed growth stocks in the U.S., often by wide margins.

"Data covering nearly a century backs up the notion that value stocks — those with lower relative prices — have higher expected returns," Dimensional adds. "While disappointing periods emerge from time to time, the principle that lower relative prices lead to higher expected returns remains the same."

Given that mean reversion is a thing in both life and investing, value investors may be forgiven for expecting their stylistic preference to come back vs growth.

But it hasn't happened yet.

Have a look at the chart below to see the performance of the iShares Russell 1000 Value ETF (IWD) vs the iShares Russell 1000 Growth ETF (IWF) over the past decade to see how far the gap has widened on a total return basis (price change plus dividends).

Using these benchmark ETFs as proxies, we can see that growth returned more than 360% over the past 10 years vs less than 140% for value. That bucks historical trends in a big way. Since 1927, value stocks outperformed growth stocks by 4.4% annually in the U.S.

This doesn't mean value investing is dead. However, it might suggest that value investing via a broad index like the Russell 1000 Value Index isn't the best way to find value stocks. It isn't necessarily a good proxy for retail investors looking for cheap diversification to true value names.

Finding true value stocks is hard – just ask Warren Buffett. That said, value investors do have history on their side.

As Hartford Funds notes, "the performance of growth stocks and value stocks has been cyclical. This cyclical behavior highlights the benefits of having both types of investments in a portfolio."

Getting the balance and timing of such tactical allocations is generally best left to the pros.

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The Federal Reserve will keep short-term interest rates unchanged when it concludes its next meeting, experts say, as solid economic growth, moderating inflation and a "low-hire, low-fire" labor market support current policy.

Of more interest is how Fed Chair Jerome Powell handles the press conference following the release of the central bank's policy statement. The Fed's independence has come under question, and Powell is set to preside over just two more meetings before his term as Fed chief ends on May 15. While Powell could remain on the Fed board for the remainder of his full term, he could also choose to step aside entirely.

As for the state of the economy, fourth-quarter gross domestic product (GDP) is tracking at a strong growth rate of 5.4%, according to the Federal Reserve Bank of Atlanta's GDPNow model.

Meanwhile, the jobs market remains sluggish but steady. As for inflation, while it's still above the Fed's long-term target, recent readings have come in better than expected. Fears of a tariff-driven surge have thus far proven unfounded.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, suggests Powell’s press conference could veer into "non-economic issues," such as current threats to the Fed's independence. On the "fundamental" side, Luzzetti expects Powell to describe policy as "well positioned," as it is plausible to argue that rates are currently neutral.

"Powell might also sound somewhat more sanguine on the labor market, while still emphasizing downside risks," Luzzetti adds.

As of this writing, market participants expect the Fed's rate-setting committee, the Federal Open Market Committee (FOMC), to stand pat on the federal funds rate.

Indeed, as of January 26, interest rate traders assigned a 97% probability to the FOMC keeping the target rate steady at 3.5% to 3.75%, according to CME Group's FedWatch.

With the Fed set to leave rates unchanged at an increasingly complex time, we turned to economists, strategists and other experts for their thoughts on monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Fed rate decision: what the experts say

"After three straight rate cuts last year, the Federal Reserve is widely expected to keep interest rates unchanged at the next meeting. We may see another dissent (in favor of an additional cut) from Governor Miran before his term ends on January 31, but the real focus will be on Chair Powell's press conference. Investors want to know whether this will simply be a one-meeting 'pause' or the beginning of a longer hold. Right now, the economy still looks surprisingly sturdy." – Larry Adam, chief investment officer at Raymond James

"We expect the Fed to hold rates steady and present a somewhat more upbeat view about the economy through the policy statement and Chair Powell's press conference. The statement is likely to upgrade the growth assessment to 'solid,' note tentative evidence that unemployment has stabilized, and hint at an improving balance of risks to the outlook." – Matthew Luzzetti, chief U.S. economist at Deutsche Bank

"Markets are now not really expecting a Fed rate cut until June, or the first meeting after Jay Powell has left the Chair. We remain a bit more dovish than the market, expecting three quarter-point trims this year. True, real GDP growth expectations are being lifted, but it's coming from better productivity, and the job market remains sluggish while core inflation is stable to lower." – Douglas Porter, chief economist at BMO Capital Markets

"We don't expect to learn a lot at the January FOMC meeting. The Fed is on hold but remains data dependent. The balance of risks around the two mandates hasn't changed much since December. Chair Powell's press conference might be dominated by questions about politics rather than policy. On the latter, however, market pricing creates risks of a dovish surprise." – Aditya Bhave, U.S. economist at BofA Securities

"We expect no policy change in the January meeting. Our base case anticipates 25 to 50 bps of additional easing this year, moving towards neutral and generally supporting our constructive economic and market outlook." – Lauren Goodwin, chief market strategist at New York Life Investments

"While no change in interest rates is expected, markets will be highly attentive to the tone of the statement and Chair Powell's press conference. Any adjustment in how the Fed characterises inflation, labour market conditions or downside risks to growth could quickly influence rate-cut expectations. A message that reinforces patience and acknowledges cooling momentum would likely support equities and pressure the dollar, while a more cautious or hawkish tilt could revive volatility across risk assets." – Daniela Hathorn, senior market analyst at Capital.com

"We expect the Federal Reserve to hold rates steady at the January FOMC meeting, following three consecutive rate cuts in 2025, as policymakers take time to assess the impact of past easing. Assuming inflation continues to trend lower and growth remains resilient, we see room for moderate rate cuts in 2026." – Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock

"The FOMC is widely expected to leave the fed funds rate unchanged at its January meeting. We expect the post meeting statement and press conference to signal maximum flexibility as the Committee strives to keep its options open. Our forecast remains for two 25 bps rate cuts at the March and June meetings, but the risks to our forecast look increasingly skewed toward later and possibly less easing this year." – Sarah House, senior economist at Wells Fargo

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Berkshire Hathaway (BRK.B) is in a class by itself when it comes to really long-term outperformance. It's not for nothing that Warren Buffett, who will retire as CEO at the end of 2025, is known as the greatest long-term investor of all time.

BRK.B stock has been a market beater over the past 20 years, too, but all the millionaires Berkshire minted had skin in the game long before the turn of the century.

That's how compounding and the law of large numbers work.

But first, a quick recap of Berkshire Hathaway's history. The company was a struggling textile firm when Buffett took control in 1965. Over the ensuing years, Buffett converted it into a holding company, or a company that buys other companies.

Buffett's first target was an insurance company, and the insurance business continues to be at the core of Berkshire's operations today.

Insurance was especially attractive to Buffett because of float, or the money insurance companies hold between collecting premiums and paying out claims. Thanks to the float from Berkshire's insurance companies, Buffett had ample sources of capital to buy up or invest in other enterprises.

Today, Berkshire Hathaway comprises more than 60 wholly owned subsidiaries, including BNSF Railway, Geico insurance, industrial titan Precision Castparts and fast food chain Dairy Queen.

Meanwhile, the Berkshire Hathaway equity portfolio, with a market value of about $250 billion, includes major stakes in Apple (AAPL), Bank of America (BAC) and American Express (AXP), to name just a few.

Berkshire Hathaway has always been a long-term bet on the dynamism of the U.S. economy. It's also a low-beta stock, which means it tends to underperform in up markets and outperform in down markets.

And what that has added up to over the past 60 years is nothing less than astonishing. Since 1965, Berkshire stock has generated a compound annual growth rate of almost 20% vs 10% for the S&P 500.

What does that look like on a brokerage statement? Well, if you put $1,000 into Berkshire stock 60 years ago, it would be worth about $33 million today. The same sum invested in the S&P 500 would today be worth about $336,000.

Warren Buffett and his late partner Charlie Munger really did mint many a millionaire over the course of their long careers.

However, BRK.B's returns over the past 20 years, while good, have naturally been more modest.

After all, there's nothing like getting in on the ground floor.

The bottom line on Berkshire stock?

Although BRK.B stock outperformed the broader market by a wide margin over the past five years, it actually lagged the returns of the S&P 500 over the past one-, three-, 10- and 15-year periods.

If you go back 20 years, BRK.B, which doesn't pay a dividend, generated an annualized return of 11.2%.

That's not too shabby, but it leads the S&P 500, with dividends reinvested, by less than a percentage point. An active fund manager might be happy with such results, but it hardly means BRK.B stock was a path to riches in the 21st century.

Have a look at the above chart to get a sense of what BRK.B's returns would mean to your brokerage statement over the past couple of decades. They're just OK.

Indeed, if you put $1,000 into Berkshire stock 20 years ago, today it would be worth about $8,300. The same amount invested in the S&P 500 would theoretically be worth about $8,200 today.

With Warren Buffett set to step down at the end of 2025, some folks fear that Berkshire stock's best days are behind it. The reality is that Berkshire is now so big that it's unreasonable to expect anyone to repeat Buffett's historic run.

True, that doesn't mean BRK.B can't continue to be a market beater going forward. Wall Street is mostly bullish on the name, giving it a consensus recommendation of Buy, according to data from S&P Global Market Intelligence.

Nevertheless, BRK.B's era of generating truly outstanding returns would appear to be behind it – and that was true even before Buffett announced his retirement.

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Procter & Gamble (PG) is about as blue as a blue chip stock can be. Sadly for long-term shareholders, this battleship of a defensive dividend-paying name has delivered underwhelming returns vs the broader market for a very long time.

Founded in the first half of the 19th century, P&G has grown into the world's largest consumer products company by market value, boasting a vast portfolio of billion-dollar brands. From Tide laundry detergent to Crest toothpaste to Pampers diapers, today, P&G sells its wares in more than 150 countries.

Yet even as Procter & Gamble expanded its dominance in the U.S. and spread around the globe, it never wavered in its commitment to returning cash to shareholders through dividends. P&G has paid uninterrupted dividends since 1891.

Even more impressively, P&G has increased its payout every year for nearly seven decades. As a member of the S&P 500 Dividend Aristocrats, Procter & Gamble has more than earned its reputation as one of the best dividend stocks to buy for dependable dividend growth.

Between its dividend increases and the fundamental nature of its business — sales of toothpaste and diapers tend to hold up in tough times — P&G stock is considered a classic defensive name.

This Buy-rated Dow Jones stock has been a component of the blue-chip benchmark since 1932.

There's no questioning the company's illustrious history. P&G stock's past performance, however, isn't quite as distinguished.

The bottom line on PG stock?

There's no way around it: P&G stock has been a market laggard for ages.

To be fair, over its lifetime as a publicly traded company, P&G has delivered market-matching results. With a total return (price change plus dividends) of 10.8%, it's essentially tied with the S&P 500 over the same span.

The problem is that if you look at time frames more relevant to shareholders alive today, Procter & Gamble stock is a bust.

It lags the broader market on an annualized total return basis in the past one-, three-, five-, 10-, 15- and 20-year periods – and by painfully wide margins, too.

To get a sense of what this underperformance looks like on a brokerage statement, have a look at the above chart. It shows that if you put $1,000 into P&G stock 20 years ago, it would today be worth about $4,400. That's an annualized return of 7.8%.

The same thousand bucks invested in the S&P 500 would today be worth about $8,000 — or an annualized return of 10.9%.

Past performance is not a guarantee of future results, and Wall Street does mostly like P&G stock at current levels. Of the 24 analysts covering P&G surveyed by S&P Global Market Intelligence, 10 call it a Strong Buy, four rate it at Buy and 10 say Hold. That works out to a consensus recommendation of Buy — albeit with somewhat mixed conviction.

Speaking for the bulls, Argus Research analyst Taylor Conrad recommends buying shares on weakness.

"Despite higher raw material and distribution costs, the company continues to manage its margins with productivity initiatives," Conrad writes in a note to clients. "We also like P&G’s record of dividend growth and note that management’s 5% dividend hike in April showed confidence in future performance."

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Dividend growth continues to slow amid uncertainty over U.S. trade policy. Happily, income investors can still count on select S&P 500 stocks to deliver sizable and reliable hikes to their payouts.

U.S. dividend payers collectively raised their payouts by $14 billion in the third quarter, according to the latest data from S&P Dow Jones Indices. While that represents a 43% increase vs Q2, on a year-over-year basis, dividend hikes fell by 0.7%.

A look at dividend growth for the 12 months ending September 2025 is even more dispiriting, with increases falling 23% on a comparable basis.

"Dividend growth continued to be slow in Q3 2025, as concern over forward cash commitment was inhabited by the uncertainty over the evolving tariff polices," writes Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Although companies continue to raise their dividends, they are doing so with smaller increases, Silverblatt says, reflecting caution over the impact of tariffs on sales, costs and the general economy.

If there's a bright side to the latest figures, it's that Q3 dividend cuts fell by 25% vs the year-ago period. And for the 12 months ending in September, dividend decreases plunged by more than 36% vs the same period last year.

Long-term income investors know the importance of rising dividends. Shares in companies that raise their dividend payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with.

That's partly because regular dividend increases lift the yield on an investor's original cost basis. Stick around long enough, and the modest yield you received on your initial investment can hit double digits one day.

The S&P 500 Dividend Aristocrats, which are among the best dividend stocks to buy for reliable dividend growth, are a good place to start if you're interested in sussing out such dividend stalwarts. But that doesn't mean you can't find other index components bucking the trend of slower dividend growth. These three stocks are great examples of that.

Stocks with fast-rising dividend payouts

For example, in the more economically sensitive consumer discretionary sector, Royal Caribbean Group (RCL) in September hiked its quarterly dividend by a hefty 33% to $1 from 75 cents per share.

The global cruise ship operator resumed paying quarterly dividends in the third quarter of 2024 – thanks to the ongoing post-pandemic recovery – and has been hiking them ever since.

"We expect bookings to increase and prices to rise, driven by pent-up demand and an affluent clientele," writes Argus Research analyst John Staszak, who rates the consumer discretionary stock at Buy. "We also anticipate fewer cancellations as the cruise industry continues to recover and consumers opt for experiences over products."

The analyst adds that management's efforts to increase total returns should boost RCL's 2026 annual dividend to $4.25 a share, up from a prior forecast of $2.60.

In the really big leagues, there's Microsoft (MSFT). MSFT stock has been killing it on the price charts for ages, but the tech giant also does very well by shareholders when it comes to returning cash through dividends.

In September, Microsoft increased its quarterly payout by 10% to 91 cents per share. The dividend is payable on December 11 to shareholders of record on November 20, which is also the ex-dividend date.

Anyone who put $1,000 into Microsoft stock 20 years ago would be thrilled with the results today. And while its price appreciation has been outstanding, the income component of MSFT stock has been a massive contributor to total returns too.

Have a look at the chart below and you'll see that over the past two decades, MSFT gained 1,780% on a price basis alone. Add in the dividends, and MSFT's total return comes to a whopping 2,600%.

For context, the S&P 500 gained 718%, including dividends, over the same span.

Lastly, in the category of sin stocks, Philip Morris International (PMI) continues to be a reliable dividend grower. The tobacco company in September raised its quarterly dividend by 8.9% to $1.47 per share.

Mature companies with steady free cash flow are often a good place to look for equity income, and PMI has been no exception. The company has increased its annual dividend every year since 2008 – good for a compound annual growth rate of 7.1%.

S&P's Silverblatt notes that current tax and write-off benefits from the 'One Big Beautiful Bill' have added to corporate earnings. That bodes well for more dividend hikes, at least in the shorter term.

"Working with a base case for a higher-level resolution of economic related issues, lower interest rates, and continued U.S. consumer and equity support, Q4 dividends appear in place to set to a new quarterly record," Silverblatt says.

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Cryptocurrencies are here to stay. A 2024 Pew Research Center poll found that 17% of U.S. adults have invested in, traded or used a cryptocurrency. Big firms such as BlackRock, Fidelity, Franklin Templeton and Schwab have made crypto investments available to their customers. The incoming Trump administration is crypto-friendly.

Should you consider crypto? It depends on where you are in life and what your financial situation is. The general rule is, don’t gamble with any money you can’t afford to lose.

Cryptocurrency is way out on the risk curve. It’s volatile. You can make a bundle or lose it just as fast. Some people have made their fortune; some have lost millions. Most folks have come out somewhere in the middle.

It is somewhat like buying lottery tickets or going to a casino. Maybe you’ll get lucky, and unless you’re very poor, losing $50 once in a while won’t imperil your financial future. A small stake in crypto won’t either. But making big bets can be perilous.

If you’re young, you can wait out the crypto market. Sooner or later, it will probably go up. Older people don’t have that luxury. When you’re retired, you’ll need a steady, reliable income to replace your former wages or business earnings.

Though some merchants do accept certain cryptocurrencies, most often, the only way you can get money out is by selling it. If you need to cash in when the price is up, you’ll do fine. But if you must sell when the price is low, you won’t. That’s the problem. Most cryptocurrencies are extremely volatile and experience wide price swings.

Reducing risk while keeping up with inflation: Stocks and bonds

People in or near retirement need to have their investments, savings and future income keep up with inflation without exposing themselves to excessive risk and volatility. It takes a balanced approach.

Here are some more appropriate investments for people in their 50s and older, starting with options that are higher on the risk scale and then moving on down to lower-risk possibilities.

Individual stocks. Having some money in common stocks can make sense, provided you can withstand volatility. While the stock market has performed spectacularly in recent years, far outpacing inflation, you have to have the stomach to bear sharp declines. (Remember 2020?) The law of gravity in the stock market hasn’t been repealed! Many financial experts recommend caution today because the major stock indices are at all-time highs.

Don’t overdo it. The right equity allocation depends entirely on your situation. Stick to a smart allocation over time.

Mutual funds and ETFs. Another way to reduce risk is to invest in stock mutual funds and ETFs instead of individual stocks. You can also achieve risk reduction by concentrating your holdings in stocks that may pay substantial dividends so that you’ll have a stream of income even if the market plummets.

Bonds. Bonds are less risky than stocks and pay out more income than most stocks. They’re worth considering, but they have drawbacks too. With individual bonds, you’ll get your principal back if you hold them to maturity, assuming the issuer (a corporation or municipality) remains solvent. That’s called credit risk. U.S. Treasury bonds have virtually no credit risk, but they pay lower rates.

Most people instead invest in bond funds but their price is not guaranteed. When interest rates rise, the price per share of a bond fund will fall. That typically won’t affect dividend payments, but it can be unnerving.

Lowest-risk options: Bank CDs and guaranteed fixed annuities

Guaranteed vehicles, in contrast, are very low-risk because both income and principal are guaranteed. What you see is what you’ll get, which is why they’re popular and useful from both financial and peace-of-mind viewpoints.

They include bank certificates of deposit and CD-type annuities, officially labeled multi-year guarantee annuities (MYGAs). With each, you get a guaranteed interest rate for a certain term. The biggest risk is that if you need to cash in a CD or MYGA before the term has concluded you’ll pay a varying penalty, which may be substantial. Some CDs and most MYGAs do offer penalty-free partial withdrawals.

Though similar in many ways, CDs and MYGAs have some significant differences. Bank CDs are guaranteed by the Federal Deposit Insurance Corp. (FDIC). MYGAs are not. But annuities are backstopped by annuity guaranty associations in every state. Coverage limits vary.

CDs in nonqualified accounts create taxable income every year. Nonqualified annuities offer tax deferral as long as you don’t take withdrawals from them, and you can defer interest distributions as long as you like. Any withdrawals of interest from an annuity before age 59½ are normally subject to a 10% IRS penalty.

Both CDs and annuities can also be very suitable for an IRA or Roth IRA.

Have your cake and eat it, too?

Can you get market growth potential without risking your principal? Surprisingly, it’s possible.

Fixed index annuities, first introduced in 1995, protect you from any losses but offer upside potential and can guarantee income too. Like any other vehicle, they have pros and cons.

Fixed indexed annuities credit interest annually to your account based on annual changes to a market index, such as the S&P 500 or Dow Jones Industrial Average. You receive an interest credit when the index value increases.

When index value decreases, even if the market dives 30%, you’ll lose nothing. Your principal and all previously credited interest are always protected, even if the stock market crashes.

But you don’t usually get all of that increase. You normally get only part of it because the annuity upside will be limited by a cap or participation rate percentage. So, you can have part of your cake and eat it, too.

Many indexed annuities let you purchase an optional income rider that guarantees a certain future lifetime income. These annuities are complex, and finding one that fits your needs takes more careful consideration than with a MYGA, which is straightforward.

If you’re considering investing in a cryptocurrency, evaluate your situation first. Do you need to take the risk it entails? Have you considered the alternatives? If you do decide to invest, limit your risk with a modest stake if you’re in your 50s or older.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's no secret the market looks pricey by historical measures, but that doesn't mean there are no Buy-rated bargain stocks to buy.

We're all more than aware that the S&P 500 is trading at lofty valuations by a number of measures. How often have we been told that the market's forward price-to-earnings ratio (P/E) – the S&P 500 currently trades at 22 times next-12-months earnings – is perilously close to its historical high?

Indeed, as Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy at BofA Global Research, notes: "On 19 of 20 metrics, the S&P 500 is trading at statistically expensive levels."

But that doesn't mean there are no bargains to be found. After all, as the cliche goes, it's not a stock market; it's a market of stocks.

To that end, we screened the S&P 500 for the best bargain stocks to buy, according to industry analysts. We sussed out high-quality names with cheap share prices on a relative valuation basis. We further limited ourselves to stocks scoring a rare consensus Strong Buy recommendation, according to data from S&P Global Market Intelligence.

We then dug into analyst research and recent returns to find three of the most promising names, which might surprise you. Tech and communication services stocks may get all the attention, but there's value to be found in the consumer discretionary, energy and materials sectors.

Hasbro

• Market cap: $11.6 billion
• Dividend yield: 3.4%
• Forward P/E: 15.8

Hasbro (HAS) has become something of a poster company for weathering trade shocks. The toymaker not only manufactures a significant portion of its products in China, but the Middle Kingdom is also a major market. Indeed, Hasbro recorded more than $1 billion in non-cash goodwill impairment charges this year due to the impact of tariffs.

And yet, shares have shaken off the shock, gaining more than 50% so far in 2025. Even better, analysts say Hasbro's valuation remains compelling, suggesting even more upside ahead.

"The company has consistently delivered on earnings and has topped estimates for the past seven quarters," notes Argus Research analyst Christine Dooley, who rates HAS stock at Buy. "It delivered again this quarter despite retailers delaying orders due to tariffs and economic uncertainty. The business is on track and fundamentals are good."

HAS stock goes for less than 16 times expected earnings – below its own five-year average P/E, and at a roughly 30% discount to the broader market, according to LSEG Stock Reports Plus. In addition to looking like a bargain, HAS offers an attractive dividend with an implied yield of 3.4%.

Of the 14 analysts covering the stock surveyed by S&P Global Market Intelligence, 10 rate it at Strong Buy, two call it a Buy and two have it at Hold. That works out to a consensus recommendation of Strong Buy.

SLB

• Market cap: $53.3 billion
• Dividend yield: 3.2%
• Forward P/E: 12.5

Bulls say SLB (SLB), the oilfield services giant formerly known as Schlumberger, has a unique ability to ride out subdued industrywide demand. True, shares are off about 5% so far this year, but that only makes the valuation more compelling.

Thanks to its $7.8 billion acquisition of ChampionX in July, and its diversification into offering digital services and data centers, SLB should be able to "navigate the environment until spending ramps back up," writes Susquehanna analyst Charles Minervino, who rates shares at Positive (the equivalent of Buy).

Accelerating international markets and pricing momentum provide upcoming catalysts to the energy stock, the analyst notes.

Meanwhile, SLB's price appears to be right. With a forward P/E of 12, SLB trades at a 25% discount to its own five-year average, as well as a discount of almost 50% to the broader market.

By price-to-sales, SLB trades at even steeper discounts to those benchmarks.

Then there's all the cash SLB is returning to shareholders. The company reaffirmed its plan to spend $4 billion on share repurchases and dividends in 2025, up from $3.27 billion in 2024.

Of the 30 analysts covering SLB, 19 call it a Strong Buy, nine say Buy and two have it at Hold. That translates to a consensus recommendation of Strong Buy.

Smurfit WestRock

• Market cap: $18.7 billion
• Dividend yield: 4.8%
• Forward P/E: 10.7

Smurfit WestRock (SW) shares have lost about a third of their value so far this year, but bulls argue that this leaves them trading at bargain-basement prices. After all, the company is still finding its feet.

SW was formed by the 2024 merger of Smurfit Kappa and WestRock Company, creating the world's largest paper packaging company. Smurfit WestRock's operations in 40 countries make it the revenue leader in the world of corrugated cardboard, containerboard, consumer packaging and more.

"We rate SW at Buy given its leading industry position in North American containerboard, allowing it to capitalize on the improving containerboard cycle, which we believe is entering a 'golden age' driven by balanced supply and demand," writes Truist Securities analyst Michael Roxland.

Moreover, SW expects $400 million in synergies (also known as cost cuts) as a result of the merger.

With a forward P/E of less than 11, SW trades at an 11% discount to its own five-year average, according to LSEG Stock Reports Plus. That valuation also represents a discount of 50% to the broader market. The dividend yield, at 4.8%, is pretty spicy compared to the S&P 500's yield of 1.2%.

Of the 16 analysts covering the materials stock, 11 rate it at Strong Buy and five have it at Buy. That works out to a consensus recommendation of Strong Buy.

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Berkshire Hathaway (BRK.B) was once again a net seller of stocks in its most recent quarter. But if you think Warren Buffett, who will step down as CEO at the end of 2025, has caught the "AI is a bubble" bug, think again.

The Oracle of Omaha has been easing off equities and hoarding cash for quite a while. In the past three years, Berkshire was a net seller of stocks to the tune of $190 billion. Also noteworthy is that Berkshire hasn't engaged in stock buybacks since May 2024.

As a result, Buffett is running a sort of "barbell" portfolio. Berkshire, with a market cap of more than $1 trillion, holds $280 billion in stocks and a whopping $380 billion in cash.

Berkshire's cash pile has been boosted by comparatively high short-term interest rates, as well from pruning its portfolio. Buffett once again pared BRK.B's stakes in major long-term holdings such as Apple (AAPL), Bank of America (BAC) in the most recent quarter.

The Apple sales are particularly noteworthy. Not too long ago, the iPhone maker accounted for roughly 40% of Berkshire U.S. equity portfolio. Today, it's closer to 23%.

For some folks, these are highly disquieting developments. When one of the greatest investors of all time is selling massive amounts of stock in some of his favorite names, it's understandable if people believe they would feel better about it if only they knew why.

First things first, however. Buffett took pains to explain to Berkshire shareholders at their annual meeting in May that the iPhone maker is still, er, the Apple of his eye. (It would have been embarrassing not to, considering Apple CEO Tim Cook attended the event in person.)

If Buffett has a problem with AAPL, it's that the value of Berkshire's stake has grown tremendously at a time when he expects corporate tax rates to rise, probably sometime in the not-too-distant future.

As Buffett told the Berkshire faithful in August 2024: "If I'm looking at a 21% rate this year and then we're [paying] a lot higher percentage later on, I don't think you'll actually mind the fact later on that we sold a little Apple this year."

Perhaps the same thinking informed Berkshire's paring of its stake in Bank of America. The fact that owning more than 10% of a publicly traded company's shares triggers disclosure requirements large shareholders would rather avoid for as long as possible is another reason to bring one's ownership below a regulatory threshold.

What we know is that Buffett has been a net seller of equities for 12 consecutive quarters. Share repurchases have ground to a halt, too. For context, Berkshire repurchased more than $9 billion worth of BRK.B stock in all of 2023.

This is not the sort of behavior one typically sees in someone with excessive confidence in equity prices.

What gives?

Buffett stocks sales: An expert's take

If Warren Buffett is selling stocks and not buying back his own, that might tell us something about the Oracle of Omaha's view of the market, writes Nicholas Colas, co-founder with Jessica Rabe of DataTrek Research.

As a multidecade market watcher and market participant, Colas posits three potential explanations for Buffett's "unusual activity."

The first explanation is that Buffett is calling a top. "Buffett sees stocks as overvalued, including his own, and therefore susceptible to a deep correction or outright bear market," Colas writes.

It's interesting that Berkshire holds $380 billion in cash. "That’s a lot of firepower if markets see a sustained drop," notes Colas. "While Berkshire is not especially expensive, its multiple may be worrisome to a value investor."

Don't forget that Buffett likes nothing more than to be greedy when others are fearful. If stocks crash, Berkshire will be able to go shopping for assets at deep discount prices.

M&A on tap

Then there's the possibility that Berkshire is amassing cash to effect a truly whale-sized deal. "Berkshire may have identified one or more large acquisitions and is raising capital for those purchases," Colas writes. He adds that BRK.B's $380 billion in cash would comfortably buy all of Coca-Cola (KO) or Goldman Sachs (GS).

Colas emphasizes that the latter two are only examples, not risk arbitrage trading ideas. They do make sense, however. Coca-Cola, a Buy-rated Dow Jones stock, has been a core Berkshire holding for four decades.

As for Goldman Sachs, Berkshire has been a major shareholder in the past. (Recall that Buffett gave GS an injection of capital during the Great Financial Crisis.)

Passing the baton

Lastly, Colas postulates that it's possible Buffett is simply preparing the company for his departure as CEO. (He will stay on as chairman.)

Perhaps Buffett "wants to clear the decks for his successors to remake Berkshire's portfolio and rethink the company's stock repurchase program," Colas says.

"At 95 years old, he has certainly earned the right to ride off into the sunset as one of the greatest investors of all time."

The bottom line

The most important takeaway from Colas' note: "We wouldn't read too much into Buffett's latest moves since there is more than one logical explanation for his actions."

Let's pause on that for a moment, because it's important. As folks have noted before, if copying Warren Buffett's buys and sells was all it took to become the next Warren Buffett, there would be a lot more Warren Buffetts in the world.

As far as we know, there is still only one.

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Whether you like it or not, members of Congress are allowed to buy and sell stocks. True, federal law prohibits them from using "nonpublic information derived from their official positions for personal benefit," and they're required to disclose their trades.

That said, it's understandable if folks don't quite trust politicians to be on the up and up when their personal fortunes might appear to be in tension with their duties as elected representatives.

Perhaps this is unfair; even cynical. But to modify a famous quote from Upton Sinclair, it's difficult to get a person to understand something when that person's salary depends upon the person not understanding it.

Take, for instance, the uproar around President Donald Trump, who said shortly before announcing a reversal on reciprocal tariffs that it "is a great time to buy stocks."

The reversal sparked a historic stock market rally and has some high-profile Democrats questioning if anyone in the Trump administration profited off the announcement.

Disclosure rules are supposed to help mitigate this problem. Thanks to these requirements, the public can follow what members of the House and Senate are doing with their investments.

Before we go further, please note that this activity shouldn't be used for trading purposes.

After all, insider buying and selling at publicly traded companies is voluminously disclosed and analyzed, but it doesn't really tell us much. That's because insiders – the executives and board members who know what's going on – can sell for any number of legitimate reasons, from paying tuition to portfolio diversification.

When it comes to stocks, insider buying is actually a more useful piece of information. And even then, it's not exactly a screaming buy signal.

Using insider activity among members of Congress as the basis for some kind of trading system is not a rigorous idea.

With those caveats out of the way, it is indeed interesting to see which stocks, bonds and private investments are most popular with members of the House and Senate. Perhaps more interesting is how certain pols churn their portfolios, which is to be avoided if you're a retail investor.

Have a look at the below table to see which politicians were the most active traders by volume over the past 90 days, according to data from Capitol Trades.

Stocks politicians are buying and selling

Look past the municipal debt and investments in limited liability companies, and you can see that pols are pretty normal when it comes to their buys. Top-rated Dow Jones stocks, mega-cap tech names and reliable and rising dividend-payers routinely make the list of our representatives favorite names.

Both sides of the aisle like many of the hottest stocks, including Apple (AAPL), Amazon.com (AMZN), Oracle (ORCL) and Broadcom (AVGO) these days – but then so does pretty much everyone else.

Interestingly, as much as Representative Ro Khanna (D-Calif.) is associated with tech investing, a number of his most recent biggest buys were stalwart blue chips such as JPMorgan Chase (JPM), the nation's biggest bank by assets, and Warren Buffett's Berkshire Hathaway (BRK.B).

Meanwhile, in addition to buying shares in speculative artificial intelligence (AI) firm BigBear.ai Holdings (BBAI), Representative Lisa McClain (R.-Mich.) also picked up Air Products and Chemicals (APD), which happens to be one the best dividend stocks for reliable dividend growth.

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Microsoft (MSFT) knows how to keep long-term investors happy. The tech giant is returning another $60 billion in cash to shareholders through a new stock buyback plan and raised its dividend by more than 10%.

Microsoft's share repurchase program, which has no expiration date, replaces its previous $60 billion authorization announced four years ago. Meanwhile, investors also cheered the news that shareholders of record as of Nov. 21 will receive a quarterly dividend of 83 cents per share, up from the current 75 cents a share.

Microsoft disbursed nearly $22 billion in dividends over the past 12 months and still had levered free cash flow of $56.7 billion. Even better for long-time dividend-growth investors, Microsoft has hiked its payout every year for more than two decades. If it can keep its streak alive, Microsoft will be eligible for inclusion in the S&P 500 Dividend Aristocrats, which are some of the best dividend stocks for reliable and rising payouts.

Please note that although the share repurchase program matches Microsoft's largest-ever authorization, $60 billion represents only about 1.8% of its massive $3.22 trillion market cap.

Shares in Microsoft, the world's second most valuable publicly traded company after Apple (AAPL), were actually lagging the broader market by about 3 percentage points on a price basis for the year-to-date through September 17. 

But as a long-term holding, MSFT stock is hard to beat. Indeed, anyone who put $1,000 into Microsoft 20 years ago would be very pleased with their returns today.

Wall Street loves MSFT stock

Wall Street analysts were already plenty bullish on the Magnificent 7 stock before it announced its plans to return more cash to shareholders. Only three Dow Jones stocks garner Strong Buy consensus recommendations, according to data from S&P Global Market Intelligence. 

Of the 56 analysts issuing opinions on Microsoft stock, 40 call it a Strong Buy, 14 have it at Buy and two rate it at Hold. Only UnitedHealth Group (UNH) gets a higher rating from industry analysts than MSFT.

Meanwhile, with an average target price of $502, the Street gives MSFT stock implied price upside of 16% over the next 12 months or so. 

Analysts' bullishness on Microsoft stems largely from its enviable position in generative artificial intelligence (AI). 

As the "leading generative AI enabling provider," Microsoft offers the most "comprehensive end-to-end AI tooling stack and cutting-edge front-end generative AI applications across its entire portfolio of products," notes the software team at Truist Securities, which rates shares at Buy.

"Microsoft is expected to be a leading benefactor of AI workloads across each layer of the generative AI value chain," says Truist. "From increased data storage and high-performance compute to additive workloads across their PaaS portfolio. Additionally, their Copilot products are expected to add fuel to expansions and upsells across their application portfolio."

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The Federal Reserve is going to cut interest rates at the next Fed meeting, experts say. Only the size and pace of the central bank's easing campaign remain in doubt.

To recap: the worst bout of inflation to hit the U.S. economy since the Carter and Reagan administrations compelled the central bank's rate-setting committee to raise the short-term federal funds rate to a 23-year high. It has been sitting at a target range of 5.25% to 5.5% for more than a year. Inflation peaked more than a year ago but remains sticky, making the rate-setting committee, the Federal Open Market Committee (FOMC), cautious about easing too soon. 

However, the Fed has a dual mandate. In addition to stable prices, it is supposed to support maximum employment. And, alas, the lagged effects of restrictive monetary policy are beginning to show up in the labor market. Fed Chief Jerome Powell has always said the FOMC would be data dependent, and he acknowledged risks to the jobs side of the mandate at the July Fed meeting. Powell doubled down on his dovish turn at Jackson Hole in August.

Unless it's an emergency, the Fed doesn't make changes to policy without telegraphing them well in advance. A rate cut at the next Fed meeting isn't a certainty, but it would be a shock if the FOMC stood pat. 

A rate cut is coming

"History back to 1990 supports the idea that an initial Fed rate cut of 50 basis points signals an imminent recession (2001 and 2007)," write Nicholas Colas and Jessica Rabe, co-founders of DataTrek Research, in a note to clients. "Initial cuts of 25 basis points (1995, 1998, 2019) do not carry that baggage. Powell and the FOMC know this history."

Colas and Rabe expect a quarter-point cut, or 25 basis points (0.25%), at the next Fed meeting. However, a cut of 50 basis points (bps) remains very much in play. 

As of September 16, interest rate traders assigned a 61% probability to 50 bps of cuts, according to CME Group's FedWatch Tool, up from 50% the previous session. Meanwhile, the probability of a quarter-point cut fell to 39% from a coin flip.

It's also important to know that market participants might have a bit of a blind spot as they head into the next Fed meeting. After all, we're set to get a new Summary of Economic Projections (SEP), also known as the dot plot. This collection of forecasts from Fed governors and presidents tends to upset the market's previous assumptions.

The bottom line is that regardless of how much the Fed cuts at its next meeting, the race is already on to predict the trajectory of future reductions to borrowing costs. 

With the Fed set to pivot, we turned to economists, strategists, investment officers and other experts for their thoughts on monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Fed rate cuts: what the experts say

"We interpret comments from Fed officials just ahead of the blackout period to mean that the FOMC is more likely to cut by 25 bps than 50 bps. We think a 50 bps cut would be a sensible precaution against further labor market softening, but the Fed leadership has communicated a sufficiently dovish reaction function for the bond market to price cuts between 25 bps and 50 bps for several meetings, which also lowers borrowing rates and eases financial conditions today." – Jan Hatzius, chief economist at Goldman Sachs

"The Fed has the green light to cut 25 bps given that the August CPI report was in line with expectations. It's possible that some will be disappointed that there wasn't a lower-than-expected inflation reading, which might have given the Fed more room to cut 50 bps, but most of the Fed speakers have already telegraphed their desire to start slowly and not begin with a jumbo cut. Going forward, the risks are clearly weighted toward slowing growth and a deteriorating labor market, and that's why there are still four 25 bps cuts priced in with only three meetings left in the year (i.e. implying at least one of the three meetings would have a 50 bps), but if the economy continues to slow – and not drop into an abrupt recession – the Fed will be able to cut at a measured, 25 bps-per-meeting pace." – Chris Zaccarelli, chief investment officer at Independent Advisor Alliance

"The Fed probably should cut 50 bps next week … 

As the Fed themselves have said, inflation risks are moving into the rearview mirror, and they do not want to see further labor market weakness. Though strong wage growth suggests the bottom has not yet fallen out of the labor market, jobs creation has declined quickly. In an environment where policy is already restrictive by around 200 bps, moving more quickly towards neutral is a highly reasonable stance, in our view.

... but unless we see a downside surprise on inflation, my base case is that they'll cut 25 bps." – Lauren Goodwin, economist and chief market strategist at New York Life Investments

"Following the payrolls report last week, we updated our Fed call. We now expect the Fed to cut rates by 25 basis points (bps) per meeting starting next week and until March 2025. After these cuts, we think the Fed will be more gradual and resort to one cut per quarter. We still see outsized recession-like cuts as unlikely unless the economy materially deteriorates." – Antonio Gabriel, global economist at BofA Securities

"August's CPI report cemented market expectations that the FOMC will ease by 25 bps at its next meeting. The implied probability of a 25 bps move jumped to 83% from 66% shortly after the August core CPI print. We think investors are now well positioned for September's meeting, but we still see a strong chance of 50 bps cuts in both November and December." – Ian Shepherdson, chairman and chief economist Pantheon Macroeconomics

"Stable producer prices should drive investment and that will drive the economy. It is time for the Fed to cut, but they may well take it slow and steady. That seems to be their operating model. A 25 bps cut in September is the most likely outcome." – Scott Helfstein, head of investment strategy at Global X 

"The Federal Reserve is set to start shifting policy and lower rates at their next meeting. The big question will be whether the Fed cuts by 25 bps or 50 bps, and it'll likely come down to Chair Powell as to whether they go big to get ahead of clearly slowing labor market trends." – Sonu Varghese, global macro strategist at Carson Group

"The Fed is weighing the stickiness of service price inflation on the one hand against the softening of the job market on the other hand. The tradeoff makes them more likely to cut rates by a quarter percent at next week's decision than make a larger half-percent cut." – Bill Adams, chief economist at Comerica Bank

"Inflation trends will give the Fed the opportunity to pivot toward the employment mandate for the rest of this year. Given the stickiness of services inflation, the Fed will likely cut by 25 bps in the upcoming meeting and reserve the potential for more aggressive action later this year if we have further deterioration in the job market." – Jeffrey Roach, chief economist at LPL Financial

"Sticking the landing on rate policy is important to the Fed, but so is controlling the narrative and maintaining the central bank's credibility. With that in mind, there was nothing in the August inflation report that was likely to sway policymakers from the measured quarter-percent cut that they've been guiding expectations toward for some time." – Jim Baird, chief investment officer at Plante Moran Financial Advisors

"We find ourselves at a point where the markets are pricing in an aggressive policy rate cutting cycle, which to us appears to be overdone relative to what the Fed has suggested would be appropriate and relative to the underlying economic conditions at this stage. So, while we're quite certain that the Fed will commence with its rate cuts at its next meeting, there are several significant unknowns that cloud the extent and speed of rate cuts. From election/policy uncertainty for 2025, U.S. debt/Treasury supply dynamics and a particularly impactful period for volatile seasonal factors in economic data, there is a good deal we don't now know about the year ahead." – Rick Rieder, chief investment officer of global fixed income at BlackRock and head of the BlackRock global allocation investment team

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U.S. dividend payouts increased 8.6% to $161.5 billion in the April through June period with Alphabet (GOOGL) and Meta Platforms (META) making significant contributions by paying their first-ever dividends, according to a study by the Janus Henderson Global Dividend Index.

On a global scale, dividends rose 8.2% on an underlying basis to an all-time record $606.1 billion in Q2, Janus Henderson said. Underlying growth adjusts for lower one-off special dividends and other minor factors. 

"More than nine in 10 companies (92%) globally raised dividends or held them steady during the quarter as one-third of sectors saw double-digit underlying growth and only three sectors saw dividends fall," the report said.

After the strong quarter, Janus Henderson upgraded its forecast for 2024 dividends, now expecting global dividends to reach $1.74 trillion, an increase of 6.4% from 2023 on an underlying basis.

U.S. dividend payouts fueled by mega-cap media stocks 

The first-ever dividend payments by Alphabet and Google contributed 3.6 percentage points to U.S. dividend growth in the quarter, which more than offset the handful of companies that reduced their dividends, such as 3M (MMM), following its spinoff of Solventum (SOLV). 

"The initiation of dividends from big U.S. media-technology companies Meta and Alphabet, along with China's Alibaba (BABA) among others, is a positive signal that will boost global dividend growth by 1.1 percentage points this year," said Jane Shoemake, client portfolio manager on the global equity income team at Janus Henderson, in a statement. "These companies are following a path well-trodden by growth industries over the last couple of centuries, reaching a point of maturity where dividends are a natural route for returning surplus cash to shareholders."

Is Alphabet stock a buy, sell or hold?

Alphabet has struggled in recent months amid a broader shift way, but the communication services stock remains about 10% higher for the year to date. And Wall Street is bullish on GOOGL. 

According to S&P Global Market Intelligence, the average analyst target price is $203.34, representing implied upside of over 30% to current levels. Additionally, the consensus recommendation is a Buy.

Financial services firm Truist Securities has a Buy rating and $196 price target on the Google parent.

"We remain constructive on GOOGL but believe that visibility into potential cannibalization of its search traffic and monetization of generative AI searches (expected to begin by year-end) will dictate the direction of the stock near-to-medium term," said Truist Securities analyst Youssef Squali in a September 11 note. 

Wall Street says Meta Platforms stock is a Buy

Meta Platforms has had a standout year on the price charts, up nearly 50% so far. And Wall Street thinks the Facebook parent has more room to run. 

According to S&P Global Market Intelligence, the average analyst target price for META stock is $571.95, representing implied upside of about 10% to current levels. Additionally, the consensus recommendation is Strong Buy. 

Financial services firm Argus Research has a Buy rating on the blue chip stock, with a $600 price target.

"Meta is benefiting from a reacceleration in advertising revenue, significant margin expansion as the result of deep cost cuts, and robust cash flow," said Argus Research analyst Joseph Bonner in an August 1 note. "While investors were spooked by CEO Mark Zuckerberg's comments following the first-quarter results concerning increased spending and capex for Meta's AI systems, his comments might in fact have inoculated them against the company raising its capex guidance with its second-quarter numbers."

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American Airlines (AAL), Etsy (ETSY) and Bio-Rad Laboratories (BIO) will be dropped from the S&P 500 later this month to be replaced by Palantir Technologies (PLTR), Dell Technologies (DELL) and Erie Indemnity (ERIE).

Shares in the latter three companies popped on the news Monday, but it remains to be seen whether they're buys beyond the initial catalyst of being tapped to join the most widely tracked equity index. 

Meanwhile, it's not surprising to see AAL, ETSY and BIO get the boot, as they were among the smallest and least material holdings in the S&P 500. 

Stocks tend to get a lift from inclusion in the S&P 500 because many trillions of passive dollars are held in products that track the index. The SPDR S&P 500 ETF Trust (SPY), the largest exchange-traded fund (ETF) in the world, has more than a half-trillion dollars in assets under management all by itself. The bottom line is that loads of funds and ETFs now have to pick up shares in PLTR, DELL and ERIE. 

The changes "ensure each index is more representative of its market capitalization range," S&P Dow Jones Indices said in a statement. "The companies being added to the S&P 500 are more representative of the large-cap market space."

Tech stocks CrowdStrike (CRWD) and GoDaddy (GDDY) were added to the S&P 500 early this year. However, the collective market caps of the S&P 500's newest tech names won't move the needle all that much in a cap-weighted index dominated by Magnificent 7 stocks such as Microsoft (MSFT), Apple (AAPL) and Nvidia (NVDA).

Analysts' takes on PLTR, DELL, ERIE

Palantir is a tech company that specializes in big data analytics. With customers including the U.S. intelligence community and Department of Defense, its operations can be somewhat opaque. Meanwhile, Wall Street is split on PLTR's prospects over the next 12 to 18 months.

Of the 19 analysts covering the stock surveyed by S&P Global Market Intelligence, four call it a Strong Buy, two say Buy, six have it at Hold, three say Sell and four rate it at Strong Sell. That works out to a consensus recommendation of Hold, which is sort of like damning the stock with collective faint praise. 

Valuation appears to be a sticking point between PLTR's admirers and detractors. That makes sense. After all, shares have essentially doubled over the past 52 weeks. 

Speaking for the bulls, Argus Research analyst Joseph Bonner writes that "shares are highly volatile and priced at a premium." At the same time, the analyst says Palantir is a "highly differentiated software company reliant upon new AI-powered applications to expand its business. Our long-term rating is a Buy."

Dell, which sells everything from servers and software to information security services, has seen its stock rise almost 50% over the past year. (That's more than double the performance of the S&P 500.) Analysts see more upside ahead thanks to the build-out of all things to do with generative AI. 

"Server and networking growth is impressive (+80%), given the momentum for AI servers that is propelling backlog growth," writes CFRA Research analyst Shreya Gheewala (Buy). "We like DELL's growing pipeline tied to Tier-2 cloud providers/enterprise customers, while Windows 10 end-of-life support and interest in on-device AI should propel commercial PC demand/pricing."

Of the 22 analysts issuing ratings on the stock surveyed by S&P Global Market Intelligence, 12 call it a Strong Buy, seven say it's a Buy and three have it at Hold. That works out to a consensus recommendation of Buy with high conviction.

Erie Indemnity might not be as well known as American Airlines or Etsy, but its market cap of about $27 billion makes it far more material to the benchmark index. Shares in the property and casualty insurance firm generated a total return (price change plus dividends) of 87% over the past year. That beat the S&P 500 by more than 60 percentage points.

Analysts see more outperformance ahead. Unfortunately, only two of them follow ERIE. One rates shares at Strong Buy. The other says they're a Hold. For what it's worth, that works out to a consensus recommendation of Buy.

"The combination of growing management fee income and investment income should allow Erie Indemnity to maintain a positive earnings performance through 2025, with our estimates suggesting growth in the 20% to 30% range," writes William Blair analyst Adam Klauber, who rates the stock at Outperform (the equivalent of Buy).

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Warren Buffett's Berkshire Hathaway (BRK.B) initiated small positions in Ulta Beauty (ULTA) and Heico (HEI) in the second quarter, bought more Chubb (CB), pared stakes in eight names – most notably, Apple (AAPL) and Chevron (CVX) – and exited bets on Paramount (PARA) and Snowflake (SNOW).

There were other moves, as well, but the biggest news to come out of Berkshire's latest regulatory filing was already known. Buffett slashed Berkshire's stake in Apple by almost half. As previously reported, the holding company also reduced its exposure to top holdings such as Chevron and Bank of America (BAC).

Keep in mind that Buffett told Berkshire shareholders that the Apple sales were done for tax purposes, as he expects corporate tax rates to rise sometime in the not-too-distant future. The same thinking could apply to BRK.B's other sales, but then it's not unusual for Buffett to be a net seller of equities when stocks are trading at record levels.

All told, Berkshire sold roughly $77 billion in equities in Q2 – mostly Apple – and purchased less than $2 billion. At any rate, with exactly 400 million Apple shares still in the portfolio, Buffett would appear to be done selling his favorite stock.

Earlier this year, the greatest long-term investor of all time said AAPL is "even better" than American Express (AXP) or Coca-Cola (KO), two "wonderful" businesses that Berkshire has owned since the early 1960s and late 1980s, respectively.

Perhaps it's a coincidence, but Berkshire now holds 400 million AAPL shares – or the exact same number of shares it has held in KO for decades. 

Before we detail Berkshire's quarterly buys and sells, it's important to know that Buffett has always maintained a highly concentrated portfolio. The top five holdings account for almost three-quarters of its U.S. equities portfolio value, while the top 10 account for more than 90%. 

As Buffett likes to say, diversification is for people who don't know what they're doing.

Stocks Warren Buffett is buying

Berkshire picked up two new stocks in Q2: Ulta Beauty and Heico. Berkshire bought 690,000 shares of Ulta Beauty worth $266 million at the end of the Q2. With a weight of 0.1% in the Berkshire Hathaway portfolio, or its 30th largest position, the cosmetics retail chain won't be moving the needle much on Berkshire's returns.

Meanwhile, with a weight of just 0.07%, Heico is even less material. Berkshire accumulated a little more than 1 million shares in the supplier to the aerospace industry. The stake was worth $185 million as of the end of Q2. 

The comparatively small size of the purchases could mean they were initiated by Buffett's co-portfolio managers Ted Weschler or Todd Combs.

On the other hand, one of the largest additions Berkshire made in Q2 was probably the work of Buffett himself. As previously disclosed, BRK.B bought another 7 million shares in Occidental Petroleum (OXY). (Buffett has added to OXY on weakness in the past.) The holding company owned 255 million shares worth $16 billion at the end of the quarter. At 5.8% of its portfolio, OXY is Berkshire's sixth largest holding.

In another interesting move, Buffett also added to Chubb, the insurance company Berkshire first picked up just a quarter ago. The holding company increased its stake by 4.3%, or more than 1 million shares. With roughly 27 million shares worth $6.9 billion at quarter's end, Chubb accounts for a hefty 2.5% of the portfolio, or Berkshire's ninth largest holding.

Elsewhere, Berkshire fiddled with some of its smallest positions, upping its bets on rather immaterial holdings such as Liberty Sirius XM Group, Series C (LSXMK) and Liberty Sirius XM Group, Series A (LSXMA). Note that the company cut its stakes in the tracking stocks last quarter. Berkshire also bought more Sirius XM Holdings (SIRI) – a position it reduced in Q1.

Stocks Warren Buffett is selling

As noted above, Apple accounted for almost all of Berkshire's Q2 sales. Other reductions included Chevron, a Buy-rated Dow Jones stock, which Buffett first purchased four years ago. In Q2, Berkshire cut CVX by 3.6%, or 4.4 million shares. With 119 million shares worth $18.6 billion at the end of the quarter, the integrated oil major is Berkshire's fifth largest holding.

Other sales included a more than 20% reduction in Capital One Financial (COF). Berkshire sold 2.7 million shares in the financial services company in Q2, bringing its position down to 9.8 million shares worth $1.4 billion. With a 0.49% weight in the portfolio, COF is Berkshire's 19th largest bet. 

Berkshire also continued to clean and prune a number of its mid-level equity holdings, paring its stakes in T-Mobile US (TMUS), Louisiana Pacific (LPX), Liberty Media (LLYVK), Liberty Media (LLYVA) and specialty retailer Floor & Decor (FND).

Buffett also closed out its stake in Paramount, dumping all 7.5 million shares. The company first bought PARA in early 2022. It didn't work out.

Lastly, Berkshire exited its position in Snowflake (SNOW), which is believed to have been the work of subaltern Todd Combs. Berkshire made a rare bet on an initial public offering (IPO) with Snowflake in the third quarter of 2020. SNOW has an all-time total return of negative 16%.

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Warren Buffett's Berkshire Hathaway (BRK.B) slashed its stake in Apple (AAPL) by almost half during the second quarter, further rattling a tech sector already under scrutiny over its massive spending on AI – and naturally unnerving some Apple shareholders, too.

After all, Apple stock has been the single largest position in the Berkshire Hathaway equity portfolio for years, typically carrying a weight in excess of 40%. And yet Buffett has been paring Berkshire's enormous Apple stake at an alarming rate in 2024.

He's also taken something off the top of Berkshire's second largest holding, Bank of America (BAC).

Buffett has said his preferred holding period is forever. It's also important to know that Buffett is not, and has never been, a market timer. Furthermore, he has had nothing but praise for Apple – calling it "Berkshire's third business" – and openly admires Bank of America CEO Brian Moynihan. 

So what's going on?

Stay tuned for churn

We won't get the full details of which stocks Warren Buffett bought and sold in the second quarter until Berkshire Hathaway discloses its changes in holdings after the market closes on August 14. 

What we do know now is that this isn't the first time Buffett has taken a big bite out of Berkshire's Apple stake this year. As we wrote at the time, BRK.B cut its position in AAPL by 13% in the first quarter. Keep in mind that Buffett was explicit that this was done for tax purposes: 

"Buffett took pains to explain to Berkshire shareholders at their annual meeting in Omaha on Saturday that the iPhone maker is still, er, the Apple of his eye. (It would have been embarrassing not to, considering Apple CEO Tim Cook attended the event in person.)"

If Buffett has a problem with AAPL, it's that the value of Berkshire's stake has grown tremendously at a time when he expects corporate tax rates to rise, probably sometime in the not-too-distant future. 

As Buffett told the Berkshire faithful: "If I'm looking at a 21% rate this year and then we're [paying] a lot higher percentage later on, I don't think you'll actually mind the fact later on that we sold a little Apple this year."

Buffett pointed out that Berkshire's corporate tax rate was 35% just a few years ago. Back in the late 1960s, it was more than 50%. This man has been around a long time. He knows tax policy is never written in stone.

Perhaps Buffett's calculus explains the thinking behind the BAC sales too. As with Apple, Berkshire has enjoyed outsized returns from its investment in Bank of America. Indeed, Buffett liked the bank so much that Berkshire received special regulatory approval to acquire more than 10% of its shares outstanding. That's commitment.

The bottom line is that whatever Buffett is up, it's actually sort of irrelevant. He is a professional capital allocator. It's his job to maximize the returns on the capital entrusted to him. You either trust Warren Buffett or you don't. If you don't trust him, fine. You're not going to hurt his feelings. His track record sort of speaks for itself.

More selling to come

If today's news bothered you, you might want to skip next Wednesday. That's because Berkshire Hathaway tends to be a net seller of equities when stocks are at record highs. 

The holding company sold $77 billion worth of stock in Q2, mostly Apple. But do not be surprised if we learn that Buffett & Co. trimmed or exited positions in any number of other holdings when Berkshire files its Form 13F with the Securities and Exchange Commission after markets close on August 14. 

Buffett has this funny habit of trying to buy stocks when they are selling at lower prices rather than higher prices. Stocks are pretty pricey these days. Buffett is selling. What's the mystery?

By the way, some folks might try to use Buffett's buys and sells as signals for what to do with their own portfolios. 

That would be silly. 

As noted above, Buffett is not a market timer. This is the man who wrote in The New York Times in October 2008 that he was buying stocks. The market didn't bottom until months later, in March 2009. 

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," Buffett said. 

No, Buffett didn't bottom-tick the S&P 500's 50% collapse. The market fell another 28% from the time he penned that op-ed to equities' nadir. And all Buffett did was buy shares in great companies at cheaper and cheaper prices, probably the entire way down. (Berkshire shareholders then benefited by riding those prices all the way back up.)

As much fun as it might be to see which stocks Warren Buffett is buying and selling, you cannot copy his moves and expect to get the same returns. There are a bunch of reasons for this, but let's keep it simple: Buffett has access to a massive pile of really cheap capital and you don't.

You're no Warren Buffett

Berkshire's timing could have been better. It didn't do market sentiment any favors by releasing its results ahead of a global rout in equities that was mostly sparked by what's happening to the Japanese yen. But that's not on Buffett.

Markets go down as well as up. Pullbacks are normal. "The average drawdown from peak-to-trough in a given year in the U.S. stock market going back to 1928 is -16.3%," notes Ben Carlson, director of institutional asset management at Ritholtz Wealth Management. "Since 1950, the S&P 500 has had an average drawdown of 13.6% over the course of a calendar year."

Volatility is the price of admission to the stock market. The greater the reward, the greater the risk. If you can't handle the equity risk premium, stick to bonds.

In the meantime, leave professional capital allocation to the pros. Word is Warren Buffett is pretty good at it.

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Consider the potential benefits of holding dividend stocks in a taxable account.

The higher your tax bracket, the more critical it becomes to diversify your investments. You want an allocation that offers consistent returns and optimized tax advantages. Taxes are one of the chief expenses retirees face. While strategically choosing investments is important, where you choose to let them live is just as important to keep your portfolio tax-efficient. Let's look at dividend stocks and how investors can leverage them effectively in taxable accounts.

Why dividend stocks?

Dividends are a portion of a company's after-tax profits distributed to its shareholders. The IRS considers dividends ordinary income and, therefore, taxable at your marginal tax rate. A potential advantage of dividends is that they can offer a steady income stream, making them particularly attractive for retiring investors. Companies that offer dividends to their investors tend to have more stability and better odds of weathering economic downturns more effectively than companies that don't.

When we recommend dividend stocks to our clients, we help them select companies that represent diverse business sectors. It's best to choose ones with a history of consistent dividend payments. Dividend stocks typically show resilience during market downturns, which helps to provide a cushion against losses and help preserve capital. This way, investors can potentially manage risk and adjust their exposure to market volatility.

Using your taxable accounts

In general, we advise clients to house tax-efficient investments in taxable accounts like money market accounts or brokerage accounts, while investments that are not tax-efficient are typically better off in tax-deferred accounts like IRAs and 401(k)s. One of the most compelling reasons to consider dividend stocks in taxable accounts is their favorable tax treatment.

Unlike capital gains (selling an investment for more than what you paid to earn profit on the sale), which are typically taxed at varying rates, dividends are taxed at a lower rate. For some investors, the tax rate is much lower than ordinary income tax rates, leading to substantial potential tax savings over time.

Along with the lower tax burden, dividends held in taxable accounts are not subject to penalties or taxes when you take them out, unlike withdrawals from retirement accounts such as IRAs and 401(k)s. The flexibility allows investors to access their investment income without incurring more tax liability and allows them a greater level of control over their financial assets.

Maintaining tax-efficiency

Just because a company offers a high dividend stock yield doesn't necessarily mean its stock is the best option. The average dividend yield of top dividend stocks is 12.69%, according to NerdWallet. If you see a rate higher than this, it could be a red flag that the company is in trouble. It's not uncommon for falling stock prices to increase dividend yields, which can cause the company to go into debt. In that situation, companies sometimes cut dividends to keep the business afloat. To find investments with consistent dividends, look at the Dividend Aristocrats, a group of S&P 500 stocks that have increased their dividends annually for 25 years. In general, these ones have the lowest risk of cutting their dividend offerings.

Understanding the potential impact of changes in tax laws on the taxation of dividends is an important aspect of this taxable account’s strategy. You should also conduct a yearly review of dividend stock holdings to confirm you're taking advantage of growth opportunities and that your investments are still working to help you achieve your goals while operating within your level of risk tolerance.

The bottom line

When retirees choose investments, they should remember that where they house their investments is just as important as what they choose to invest in. Dividend stocks have a significant impact on taxes, depending on where they live in a client's financial portfolio.

Incorporating dividend stocks into taxable accounts is often a prudent strategy for investors who want to cultivate a reliable income stream and tax-efficient returns. By selecting quality dividend-paying companies, diversifying across sectors and staying vigilant about tax implications, investors can potentially enhance their portfolios and manage their tax obligations.

Jeff Tamas and Corey Cyr are the founders of Ideal Retirement Solutions, headquartered in Southwest Florida. Their mission is to help pre-retirees and retirees achieve financial peace of mind and eliminate worry in their retirement years. Based on their extensive knowledge and understanding of today’s markets, they are committed to servicing their clients and providing them with the most accurate, up-to-date and honest advice for their given situation as they seek financial success and freedom. As fiduciary advisors, Jeffrey and Corey always put their clients’ needs first and foremost. They maintain state insurance licenses and their FINRA Series 65 securities qualification, and they are registered as Investment Advisor Representatives (IAR) through Portfolio Medics, LLC. Additionally, they have obtained the prestigious RICP and CRPC professional designations, reflecting their commitment to specializing in the distribution phase of retirement planning. You can learn more about this firm and its unique "Ideal Retirement Advantage" process on its website at www.idealretirementsolutions.com or by calling 941-876-8985.

Investment Advisory Services offered through Alphastar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability. This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this commentary should consult with his or her financial advisor. The historical performance trends and risk levels for dividend stocks are not an indicator of future performance or risk. Investing involves risk including the possibility of the loss of your principal. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there can be no assurance that any specific investment will be suitable or profitable for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you needed more evidence that being added to the S&P 500 is what Wall Street likes to call a positive catalyst, witness what happened to shares in CrowdStrike (CRWD), KKR (KKR) and GoDaddy (GDDY) at the start of trading this week.

Shares in all three companies popped on the news that they will be added to the main benchmark for U.S. equity performance. KKR, CrowdStrike and GoDaddy will replace Robert Half (RHI), Comerica (CMA) and Illumina (ILMN) in the S&P 500 on June 24, S&P Dow Jones Indices said in a statement Monday. 

Stocks tend to get a lift from inclusion in the S&P 500 because many trillions of passive dollars are held in products that track the index. The SPDR S&P 500 ETF Trust (SPY), the largest exchange-traded fund (ETF) in the world, has more than half-a-trillion dollars in assets under management all by itself. The bottom line is that loads and loads of passive funds and ETFs now have to pick up shares in CRWD, KKR and GDDY.

As for the reason for the shakeup, S&P said that the changes "ensure each index is more representative of its market capitalization range. The companies being added to the S&P 500 are more representative of the large-cap market space."

Analysts' takes on CRWD, KKR and GDDY

As a reminder, being tapped for the S&P 500 is not an endorsement by the editors of the index to buy the stock. Rather, the stocks in question have merely met the criteria and are deemed better fits than the ones moved down into the mid- and small-cap indexes. 

As for CrowdStrike, shares gained nearly 50% for the year to date through early June, pushing the cybersecurity company's market cap up to $93 billion, or roughly the same size as current S&P 500 stock Starbucks (SBUX). Meanwhile, the Street likes CRWD's prospects going forward. Of the 51 analysts issuing opinions on CrowdStrike stock surveyed by S&P Global Market Intelligence, 34 call it a Strong Buy, 13 say Buy and four have it at Hold. That works out to a consensus recommendation of Strong Buy.

Analysts are bullish on KKR, too, although with slightly less conviction than they have for CRWD. Shares in the private equity firm added more than 30% for the year to date through early June, giving it a market cap of nearly $97 billion. That's a sum roughly equivalent to current S&P 500 constituent Palo Alto Networks (PANW). Analysts give KKR a consensus recommendation of Buy.

Web hosting company GoDaddy is another stock having a terrific 2024. Shares gained more than a third for the year to date through early June, pushing GDDY's market cap up to $20 billion. That's bigger than S&P 500 member Alexandria Real Estate Equities (ARE), which happens to be one of analysts' top S&P 500 stocks to buy now. The Street is bullish on GDDY, too, mind you, assigning it a consensus recommendation of Buy with strong conviction. 

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It almost feels as though we’re all Fed watchers now. From March 2022 to July 2023, the Federal Reserve Board hoisted the federal funds rate (the rate banks charge each other for overnight loans) by 5.25 percentage points in a bid to crush inflation. The inflation rate is down considerably but still a bit sticky, staying around 3%, and the economy continues to power ahead. Yet the Fed has signaled that it expects to cut rates in 2024 — it just hasn’t said when it will embark on its rate-cutting cycle. So now we’re waiting. 

While we wait, some enticing yields are on offer across a wide range of asset classes for income-hungry investors — and, for a change, that includes bonds, a core income-producing asset. “One overarching theme is that fixed income is kind of back to normal, which means back to a world we haven’t seen in 15 years,” says Simeon Hyman, global investment strategist at ProShares. 

A case in point: You can now earn a real yield (that is, the yield after inflation) of about 2% on ostensibly risk-free Treasuries and other high-quality bonds — and much more in riskier high-yield bonds. Stocks and energy-infrastructure securities provide both income and a growing stream of dividends, a quality that is especially important in providing protection against consumer prices mercilessly on the rise. Even-higher yields are available from closed-end funds and business development companies. 

This guide will help you identify attractive income-producing investments in nine different categories, ranging from low-risk, plain-vanilla securities to more-complex, higher-risk and potentially higher-return investments. (Although yields and risk usually move higher in lockstep, that’s not the case this year, and we’ve listed investments roughly in the order of ascending risk.) 

Before you embark on your quest for income, keep a few considerations in mind. You should have a financial plan in place that specifies long-term portfolio allocations. Everyone’s financial situation is different, but generally you should ensure that you keep sufficient cash and equivalents on hand to cover six months of living expenses before investing in high-risk/high-return assets. Prices, yields and other data are as of the end of the first quarter of 2024.

5%: Short-Term Accounts

Yields on short-term, fixed-income accounts and securities follow movements in the Fed’s short-term interest rates. That means relatively attractive yields are available on cash and other short-term, liquid assets in today’s higher-interest regime.

The risks: The game will change when the Fed starts cutting rates later this year, which is widely expected. “Money market rates could go down tomorrow if rates decline,” says Lew Altfest, chief investment officer of Altfest Personal Wealth Management. Andy Kapyrin, a partner at Corient, says, “Investors are overeager to stay in cash and thus risk missing an opportunity if the Fed cuts rates.”

How to invest: Kapyrin recommends deploying some of the cash into one- to five-year bonds, which would lock in today’s yields for a longer period than, say, the overnight rates on money market funds. Of course, because this category is mostly cash equivalents likely earmarked for emergency reserves or to meet short-term liabilities, you want to play it safe.

One exchange-traded fund Kapyrin cites is Vanguard Short-Term Treasury (VGSH, $58, yield 4.7%), which invests in one- to three-year government paper and has a duration — a measure of interest-rate sensitivity — of 1.9. That means if rates were to rise (or fall) one percentage point, the fund would lose (or gain) roughly 1.9%. (Prices and interest rates move in opposite directions.) 

If you seek less interest rate sensitivity, Vanguard Ultra-Short Bond (VUSB, $50, 5.1%), which invests in a variety of government and corporate investment-grade bonds, has a duration of just under 1. Investors who want to stick with ostensibly risk-free government debt can consider Goldman Sachs Access Treasury 0-1 Year (GBIL, $100, 5.2%), which tracks an index of Treasury obligations with a maximum remaining maturity of one year. 

Many investors will still want to stash some of their cash in a money market mutual fund, which is a popular parking place for money you’re waiting to deploy. Vanguard Federal Money Market (VMFXX, 5.2%) consistently outperforms its counterparts, largely due to a rock-bottom expense ratio of 0.11%.

5%–7%: Investment-Grade Bonds

The core of a typical fixed-income portfolio is made up of investment-grade bonds issued by the U.S. Treasury, government agencies (mortgage-backed securities, for example) and corporations. These assets provide income without dramatic price fluctuations and, generally speaking, provide portfolio diversification because they tend to move out of sync with stocks.

The risks: Interest rate spreads between corporate bonds and Treasuries are remarkably narrow by historical standards. “There is little spread for taking credit risk,” says Kapyrin. That said, there’s also a risk of inertia in keeping too much cash. 

“People could certainly have money in cash at 5%,” says Abhijeet Patwardhan, manager of FPA New Income (FPNIX, 4.7%). “But the cost of doing that is if the market rallies and rates come down a lot, I think those people will regret not having locked in higher yields that were available.” 

How to invest: Investment-grade fixed income is a vast and diverse universe with many different strategies. FPA New Income, for example, is a fund with superb risk management that focuses on preservation of capital as well as generating income. Patwardhan says the fund’s duration of 2.7 is its highest in 20 years and that the current portfolio is dominated by securitized debt, because that’s where he sees the best risk-adjusted investment opportunities. In the fourth quarter of 2023, he snapped up agency residential mortgage–backed securities.

Altfest also spots value in non-agency mortgage-backed securities because he thinks that homeowners who have lived in their houses for years and have built up home equity are a solid credit risk. He likes Jeffrey Gundlach’s DoubleLine Total Return Bond (DLTNX, 5.4%), which invests in both agency- and non-agency mortgage-backed securities and has a duration of 5.9.

You can find a higher yield in VanEck CLO (CLOI, $53, 6.8%), an actively managed ETF subadvised by PineBridge Investments. Collateralized loan obligations are loans — broadly syndicated bank loans, for instance — that are pooled together and securitized. Fran Rodilosso, head of fixed income ETF portfolio management at VanEck, observes that with investment-grade CLOs (about three-fourths of the fund’s holdings are rated A or above), you can pick up one to two percentage points in yield compared with what’s available in corporate bonds with the same credit rating.

4%–7%*: Municipal Bonds

Issued by state and local governments, muni bonds pay interest that is free from federal taxes — and for bonds issued in your state of residence, free from state and local taxes, too. High-quality, investment-grade munis tend to follow movements in the Treasury market and, like Treasuries, tend to perform well in a recession.

The risks: The main risks aren’t about creditworthiness. “The liquidity of most state and local issuers is at historical highs, due to robust revenues and all the money the federal government gave them,” says Jeff Timlin, a tax-exempt bond manager at Sage Advisory. 

Instead, the main issue may be high valuations, in part reflecting the constrained supply of munis and the very strong demand for them in the market. John Miller, head of First Eagle’s high-yield team, notes that the $4 trillion muni market has scarcely grown in decades. “One reason munis are outperforming is pure scarcity value,” he says.

How to invest: To calculate your tax-equivalent yield and compare it to the yield of a Treasury or other taxable bond, subtract your federal income tax bracket rate from one, then divide a muni bond’s yield by the result. Thus, the tax-equivalent yield for a muni yielding 3% would be 3.95% for someone in the 24% tax bracket, or 4.76% for a taxpayer in the top, 37% federal bracket. Timlin says that in today’s interest rate environment, investment-grade munis generally don’t make sense for investors unless they’re in the 35% or 37% tax bracket.

There are some pockets of value, however. Because investors are crowding into shorter-term muni bonds, their prices are least attractive relative to taxable bonds. But venturing further out on the maturity spectrum can be rewarding. Jim Colby, a muni bond manager at VanEck, says that munis become attractive relative to Treasuries at maturities of about 10 years, and the yields become increasingly alluring the further out you go on the yield curve. 

Consider: For muni bonds rated AA and AAA with maturities of one to 10 years, the current yield ratio to Treasuries is 55% to 60%, compared with a norm of 75% to 80%, according to Miller. But for 30-year maturities, the ratio is above 80%. 

Another area with value, says Colby, are high-yield muni bonds, often backed by revenue from a sports stadium, public hospital or the like. Their yields are an attractive two to three percentage points above investment-grade munis. Historically, the default rate for high-yield munis is a small fraction of that of high-yield corporates, and the recovery rate is much higher. 

You can gain exposure to a well-diversified basket of high-quality munis by investing in a national muni fund. Vanguard Tax-Exempt Bond (VTEB, $51, 3.4%) holds more than 10,000 bonds from across the land, nearly all rated A or higher. It’s an intermediate bond fund with a duration of 6 and a rock-bottom expense ratio of 0.05%. The tax-equivalent yield is 4.5% for someone in the 24% federal bracket, or 5.4% for a 37%-bracket taxpayer.

The high-yield muni market is about 15% of the muni universe, and most of the bonds aren’t even rated because they tend to be smaller issues to support local infrastructure. Active management in such a fragmented market calls out for a seasoned muni bond veteran like Miller, manager of First Eagle High Yield Municipal (FEHAX, 5.1%). Miller was previously head of the muni bond department at Nuveen, a muni powerhouse, before he decamped to First Eagle. Converted from a taxable bond fund, the high-yield tax-exempt fund has soared 4.2% since Miller took the helm at the start of 2024. The tax-equivalent yield for a taxpayer in the 24% bracket is 6.7%. 

If you prefer a shorter-duration, passively managed fund, consider VanEck Short High Yield Muni (SHYD, $22, 3.8%); Colby is a comanager. 

6%–9%: High-Yield Taxable Bonds

Also known as junk bonds, high-yield corporates are issued by firms with sub-investment-grade ratings. As compensation for lending to these higher-risk businesses, investors receive higher yields than investment-grade bonds offer. Junk bonds move more in sync with stocks than with Treasuries and are less sensitive to interest rate swings than high-quality bonds with the same maturity.

High-yield bonds have really come into their own in recent years. “High yield has become a very established, accepted asset class that investors are no longer fearful of,” says Ray Kennedy, co-manager of Hotchkis & Wiley High Yield Fund. “It’s not your parents’ high-yield asset class.” Liquidity and transparency have substantially improved, default rates have remained tame, and risk-adjusted returns have been better than those of investment-grade bonds and several other asset classes.

The risks: The risk of default is the main concern. For now, default rates are a relatively modest 2% to 4%, according to Kennedy, but would rise if the economy were to tip into a recession. 

How to invest: High-yield bonds quite likely merit some allocation in your fixed-income portfolio. “The role in high yield is to achieve higher long-term returns than the rest of your income portfolio but with a lower correlation with interest rate movements,” says VanEck’s Rodilosso. 

Because you also want to sleep soundly at night when investing in these riskier credits, it pays to employ a defensive manager who minimizes downside risk. “You make more by losing less,” says Carl Kaufman, who has run Osterweis Strategic Income (OSTIX, 6.1%) since 2002. 

He likes the current set-up for shorter-term bonds, given the inversion of the yield curve (with shorter-term securities yielding more than longer-term ones). “You can get some nice yields at the short end without taking the risk of the long end of the curve,” Kaufman says. The longer the maturity, the higher the chance of default and the greater the interest rate sensitivity. The fund’s duration is 1.7. 

David Sherman, founder of and portfolio manager for CrossingBridge Advisors, has compiled an outstanding risk/return profile over many years with his short-duration high-yield funds. “We’re 100% bottom-up, disciplined value investors,” Sherman says. “The first investment decision is ‘do no harm.’ ” His CrossingBridge Low Duration High Yield (CBLDX, 8.2%) is one of only a handful of bond funds to make money in 2022, a disastrous year for fixed income. The fund’s duration is generally around 1. 

Riverpark Strategic Income (RSIIX, 9.1%), which Sherman also manages, has a slightly higher duration of about 1.5 to 2 and an equally stellar risk-management record. The fund has only one-third of the average volatility and maximum drawdown of the high-yield bond category. The portfolios are mainly U.S. credits, but Sherman scours the globe and has a particular affection for Nordic bonds.

3%–5%: Dividend Stocks

Dividend-paying stocks play an important income role in a diversified portfolio. Unlike fixed-income investments such as Treasuries and corporate bonds, dividend distributions paid by healthy corporations can increase each year, making the payouts a potent way to maintain the purchasing power of a long-term portfolio. They’re particularly valuable in an inflationary environment such as we have today.

The risks: Stocks tend to be much more volatile than high-quality bonds and suffer more in a recession. Some investors make the mistake of reaching for the highest yields, which can be an indication a company is in distress or lacks promising growth prospects. 

How to invest: The oil patch is generally a good place to hunt for yield. John Buckingham, editor of The Prudent Speculator, likes Devon Energy (DVN, $50, 4.9%), an independent exploration and production firm, for its high-quality domestic assets, improving balance sheet, and focus on profitability and dividend distributions. 

Another of his picks is Air Products & Chemicals (APD, $242, 2.9%), a member of the Kiplinger Dividend 15, the list of our favorite dividend payers. Founded in 1940, Air Products is one of a handful of players in the highly consolidated and growing industrial gas industry. The company has increased its dividend for 42 consecutive years.

Core investment banking activities such as mergers and acquisitions and initial public offerings are coming alive again, and that should benefit generous dividend payer Morgan Stanley (MS, $94, 3.6%), says Jay Hatfield, founder and CEO of Infrastructure Capital Advisors. 

If you prefer to invest in a diversified basket of dividend stocks, consider Schwab US Dividend Equity (SCHD, $81, 3.5%). The fund, a member of the Kiplinger ETF 20 list of our favorite ETFs, offers both a relatively high yield and a solid track record of boosting dividends each year. 

Save some room for foreign stocks, which offer significantly higher yields than do their counterparts at home. Jay Hill of Tweedy, Browne notes that European companies prefer to return money to shareholders through dividends, whereas many U.S. firms prefer share repurchases. Tweedy’s Thomas Shrager points to Swiss-based pharmaceutical giant Roche Holding (RHHBY, $32, 4.4%), which trades as an American depositary receipt, as an example. Roche has boosted dividends 37 straight years, and Shrager sees a solid drug-development pipeline that should underpin growth in sales and earnings for years to come.

For a diversified overseas portfolio, consider Vanguard International High Dividend Yield (VYMI, $69, 4.9%), whose top holdings are Toyota (TM), Novartis (NVS), another Swiss pharma giant, and Shell (SHEL).

4%–6%: Real Estate Investment Trusts

Because REITs are required to distribute at least 90% of their taxable income each year, they offer relatively high yields. REITs can raise rents when leases expire, which makes these real-asset businesses a strong inflation hedge in today’s environment of rising prices. 

The risks: REITs tend to underperform in periods of rising interest rates because they typically carry high debt loads and face increasing competition from the higher yields available on fixed-income investments. 

How to invest: The REIT industry has expanded and diversified dramatically to include tech-oriented subsectors such as data centers and cell towers, along with e-commerce warehouses, self-storage facilities and health care properties. In recent months, the financial media have been filled with doom-and-gloom articles about the growing number of bankruptcies of city-center office buildings emptied out by the increasing popularity of remote and hybrid employment. That narrative is somewhat distorted in that office space represents only about 5% of the REIT universe, and some of the urban developers are doing fine.

“I think people are making a big mistake about offices by not distinguishing between A+ properties and B and C” properties, says Hatfield. He notes that REITs, as public companies with mostly fixed-rate debt, are much better capitalized than privately owned office towers, which may have floating-rate debt. He likes the largest office owner, Boston Properties (BXP, $62, 6.2%). 

Another controversial sector is brick-and-mortar retail. Michael Elliott, a REIT analyst at CFRA Research, favors Simon Property Group (SPG, $152, 5.2%), the largest shopping mall owner, for its focus on class-A malls with the industry’s highest sales per square foot. Another of his picks is VICI Properties (VICI, $29, 5.8%), a gaming REIT that owns casinos and resorts in Las Vegas, including Caesars Palace, MGM Grand and The Venetian. 

If you prefer to hold a diversified REIT sector fund, here are two very different choices: Vanguard Real Estate (VNQ, $84, 4.1%) is a low-cost, passively run index fund with a basket of 159 securities. Actively managed Fidelity Real Estate Income Fund (FRIFX, 5.9%) holds an unusual combination of REITs, REIT corporate debt and commercial mortgage-backed securities. 

“I have found that allocating to different real estate security types has helped deliver less volatility, higher income and a similar return profile compared to funds that focus on real estate stock investing,” says Bill Maclay, the Fidelity fund’s manager. Today, Maclay says he finds better value in real estate debt, which is “attractively priced, with the highest yields in more than a decade.” One of his current areas of focus is high-yield mortgage-backed securities secured by warehouse properties.

5%–8%: Midstream Energy Infrastructure

Midstream companies process, store and transport oil and natural gas around the nation through pipelines. Their place is in between upstream companies (energy producers) and downstream firms, which make finished products such as liquefied natural gas.

The industry has performed well the past few years and remains in a sweet spot. Because capital investment needs are modest, the firms are gushing cash flow, which they use to reduce debt levels and increase dividend distributions and share buybacks. 

“The beauty of this story now is that it’s [about] cash flow ... and the return of money to shareholders,” says Greg Reid, a comanager of Westwood Salient MLP & Energy Infrastructure, who says the average pipeline company yields about 6% and is increasing cash flow by 5% to 6% a year. 

The risks: The largest risk is an economic slump, which would cut energy consumption and reduce volumes moved through the energy infrastructure. Inflation is less of a challenge because, unlike in many other industries, pipeline operators can generally pass on higher costs to customers each year through inflation escalators built into long-term contracts.

How to invest: Midstream energy is composed of both master limited partnerships and corporations (also known as C corps). Yields tend to be higher for MLPs, which distribute most of their income each year but issue K-1 forms, which can be somewhat cumbersome at tax time, to limited partners (that is, investors). 

Your first decision is whether you are willing and able to handle the K-1s annually. If you are, then there’s an attractive yield available in Energy Transfer LP (ET, $15, 8.1%), whose operating cash flow is quickly expanding, notes Stewart Glickman, an energy analyst at CFRA. Many fund managers, such as Hatfield, at Infrastructure Capital Advisors, are particularly drawn to natural gas. “The U.S. is the Saudi Arabia of natural gas, which is good for pipelines,” says Hatfield, who recommends Enterprise Products Partners LP (EPD, $29, 6.9%).

Simon Lack, comanager of Catalyst Energy Infrastructure Fund, likes Williams (WMB, $38, 4.9%), which operates, among other assets, the Transco pipeline, a 10,000-mile pipeline system that extends from south Texas to New York City and transports about 15% of the country’s natural gas. If you seek a higher yield, then Lack recommends Enbridge (ENB, $36, 7.5%), a conservatively managed Canadian company and the sector’s largest player by market value. 

Or, for a diversified sector holding, consider Lack’s fund itself. Catalyst Energy Infrastructure Fund (MLXIX, 6.0%) pays monthly dividends and avoids the need to issue K-1s by keeping its MLP weighting in the fund to less than 25%.

9%–10%: Business Development Companies

Business development companies invest in small and growing firms that are typically too small to access bank lending. Congress devised the BDC structure in 1980, and the effect has been to “democratize access to the private-credit asset class,” says Steve Boehm, a partner at the law firm of Eversheds-Sutherland who has advised many of the largest BDCs over the past 25 years. As with similar investments aimed at high-net-worth individuals and institutional investors, BDCs are currently a hot asset class, says Boehm.

Most BDC loans to small, private firms are secured, first- or second-lien variable-rate loans with interest rates that adjust when lending rates change. A BDC can trade at a premium or discount to the net asset value of its investment portfolio, which is reappraised quarterly. 

Like REITs, BDCs are required to distribute at least 90% of their taxable income each year. Because this is ordinary income (that is, not qualified dividend income eligible for lower tax rates), a tax-deferred retirement account is a natural home for these high-yielding investments.

The risks: BDCs often use borrowed money to make loans to their portfolio companies. That leverage can goose returns as long as portfolio loans are solid and BDCs can lend at higher rates than at which they borrow. But it can magnify losses in net asset value if the reverse comes to pass. Another challenge is that lending rates may have peaked this cycle, which would constrain earnings growth for BDCs.   

How to invest: There’s very wide variation among BDCs’ sizes, quality of management and portfolios. Because these are private, high-yield loans with a risk of default, Alex Seleznev, founder of Capital Squared Financial, suggests a low-single-digit allocation to the asset class. “This is an aggressive component of someone’s income-oriented portfolio,” he says.

Seleznev is attracted to Ares Capital (ARCC, $21, 9.2%), by far the largest company in the industry by market value. “Size matters in BDCs,” he says. This is true particularly because BDCs, which must distribute nearly all their earnings, need ready access to capital markets that may be unavailable to small players. Robert Dodd, a BDC analyst at investment firm Raymond James who has covered the industry since 2006, notes that Ares has steadily increased its book value (a critical metric for him because it measures the quality of a BDC’s loan portfolio) and has never cut its dividend in the 20 years since it went public. “There’s a level of consistency over a long period of time,” he says.

Dodd also recommends Sixth Street Specialty Lending (TSLX, $21, 8.6%), whose portfolio consists nearly entirely of first-lien loans. Ares, which almost never trades at a discount to net asset value, is currently at an 8% premium, and Sixth Street at a 26% premium; both have total leverage ratios (borrowed money as a percentage of assets) of about 50%, which is typical.

If you’d rather diversify your BDC portfolio, you can choose between a market-weighted index-tracking fund, VanEck BDC Income (BIZD, $17, 10.3%), and an actively managed one, Putnam BDC Income (PBDC, $34, 9.2%). Putnam’s BDC fund, launched in 2022, is managed by Michael Petro, who has invested in BDCs for more than 15 years. 

4%–12%: Closed-End Funds

Closed-end funds raise money through an initial public offering, then invest the money in stocks, bonds, MLPs and other financial assets. Trading on an exchange, shares of closed-end funds will fluctuate in price according to investor demand and can trade at a discount or premium to the per-share value (or net asset value) of the fund’s underlying assets. 

The risks: Most closed-end funds use borrowed money, or leverage, to invest in portfolio assets. Leverage can work both ways, boosting price returns in up markets but amplifying losses in net asset value when markets decline.

How to invest: Municipal bonds account for about one-third of the closed-end fund market. Muni-focused closed-end funds have struggled a bit over the past year due to the inverted yield curve, which undermines the ability of fund managers to borrow at attractive short-term rates and invest for the long term. 

But herein lies an opportunity, says Steve O’Neill, a portfolio manager at RiverNorth Capital Management. At some point, the yield curve will uninvert as the Fed cuts interest rates. In the meantime, says O’Neill, closed-end muni funds trade at nearly a record discount to net asset value and in the 95th percentile of cheapness by discount over the past 25 years.

One of O’Neill’s picks is BlackRock MuniYield (MYD, $11, 5.7%), which sells at a 9% discount to net asset value and has a 35% leverage ratio, which is about average. The tax-equivalent yield is 7.5%. If you prefer no leverage, he recommends Nuveen Municipal Value (NUV, $9, 4.0%), which trades at a 7% discount. Tax-equivalent yield: 5.3%.

Not surprisingly, higher yields are available on leveraged taxable investments. John Cole Scott, chief investment officer of Closed-End Fund Advisors, likes FS Credit Opportunities (FSCO, $6, 12.0%), which invests mainly in senior floating-rate secured loans, trades at a 15% discount and has 33% leverage. 

Scott is also keen on Brookfield Real Assets Income (RA, $13, 11.0%), which invests in corporate debt and asset-backed securities in the infrastructure, real estate and natural resource sectors. Brookfield sells at a 13% discount to net asset value and carries a modest 17% leverage ratio.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Savers and investors have few causes for complaint. But one frustration is the sluggish pace and shrunken heft of dividend increases. Although U.S. companies have more than $2 trillion in cash, scads of firms that not long ago raised dividends by 10% a year have morphed into relative misers: The median annualized increase within the S&P 500 dwindled to 6% in the fourth quarter of 2023. 

Look at ProShares S&P 500 Dividend Aristocrats (NOBL), an equal-weighted exchange-traded fund of 68 stocks with 25 consecutive years or more of raises. From 2015 to 2020, the fund hiked its payout by 11.5% a year. Since the start of 2021, that fell to 5.4%, limited by near-freezes from one-time cash spigots like Kimberly-Clark. 

Apple is not an Aristocrat but clings to a habit of raising quarterly dividends each year by just a penny a share. UPS, soon to join the Aristocrats, also just hiked its payout by one cent a quarter. 

I asked around and got explanations — or excuses. One is that cash is so valuable, with interest rates up, that companies are hoarding it. Another is that a large cohort of CEOs expected a recession and refused to commit to high dividends that would be impossible to freeze or cut without an uproar. 

And there is the ever-present fixation with buybacks despite a new 1% federal tax and the sky-high valuations of so many shares. Hence, the payout ratio — the percentage of earnings paid as cash dividends — has held at around 30% since the pandemic. It was 43% as recently as 2015 and 2016 and above 50% for much of the past 50 years. 

Signs of a stock dividend comeback

As rates fall and cash yields eventually drop, tax-qualified dividend income will become relatively more valuable. Investors will press companies to pay up. Meta Platforms (formerly Facebook) chipped some ice with a first-time 50-cent quarterly dividend this year — hardly a gusher, as Meta is handing out just $5 billion a year from its $45 billion of free cash flow. Salesforce followed with a similar initial cash payout. 

More encouraging: unexpectedly large early-2024 raises by old- timers such as Archer-Daniels-Midland (11.1%) and Sherwin-Williams (18.2%), as well as 25% from Exelon’s power-generation spin-off Constellation Energy. John Deere has been raising dividends twice a year, its latest pair of hikes totaling 17.6%. Walmart stepped up with a 9.5% raise. S&P Dow Jones Indices reports more increases and fewer cuts so far in 2024 than in the same months of 2023, though overall payouts are still creeping rather than leaping. 

For a longer-term view, I consulted Dan Peris, who manages the Federated Hermes Strategic Value Dividend Fund and is to dividend literature what the late John le Carré was to spy novels. In a new book, The Ownership Dividend: The Coming Paradigm Shift in the U.S. Stock Market, Peris predicts that higher payout ratios are inevitable — his target is 50% — and insists “the bloom is off the buyback rose.” Competition from higher fixed-income yields will encourage fatter dividends. 

But Peris also says that company bosses are revisiting the idea that shareholders should be partners in the business rather than adversarial share-sellers — and plying them with hard cash is central to this plan. Meta’s payout, he says, is a “green shoot” and “symbolic.” With a yield of 0.4%, Meta is not an income investment and may never be, but its move clears the way for other new-generation firms that are serious about growth but also aspire to average or above-average dividend yields. And that would be a breakthrough.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Nvidia (NVDA) has been posting blowout quarterly earnings reports for a year now, but its most recent print came with some ice cream and a cherry on top. Not only did the market's favorite pure-play bet on all things AI hike its dividend, NVDA split its stock.

Although returning more cash to shareholders and making NVDA stock more "accessible" are what Wall Street would call positive catalysts, they are not sufficient reasons in and of themselves to commit fresh capital to any name at any level.

That is not to say that you should not buy more Nvidia stock when it's trading at record highs. Rather, if you want to initiate or add to a position in Nvidia stock these days, the fact that it's effecting a stock split is immaterial.

First let's make clear that stock splits aren't nearly as important for retail investors as they were back in the days before folks could open a smartphone app and buy fractional shares for free. Nvidia is splitting its stock for pretty much the same reason Walmart split its stock, which was more for its own employees.

Secondly, let's stipulate that stock splits are like making change. In this case, shareholders received 10 shares for every one share held. This is essentially the same thing as breaking a $10 bill into 10 one-dollar bills. The fundamentals and technicals don't change – only the arithmetic does. 

Which brings us to Nvidia's dividend hike. The forward yield on NVDA's dividend comes to about 0.03%. The stock's three-year average dividend yield is 0.06%, while the current yield on the S&P 500 stands at 1.36%. Given those facts, it's probably fair to assume that few folks buy Nvidia for the income. 

Nvidia stock is everywhere 

It's also worth mentioning that you probably already have healthy exposure to Nvidia stock.

Nearly 70% of actively managed mutual funds own Nvidia, according to the team at BofA Securities data analytics. And it's not like it's hard to own Nvidia on the passive side, either. As the world's third-most-valuable publicly traded company, Nvidia is in loads of indexes tracked by passive mutual funds and ETFs. 

Take the main benchmark for U.S. equity performance. Thanks to a market cap of nearly $3 trillion, Nvidia's weight in the S&P 500, as represented by the SPDR S&P 500 ETF Trust (SPY), stands at about 6.6%. 

That's actually quite a lot. Think about it like this: if the S&P 500 were, say, an actively managed large-cap balanced fund, the portfolio managers might have to cut their NVDA position by something like half?

Nvidia is also ably represented in the Nasdaq Composite and Nasdaq-100. As for the latter, Nvidia's weight in the growth index – most popularly tracked by the Invesco QQQ Trust (QQQ) – hovers around 8.1%

The bottom line is there's a universe of products offering exposure to the Magnificent 7 stock. No one is complaining about how hard it is to find a good ETF with Nvidia in it.

The Street loves Nvidia for lots of reasons

As we have noted, Nvidia has generated market-crushing returns for a long time. It's trading at record levels because no one knows how big this whole AI thing is going to get. They just know they don't want to miss out.

Will Nvidia keep beating the market? 

Sure, probably, why not? But stocks never go up in a straight line. Markets are cyclical. Chipmakers are highly cyclical. The good news is that Nvidia is trading on some combination of incredible fundamentals and forecasts, and not just hype.

The bad news? Stocks go down, too. There's a bull case and a bear case for everything. Ever notice how share prices fluctuate all session long? Please remember that high-beta stocks such as Nvidia, which have a history of outperforming the broader market when it's going up, also tend to underperform the broader market when it's selling off. 

On a brighter note, Wall Street makes a brawny bull case for Nvidia stock. Analysts, as a group, give NVDA an elite rating of Strong Buy (with high conviction), according to data from S&P Global Market Intelligence.

Instead of trying to summarize these analysts' investment theses in the space provided here, let's just say that of all the really good reasons to be bullish on Nvidia, the stock split isn't very high on the list.

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Dividend investors tend to be patient, but lately their patience has been tested. Dividend stocks have badly lagged the rest of the market recently. The S&P Dividend Aristocrats – a list of companies in the S&P 500 index that have raised their dividends for at least 25 years in a row – have returned less than 10% over the 12 months that ended February 29. The S&P 500 gained more than 30% over the same period. 

A major reason for the recent underperformance is the surge in interest rates that began in 2022. When rates on Treasury securities and cash accounts were stuck below 1%, dividend stocks' yields were attractive by comparison. But with short-term Treasury securities and cash accounts paying more than 4%, compared with the S&P 500's current yield of 1.5%, dividend stocks have been a tougher sell. That could change with expected rate cuts from the Fed later this year.

And dividends are far from dead. Meta Platforms (META), the owner of Facebook, one of the "Magnificent Seven" technology-oriented stocks that have driven most of the stock market gains of the past year, paid its first regular dividend in early 2024. That means the majority of the Magnificent Seven stocks now pay dividends. And more than two-thirds of S&P 500 companies have raised or started paying dividends since January 2023, according to S&P Dow Jones Indices. 

The way back for great dividend stocks

As overall stock valuations approach historically high levels, some analysts say that stock price gains can't help but slow, making dividends a more significant portion of future stock returns. 

And don't overlook the defensive quality of dividends. Thanks to their regular cash payments, dividend stocks tend to be less volatile and serve as buffers during recessions and bear markets. For example, the S&P 500 lost more than 18% in 2022, but the Dividend Aristocrats lost only about 6%. 

"With economic growth expected to moderate in 2024, and the potential for recession lingering, dividends may take a more prominent role in driving total returns for investors," says Diana Wagner, a portfolio manager at Capital Group.

How to find great dividend stocks 

Dividend stocks are not all alike, and interested investors should first figure out what kind of dividend payer fits their needs. 

Retirees looking for immediate income often focus on companies paying comparatively generous dividends, for example. Those who have a longer time to invest might look for companies with lower current yields but a higher probability of raising their payouts and at a faster rate. 

Whatever kind of dividend you're looking for – high yield, high growth or the holy grail of both – professional dividend investors say to consider three factors.

Dividend yield. Yields vary by sector and industry. Real estate, energy and utilities companies generally pay at least 3%. Some niches in declining industries, such as tobacco companies, pay out high dividends because they no longer invest much in growth and focus on generating cash for shareholders. Technology and communications firms, as well as companies that provide nonessential consumer goods or services, have low average yields – currently less than 1%, according to S&P Dow Jones Indices. 

Just try not to be dazzled by the stocks with the highest dividend yields. Generally speaking, a super-high yield, or a sudden jump, can signal a troubled company whose stock price is sinking, or it may simply indicate an unsustainably high payout. 

Michael Tang, a portfolio manager for the Hamlin High Dividend Equity fund, is careful about reaching too far for yield. For example, although some real estate investment trusts (REITs) currently yield more than 9%, Tang's only REIT is Lamar Advertising (LAMR, $111), which yields 4.7%. With a focus on billboards, Lamar has avoided problematic commercial real estate and retail properties, Tang says. 

Payout ratio. One way to tell whether a company can afford to keep paying – and potentially raise – its dividend is to look at the percentage of earnings it pays out as dividends, known as the payout ratio, says Stephen Horan, an associate professor of finance at the University of North Carolina Wilmington. 

Although the average payout ratio for the S&P 500 was recently about 36%, this, too, varies by industry. Technology companies pay out, on average, only about 21% of their profits, retaining the rest for internal investments, such as research. Energy companies have recently been paying about 50% of their profits to investors. 

Just as with dividend yields, a high number is a warning sign, Horan says. But it's important to look at this measure over time, because some companies can have a high ratio during one bad year but then recover. Consistently paying out more than about 75% leaves little buffer for potential trouble, Horan says. 

Dividend investors should also pay close attention to a company's free cash flow (the cash left over after expenditures to operate, maintain and expand the business) because that's where dividends come from. 

Mike Barclay, senior portfolio manager of the Columbia Dividend Income Fund, says a big cash buffer is what attracted him to payment company Visa (V, $283), which he recently added to the fund's holdings. Its dividend is low; Visa yields less than 1%. But Barclay expects earnings and cash flow to continue to grow. "What you want is a strategy that's going to allow you to consistently compound returns and have the dividend grow in a healthy fashion," he says.

History. A commitment to a steadily rising dividend is a sign of capital discipline, says Barclay. Fledgling companies husband their cash to invest in expanding their business. Less-mature companies with a surplus of cash tend to spend it on buying back company stock (or, sometimes, ill-advised investments). 

"Stock buybacks are like dating," he says, because companies can stop them at any time without consequence. "Dividends are like marriage" because companies that cut them are typically punished harshly by investors. Meta's decision to start paying a dividend is "a good start," says Barclay. But he will wait at least a year to see whether the company follows up with a commitment to regular dividend increases. 

In the meantime, he's bullish on Microsoft (MSFT, $413), which is the second-biggest holding of Columbia Dividend Income. Microsoft's yield is just 0.7%, but it has raised its dividend every year for the past 18 years – proving that paying a dividend doesn't have to hamper investment or growth. 

An easy way to invest in a diversified basket of dividend payers is with a well-run dividend-oriented fund. You might consider T. Rowe Price Dividend Growth (PRDGX) or Vanguard Equity Income (VEIPX), both members of the Kiplinger 25, the list of our favorite actively managed no-load mutual funds. Schwab U.S. Dividend Equity (SCHD) is a member of the Kiplinger ETF 20, the list of our favorite cheap ETFs (exchange-traded funds). The Schwab fund tracks the Dow Jones U.S. Dividend 100 index, a list of companies that have paid dividends for at least 10 consecutive years and have strong balance sheets.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Have you ever noticed that equity investors can't have nice things? As miserable as we are when stocks are going down, we're even more unhappy when they're going up.

There's an empirical explanation for this psychological phenomenon. It's called "loss aversion." Humans are at the mercy of all sorts of cognitive biases, and one of the more perverse ones is that we experience far more pain from losing money than we experience pleasure from winning the same sum.

That's why when markets are rising, stocks are said to be climbing a wall of worry. The higher stocks climb, the more investor anxiety mounts. That's loss aversion at work.

Cut to today, with markets at record highs and valuations stretched by just about any metric you care to use, and it's only natural for investors to question if stocks are in a bubble.

Stocks never go up in a straight line, but that's pretty much what the S&P 500 did after bottoming out early last spring. From its April 7, 2025, intraday low to its close on December 31, the benchmark index was up 41.6% on a price basis. Such a torrid run has U.S. equities trading at some of their very priciest levels in history, according to BofA Securities.

As of December 31, on 18 of 20 metrics the S&P 500 was trading at statistically expensive levels, according to a note to clients from Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy at BofA Global Research. Four of the metrics — Market Cap to GDP, Price to Book, Price to Operating Cash Flow and Enterprise Value to Sales were at record highs.

Is the stock market in a bubble? Here's how to tell

Happily, valuation is not a timing tool, as strategists take pains to point out. As Subramanian suggests, opportunities remain for investors willing to look for selective sector opportunities

Meanwhile, though questions remain about when and whether the Federal Reserve will cut interest rates amid a backdrop of broadening and accelerating profits, it's not hard to argue for a boom in earnings-per-share and GDP growth.

It's also possible that stocks have structurally re-rated to carrying richer valuations, as Subramanian noted earlier in 2025.

"The S&P 500 has changed significantly from the 80s, 90s and 2000s," explains Subramanian. "Perhaps we should anchor to today's multiples as the new normal rather than expecting mean reversion to a bygone era."

Perhaps most important, bubbles are as much of a psychological phenomenon as a financial one.

There's no substitute for experience on Wall Street, which is why it's always wise to listen to old hands when it comes to divining the market's machinations. Nicholas Colas, co-founder with Jessica Rabe of DataTrek Research, started working full-time on Wall Street in 1986. He lived through the October 1987 stock market crash and has witnessed every boom and bust up close ever since.

Colas has developed a three-point checklist for "spotting unhealthy, runaway markets." Here's a thumbnail version:

The market for initial public offerings gets frothy. Although the number of IPO announcements hit a multiyear high in the third quarter, the market for new issues has been subdued since it peaked in 2021. Higher interest rates and the availability of private-market funding remain headwinds.

"The good news is that history shows a rampant IPO market is a clear sign of a top," Colas notes. "We're nowhere close to that now."

Hallmark mergers and acquisitions (M&A) deals. "Exceptionally bad deals happen at the top, even if at the time they seem quite sensible," Colas writes. "M&A activity is ultimately a function of CEO/board confidence. Just like retail investors chasing hot IPOs at a market peak, senior managers fall prey to the same overconfidence that the good times will last forever."

Happily, M&A activity, while picking up, also remains under control. Through November 30, M&A volume was up 2% year over year in 2025, according to PwC.

A double is a bubble. Colas has a general rule to identify unsustainably high prices in a range of markets. Whenever the S&P 500 doubles in three years or less, stock prices decline shortly thereafter. The same is true about the Nasdaq Composite over any rolling one-year window going back to the early 1970s, notes Colas.

"A double is a sign of speculative excess because macro conditions are never so different that asset prices should rise 100% over a short period of time," Colas says. "Markets are reasonably good discounting mechanisms. When prices double, you know speculation — not fundamentals — are driving those gains."

Even the Nasdaq Composite, which is the frothiest equity market right now, is up "only" 20% over the past year.

Another tech bubble?

The remarkable bull market in equities was given fresh fuel by the Federal Reserve's jumbo interest rate cut in September 2024, but it's uncertain how much more fuel monetary policy can provide from here. Meanwhile, bubble anxiety centers around the AI companies, such as the Magnificent 7, that dominate the S&P 500 and Nasdaq-100.

Naturally, echoes of the bursting of the dot-com bubble are tat the op of anxious investors' minds.

"The introduction of transformative technologies typically attracts growing investor interest as well as significant capital and new competition," writes Peter Oppenheimer, chief global equity strategist and head of macro research Europe at Goldman Sachs. "As enthusiasm builds and stock prices increase, the sum of individual company valuations can overstate the total potential aggregate returns; often a bubble develops and bursts."

Oppenheimer notes the technology sector has generated 32% of the global equity return and 40% of the U.S. equity market return since 2010. This reflects stronger fundamentals rather than irrational exuberance.

"In our view, the technology sector is not in a bubble and is likely to continue to dominate returns," the strategist adds. That said, "concentration risks are high, and investors should look to diversify exposure to improve risk-adjusted returns while also gaining access to potential winners in smaller technology companies and other parts of the market."

Are stocks in a bubble?

None of Colas' time-proven indicators point to a stock market bubble, but a bubble very much remains a possibility in 2026, Colas says. Keep an eye on IPOs, M&A and how fast market levels rise from here.

Also remember that while the explosive growth in all things AI has valuations looking stretched, Goldman Sachs' Oppenheimer notes, "valuations often also understate the opportunities that can accrue in the nontechnology industries that can leverage the technology to generate higher returns."

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Venerable General Electric (GE), once the longest-serving member of the Dow Jones Industrial Average, will officially split into two companies at the start of next month.

And the old GE name is going away. 

GE will spin off GE Vernova on April 2, which will then start trading on the New York Stock Exchange (NYSE) under the ticker GEV. Holders of GE common stock will receive one share of GE Vernova common stock for every four shares of GE common stock held as of March 19.

Importantly, GE shareholders will continue to hold their shares of GE common stock – but now with the company name GE Aerospace, GE said in a press release. Meanwhile, GE Aerospace will continue GE's listing on the NYSE under the ticker symbol GE.

GE Vernova houses the former conglomerate's gas power and renewable energy business. GE spun off GE HealthCare Technologies (GEHC) in January 2023. 

GE first announced its decision to split into three companies focusing on aviation, healthcare and energy, respectively, in 2021.

Better times for GE stock?

GE stock is a long-time market laggard, but it has clobbered the broader market over the past year – and especially since its board set the GE Vernova spinoff date.

If you go back two decades, GE sports an annualized total return (price change plus dividends) of just 2%. The S&P 500 generated an annualized total return of more than 10% over the same period. Over the past 10 years, GE lagged the broader market by about 11 percentage points.

But GE's decision to split up helped change sentiment on the name. Its price performance is much more encouraging since it decided to split, with upside accelerating as the spinoffs came to fruition. GE's annualized total return easily tops the S&P 500 over the past five years, and doubles the broader market's returns for the trailing three-year period. 

Cut to today, and GE has been clobbering the broader market. Shares are up 85% on a price basis over the past 52 weeks, vs 26% for the S&P 500. For the year-to-date, GE is sitting on a 25% price gain, vs the broader market's 7%.

Even better, Wall Street likes the "new" GE's prospects as GE Aerospace going forward.

Of the 17 analysts covering the stock surveyed by S&P Global Market Intelligence, five call it a Strong Buy, two say Buy, six have it at Hold and three rate it at Sell. That works out to a consensus recommendation of Buy, with solid conviction. 

Bulls argue that GE Aerospace has significant advantages over rivals, among other reasons to be constructive on the stock. 

"Comparing its engine business vs its closest peers, we continue to see GE outperforming in the coming years," writes Morgan Stanley analyst Matt Akers, who rates the stock at Overweight (the equivalent of Buy). "GE's commercial engine fleet is approximately three times larger than its competitor's, giving it a bigger base to spread costs."

The analyst adds that GE's commercial engine fleet stands out vs peers due to better demographics. "Nearly two-thirds are mid-life engines in their prime aftermarket period," Akers notes. 

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Shopping for stocks when markets are struggling with a June swoon might not seem like the best idea. Between rising bubble anxiety and mounting uncertainty over the direction of monetary policy, it's understandable if investors are reluctant to put cash to work these days.

On the other hand, markets rarely top out at this time of year. As Ryan Detrick, chief market strategist at Carson Group notes, the most recent all-time high for the S&P 500 was on June 2.

"Stocks soared for the two months off the late March lows, so some weakness in June isn't a big surprise," he writes. "June is the only month in history that hasn't seen the ultimate peak for the year. We don't think this year will be the first one to peak in June."

At the same time, not only has a strong corporate earnings season lifted sentiment, but forward earnings estimates are marching higher. In turn, rising expected operating profits have helped make valuations more attractive.

Besides, every market features select names that are set to outperform.

Although the Magnificent 7 stocks have done much of the bull market's heavy lifting, that hardly means these names are doomed to underperform from here. Indeed, many of them are in pronounced drawdowns. At the same time, a rotation out of these stocks has capital flowing to other, sometimes sleepier, sectors.

As we'll see below, five of Wall Street's top-rated S&P 500 stocks to buy hail from the Magnificent 7. Companies from the financial, healthcare and industrials sectors are ably represented, too.

How we found analysts' top-rated S&P 500 stocks

It's well known that industry analysts are reluctant to slap Sell ratings on the names they cover. There are several reasons for this, some more defensible than others.

What's less commonly understood is that Strong Buy recommendations, while not nearly as rare as Sell calls, are in somewhat short supply, too.

If you run a screen of the S&P 500 using data from S&P Global Market Intelligence, you'll see that analysts assign a consensus Sell recommendation to only one stock.

At the other end of the ratings spectrum stands the Street's highest recommendation of Strong Buy. A total of 52 stocks made the cut there as bullish sentiment soars.

First, a note on our methodology: S&P Global Market Intelligence surveys analysts' stock recommendations and scores them on a five-point scale, in which 1.0 equals Strong Buy and 5.0 means Strong Sell.

Any score below 2.5 means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

In other words, lower scores are better than higher scores.

Have a look at the chart below to see the 52 stocks in the S&P 500 that score an elite Strong Buy recommendation from industry analysts. Investors who fear it's too late to buy Amazon.com (AMZN), Microsoft (MSFT) or Nvidia (NVDA) will be happy to see they easily made the list.

As much as artificial intelligence (AI) is driving capital spending and market sentiment, analysts see plenty of reasons to be bullish on names across multiple sectors. Here we highlight what Wall Street has to say about three less sexy stocks on the list this month.

GE Aerospace

GE Aerospace (GE), which retained the classic GE ticker following the 2024 spinoff of GE Vernova (GEV), has seen its shares take off as the company establishes itself as a high-margin, pure-play aerospace leader with significant competitive moats.

In a report titled "No sign of stopping the growth engine; reiterate Buy," BofA Securities analyst Ronald Epstein said the company's "robust demand and best-in-class execution support double-digit growth in 2026."

The analyst likes the stock over the longer haul, too, noting that GE Aerospace is well-positioned to benefit from the ongoing ramp-up in commercial aircraft production and sustained aftermarket demand. "Following the spin-off of GE Vernova, we see the company as leaner and focused on execution and safety," Epstein added.

Meanwhile, the company's robust free cash flow – which exceeded $5.7 billion last year – allows GE to aggressively fund R&D and investments in manufacturing infrastructure, all while continuing to return cash to shareholders. GE boosted its dividend by nearly 30% last year. At the same time, it repurchased more than $7 billion in stock.

Shares have delivered only market matching returns so far in 2026 (after adding more than 86% last year), but that just has the stock priced for outperformance, Wall Street says. Of the 22 analysts covering GE, 16 rate it at Strong Buy, three say Buy and two call it a Hold. A lone analyst has a sell recommendation on the name. Nevertheless, that works out to a consensus recommendation of Strong Buy.

Smurfit WestRock

After losing about a quarter of their value in 2025, Smurfit WestRock (SW) shares are beating the broader market by about 4 percentage points this year, and bulls say they are just getting started. After all, the company is still finding its feet.

SW was formed by the 2024 merger of Smurfit Kappa and WestRock Company, creating the world's largest paper packaging company. Smurfit WestRock's operations in 40 countries make it the revenue leader in the world of corrugated cardboard, containerboard, consumer packaging and more.

"We see long-term upside potential and expect earnings growth congruent with growth in e-commerce and growth in demand for sustainable paper and packaging goods," writes Argus Research analyst Alexandra Yates, who rates shares at Buy. "We also expect to see margin growth with operational efficiency improvements in the coming quarters."

Moreover, SW expects $400 million in synergies (also known as cost cuts) as a result of the merger.

With a forward P/E of less than 14, SW trades at 36% discount to the broader market. The dividend yield, at 4.2%, is pretty spicy compared to the S&P 500's yield of less than 1.1%.

Of the 15 analysts covering the materials stock, 10 rate it at Strong Buy and five have it at Buy. That works out to a consensus recommendation of Strong Buy.

Visa

Warren Buffett was a long-time admirer of Visa (V), so it was something of a surprise to see CEO Greg Abel boot it from the Berkshire Hathaway equity portfolio in early 2026.

Happily for continuing shareholders, Wall Street remains bullish on the nation's largest payments processor. Shares are off about 6% over the past year – vs a 26% gain for the broader market – but that just has Visa priced for outperformance amid the relentless war on cash, bulls say.

"Visa remains well positioned to benefit from the ongoing shift to electronic payments and remains one of our top ideas," writes Oppenheimer analyst Rayna Kumar, who rates shares at Outperform (Buy).

The company is enjoying massive growth in value-added services, such as fraud protection, consulting and data analytics. Not only are these high-margin services; they create higher switching costs for banks and merchants. This stickiness helps Visa hold a dominant position in the business-to-business space.

Interestingly, the Street hasn't been this collectively bullish on the name in 16 years. Of the 39 analysts covering Visa, 29 rate it at Strong Buy, seven say Buy and three have it at Hold.

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The S&P 500 Dividend Aristocrats index looks only a little different as we head into the second half of the year. 

Widely regarded as some of the best dividend stocks for dependable dividend growth, the S&P 500 Dividend Aristocrats is an index of S&P 500 companies that have raised their dividends for at least 25 consecutive years.

That's kind of a big deal if you are a long-term equity income investor. Regular dividend hikes not only increase the yield on an investor's original cost basis over time, often quite dramatically; they also help investors sleep better at night.

After all, any company that manages to raise its dividend year after year – through recession, war, market crashes and more – is demonstrating both its financial resilience and its commitment to returning cash to shareholders.

S&P Dow Jones Indices, which rebalances the index quarterly, ditched Walgreens Boots Alliance (WBA) at the beginning of 2024 after the pharmacy chain slashed its dividend by almost half.

Walgreens had increased its dividend every year for nearly half a century before the cut. Analysts, who regularly give WBA one of the lowest rankings of all 30 Dow Jones stocks, applauded the decision to take cash earmarked for shareholders and invest it back into the business. 

Perhaps most interesting is what will happen to long-time member 3M (MMM). The Dow stock is on the Aristocrats chopping block after slashing its dividend as part of its Solventum (SOLV) spin off. 3M is expected to be cut from the list of dependable dividend payers when S&P Dow Jones next rebalances the index.

Dividend Aristocrats Fastenal and Kenvue

The Dividend Aristocrats membership list remains at 67 stocks, however, as Fastenal (FAST) was added to the index in the first quarter of 2024. The industrial supplier has raised its dividend for 25 consecutive years, making it available for inclusion in the index. 

Most recently, Fastenal declared a quarterly cash dividend of 39 cents per share to be paid on February 29 to shareholders of record as of February 1. The company generated more than $1 billion in levered free cash flow in fiscal 2023, and that was after paying out more than a billion dollars in dividends. 

Fastenal stock sports a dividend yield of 2.4%, which is fairly generous for an Aristocrat. The exchange-traded fund that tracks the index, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), has a dividend yield of 2.1%. 

Other changes to the Dividend Aristocrats over the past year include the removal of VF Corp. (VFC) and the addition of Kenvue (KVUE), which was spun off from fellow Aristocrat Johnson & Johnson (JNJ). 

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No one likes the akshually guy, but the bull market isn't really two years old. Although the S&P 500 notched its bear-market bottom on October 12, 2022, a bull market doesn't begin until the market regains its previous peak. By that definition, our current bull market was confirmed in January. Until that point, it was still underwater.

With that technicality of technical analysis out of the way, let's just agree that – what the heck – the bull market is two years old. After all, a bull market isn't defined by a chart; it's made by people. When the macroeconomic backdrop appears favorable for corporate earnings, when those earnings are forecast to grow at an attractive or accelerating rate, and when market participants are willing to pay higher and higher premiums for those expected earnings? Yeah, that's a bull market.

The S&P 500 generated a total return (price change plus dividends) of 67% from the bear-market bottom through late October, driven mostly by the Magnificent 7 stocks. And while it's true Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT) and other mega-cap AI plays generated an outsized role in the bull market's gains, that cliché about a rising tide lifting all boats is mostly true when it comes to equities.

Best stocks: buy, sell or hold?

To that end, we screened the S&P 500 for the stocks with the highest total returns since the bear-market bottom to see how industry analysts viewed them at current levels. After all, the names below have more than doubled or even quadrupled and then some. Valuations tend to get stretched after such hot runs, leading to lower future returns.

Below please find the S&P 500 stocks generating the highest total returns from the bear-market bottom through October 23. We also delved into what industry analysts think of these stocks' prospects going forward, using data from S&P Global Market Intelligence. You can see Wall Street's consensus recommendations and scores in the table below.

A note on the scoring system: S&P Global Market Intelligence surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

In other words, lower scores are better than higher scores.

Below please find the best S&P 500 stocks of the bull market and how the Street rates them now.

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It's easy to forget about the importance of dividends when the market is notching new all-time highs. And while no old saw is a substitute for a comprehensive wealth management plan, there really is something to the cliche about high-quality dividend stocks never going out of style.

Dividends really do matter. Although such regular payouts to shareholders have become much less popular over the decades, dividends still account for a critical share of the market's total return (price change plus dividends). 

Since 1960, 69% of the total return of the S&P 500 can be attributed to reinvested dividends and compounding, according to a study by Hartford Funds. And while companies may not pay dividends like they used to, dividends have still fueled nearly a quarter of the S&P 500's annualized total returns so far this decade.

Interestingly, the case for dividends actually gets more compelling when the market is making new highs and valuations are getting stretched.

"Dividends have historically played a significant role in total return," the Hartford Funds report notes, "particularly when average annual equity returns were lower than 10% during a decade."

Sadly, average annual equity returns are indeed looking to be pretty poor over the next 10 years, at least by one highly regarded measure. The S&P 500 Shiller cyclically adjusted price/earnings ratio (CAPE) has a solid track record of forecasting long-term annualized returns. At its current level, Shiller CAPE gives the broader market an implied annualized total return of 3.9% over the next 10 years.

That's pretty crummy considering the S&P 500 delivered an annualized total return of more than 12% over the past decade. It also suggests that dividend stocks as an asset class could be very helpful to buy and hold these days.

Wall Street's top S&P 500 dividend stocks

In order to find Wall Street's top dividend stocks to buy now, we used S&P Global Market Intelligence to screen the S&P 500 index for analysts' highest rated names yielding at least 3% as of January 19. 

A note on the ratings system: S&P Global Market Intelligence surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call. In other words, lower scores are better than higher scores.

We used a 3% yield as our lower bound because that's essentially twice the S&P 500's yield of 1.49%.

If you're looking to add Buy-rated dividend stocks to your portfolio, the names listed below are the best the S&P 500 has to offer, according to industry analysts. 

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Apple (AAPL) and Microsoft (MSFT) find themselves in a tight race over bragging rights to the title of world's most valuable publicly traded company after AAPL stock popped following a big analyst upgrade.

A poor start to the year already had some bulls saying it's time to buy the dip in Apple stock. But when one of Wall Street's largest broker-dealers joined the chorus before Thursday's opening bell, it helped Apple recover billions in market value.

BofA Securities lifted its recommendation on AAPL stock to Buy from Neutral (the equivalent of Hold), citing the iPhone maker's investments in generative artificial intelligence (AI) and the launch of its Vision Pro mixed reality headset, among other impending catalysts. 

With a new price target of $225 – up from $208 – BofA Securities gives AAPL stock implied upside of about 20% over the next 12 months or so. The Street's average target price stands at $199.40, according to data from S&P Global Market Intelligence, good for implied upside of only 6% in the next year. 

Importantly, while some analysts have cited weaker iPhone sales in China as reasons to become more cautious on AAPL stock, the BofA Securities team led by analyst Wamsi Mohan argued as part of its upgrade that Apple's "China weakness is largely offset by strength in other countries."

Although Apple routinely makes the list of Wall Street's top-ranked Dow Jones stocks, worries over demand in China have AAPL off to a rough start in 2024. Apple stock is up about 38% over the past 52 weeks, but shares have spent all of January in the red on a year-to-date basis, hurt partly by downgrades.

Piper Sandler analyst Harsh Kumar cut his recommendation on the stock in early January to Neutral (the equivalent of Hold) from Overweight (Buy), citing a weak macroeconomic backdrop in China. Kumar's downgrade followed a more bearish downgrade by Barclays analyst Tim Long – to Underweight from Neutral – two days earlier. Long also cited weaker revenue in China as a concern.

Apple has seen iPhone sales soften in China amid an economic slowdown and other factors. Consumers are holding onto their pricey iPhones longer between refresh cycles, analysts note, while a new 5G phone from rival Huawei is also chipping away at iPhone demand. 

Microsoft and Apple run neck and neck

While Apple stock has traded essentially sideways for six months on worries that growth has peaked, fellow Magnificent 7 stock Microsoft overtook it as the global leader in market capitalization thanks to exuberance over generative AI. 

Microsoft, which enjoys a sort of first-mover advantage in AI via its partnership with OpenAI, had already been an outstanding long-term holding thanks to its dominance in cloud services. 

Not only was MSFT one of the 30 best stocks in the world for three decades, anyone who put $1,000 into Microsoft stock 20 years ago would have clobbered  the broader market. 

Check out the stocks billionaires are buying or hedge funds' top blue chip stocks and you'll see that much of the putative smart money agrees with the Street's view, which gives MSFT a rare consensus recommendation of Strong Buy. 

"Microsoft continues to pursue long-term growth through its AI and cloud investments, and may just hold the premier position in business technology," writes Argus Research analyst Joseph Bonner, who rates shares at Buy. "It also has a large and loyal customer base, a large cash cushion and a rock-solid balance sheet."

Have a look at the above chart and you'll see how bullishness like Bonner's helped Microsoft stock return nearly 65% over the past 52 weeks, allowing it to surpass Apple in market capitalization. 

As of Thursday's close, the two tech giants were separated by less than $10 billion in market cap: $2.927 trillion for MSFT vs $2.917 trillion for AAPL, or essentially tied.

Whether the companies' market values diverge from here is the big question. Happily for investors in both names, the Street very much expects AAPL stock and MSFT stock to continue to beat the broader market in the year ahead.

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Walgreens Boots Alliance (WBA) stock tumbled Thursday after the pharmacy chain slashed its dividend by almost half. The move puts the company at risk of being removed from the S&P 500 Dividend Aristocrats, an index of S&P 500 companies that have raised their dividends for at least 25 consecutive years. 

At its old dividend level, Walgreens was one of the stocks with the highest dividend yields in the S&P 500. But that's about to change.

The company announced a quarterly dividend of 25 cents a share on Thursday, down from the prior quarter's payout of 48 cents a share. The dividend is payable on March 12 to stockholders of record as of February 20, Walgreens said in a news release. 

"This action reinforces our goal of increasing cash flow, while freeing up capital to invest in sustainable growth initiatives in our pharmacy and healthcare businesses, which we believe will ultimately improve shareholder value," Walgreen CEO Tim Wentworth said in a statement. 

At 48 cents per share per quarter, the forward yield on WBA stock comes to more than 7.5%. However, at the new rate of 25 cents per share per quarter, the forward yield on WBA stock falls to about 4.1%. That's still generous, but well below WBA's own three-year average dividend yield of 5.1%.

Analysts, who already give WBA one of the lowest rankings of all 30 Dow Jones stocks, applauded the decision to take cash earmarked for shareholders and invest it back into the business. 

CFRA Research analyst Arun Sundaram, for one, reiterated his Hold recommendation on WBA, noting the company is "on pace toward $1 billion of cost savings this fiscal year, in addition to about $600 million of lower capital expenditures and $500 million in working capital benefits."

Industry analysts have assigned WBA stock a consensus recommendation of Hold for more than five years, according to data from S&P Global Market Intelligence. Of the 18 analysts covering WBA today, two rate it at Strong Buy, one says Buy, 12 have it at Hold, two say Sell and one ranks it at Strong Sell. 

With an average target price of $26.67, Wall Street gives WBA stock implied price upside of about 12% in the next 12 months or so. Add in the dividend yield, and WBA's implied total return comes to about 16% in the next year or so. 

Walgreens earnings beat estimates

Walgreens also on Thursday posted better-than-expected fiscal first-quarter earnings. On an adjusted basis, which is what industry analysts care about, Walgreens earned 66 cents a share, easily topping Wall Street's average forecast of 62 cents a share. Sales of $36.7 billion also beat analysts' estimate. 

"WBA delivered fiscal first quarter results in line with overall expectations, reflecting disciplined execution in a challenging consumer backdrop," said CEO Wentworth in Walgreens' earnings release. "We are evaluating all strategic options to drive sustainable long-term shareholder value, focusing on swift actions to right-size costs and increase cash flow, with a balanced approach to capital allocation priorities."

WBA stock is a long-time market laggard. Over the past 20 years, shares generated a total return (price change plus dividends) of less than 1%. That lags the S&P 500's total return over the same period by about 10 percentage points. 

And the performance only gets worse from there. WBA stock delivered negative total returns over the past one-, three-, five- and 10-year periods. As wonderful as Walgreens' annual dividend increases have been, they have been more than offset by relentless share-price depreciation. 

Walgreens Boots Alliance stock is one of the top-weighted names in the Dividend Aristocrats and – by extension – the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) that tracks the Aristocrats. Needless to say, WBA stock hasn't been doing investors in NOBL any favors. 

WBA may lose its status as a Dividend Aristocrat, but if these new capital plans can kick start its moribund stock price, long-suffering equity income investors will almost certainly come to forgive it. 

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The earnings recession that started a year ago looks to be over.

With more than 98% of S&P 500 companies having reported quarterly results, it's fair to say the numbers are in and they're good. The S&P 500 is set to post year-over-year earnings growth for the first time since the third quarter of 2022.

Indeed, the S&P 500's Q3 earnings growth state stands at 4.8%, according to FactSet. That's remarkable considering that as of September 30, analysts forecast the S&P 500 to post a 0.3% decline in year-over-year third-quarter earnings. 

And make no mistake: this was a better-than-expected earnings season that delivered on a number of fronts.

Drilling down, 82% of S&P 500 companies exceeded analysts' average earnings per share (EPS) estimate vs a five-year average of 77% and a 10-year average of 74%. Looked at another way, the S&P 500's EPS beat rate hasn't been this high in two years. 

Moreover, companies beat Wall Street EPS estimates by an average of 7.2%. Although that's below the five-year average of 8.5%, it easily tops the 10-year mean of 6.6%.

"Positive earnings surprises reported by companies in the information technology, financials and consumer discretionary sectors, partially offset by downward revisions to EPS estimates and negative earnings surprises reported by companies in the healthcare sector, have been the largest contributors to the increase in the earnings for the index," writes John Butters, senior earnings analyst at FactSet. 

The consumer discretionary sector more than pulled its upside-surprise weight during Q3 earnings season, with Airbnb (ABNB), Amazon.com (AMZN) and Nike (NKE), a highly rated Dow Jones stock, delivering some of the biggest EPS beats.

In the tech sector, Nvidia (NVDA) – NVDA stock has tripled this year – Intel (INTC) and Intuit (INTU) all exceeded Street EPS forecasts by wide margins. The communications services sector was boosted by better-than-expected earnings from Meta Platforms (META) and Paramount Global (PARA), among other names.

Street slashing Q4 earnings estimates

The Street was too downbeat coming into Q3 and it's not much more optimistic about Q4. Concerns about a possible economic slowdown or recession have analysts lowering their Q4 EPS estimates by more than usual, per FactSet.

"During the months of October and November, analysts lowered EPS estimates for the fourth quarter by a larger margin than average," Butters notes. "The Q4 bottom-up EPS estimate decreased by 5% from September 30 to November 30."

For context, the average decline in the bottom-up EPS estimate during the first two months of a quarter is 2.9% over the past five years, and 2.7% over the past decade.

It's important to note analysts are taking cues from the companies they follow – and there's increasing pessimism to be found in the C-suite, too. The percentage of companies issuing negative earnings guidance for the fourth quarter stands comfortably above both its five- and 10-year averages. 

Of course, there's nothing wrong with talking down expectations. The more the Street lowers its expectations, the easier it is for companies to beat them.

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The world of finance is an ever-changing landscape. From rising inflation rates to the dynamics of the stock market, various challenges and opportunities present themselves and can make or break even the most carefully crafted investment strategies. Understanding the complex relationship between risk and reward becomes essential.

Risk signifies the possibility of losing part or all of one’s investment, while reward tempts investors with the promise of potential gains. Financial markets are unpredictable and can include downturns that pose challenges. Successfully navigating the unpredictability of the market requires thoughtful consideration of risk vs reward, acting as the compass guiding investors through a complex financial landscape.

Diversifying and compounding: Strategies for mitigating risk

One key strategy for managing risk in investments is diversification. By spreading investments across different asset classes, industries and regions, this will mitigate the impact of any single investment's underperformance on the overall portfolio. While diversification doesn't guarantee profits or eliminate all risks, it acts as a shield against significant losses, showcasing the wisdom of not putting all “eggs in one basket.”

Compounding is another powerful concept that can significantly enhance long-term returns. It involves reinvesting earnings, such as dividends or capital gains, allowing investments to grow even more. Starting early and giving investments time to mature enhances the potential rewards. However, it's crucial to acknowledge that compounding is not immune to market volatility, underscoring the need for a thoughtful and measured approach.

Stocks: High rewards, higher risks

Investing in individual stocks is an avenue that offers both rewards and risks. Stocks represent ownership in a company and provide the potential for capital appreciation and dividends. The price of a stock is influenced by factors such as company performance, industry trends, economic conditions and investor sentiment. While stocks historically develop higher returns compared to other asset classes long term, they are also prone to significant volatility.

Having a comprehensive understanding of a company's business outlook, as well as the current state of the market, is imperative for knowing the risks associated with investing. Defensive stocks, for example, offer steady earnings and consistent dividends regardless of overall market performance, acting as a shield against broader economic uncertainties.

Exchange-traded funds: Diversification made accessible

Exchange-traded funds (ETFs) can be an appealing option for those seeking diversification without the complexities of individual stock selection. These investment vehicles pool investors' money to create a diversified portfolio of assets, spanning stocks, bonds or commodities. 

ETFs offer the benefits of diversification and liquidity, allowing investors to gain broad market exposure without the need to purchase individual securities. While ETFs can mitigate risk through diversification, it's essential to understand the specific fund's strategy, holdings and associated fees before investing.

Empowering the next generation

Teaching kids about risk vs reward involves using relatable, real-life examples. For instance, explaining the concept of saving money for a desired toy and earning interest at the bank illustrates the idea of delayed gratification and potential rewards over time. As kids grow older, incorporating real-world investment stories helps them grasp the realities of investing, from success stories to instances where investments didn't pan out as expected.

Discussing risk tolerance is also vital. Kids need to understand that different investments carry varying levels of risk, and aligning their choices with their risk tolerance and long-term goals is key. The concept of diversification can be introduced using relatable scenarios, illustrating how spreading investments across different "baskets" helps manage risks.

To complement these lessons, educational resources like Invstr Jr can play a pivotal role by providing interactive tools, games, and simulations designed to make finance and investing engaging for kids (I am the founder and CEO of Invstr). By exploring such platforms, young investors can gain valuable insights into risk vs reward, diversification and other fundamental investment concepts in an enjoyable and interactive manner.

The world of investing is a fascinating realm, offering both opportunities and challenges. As we empower the next generation of investors, instilling these principles early on equips them with the tools they need to make sound financial decisions and navigate the intricate dance of risk and reward in the ever-evolving landscape of investments.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Income investors love dividends. They own a portfolio of world-class businesses, sit back and let the cash roll into their accounts. Sounds great, right? It pretty much is.

But what if I told you there’s an even better way to invest? Instead of focusing purely on dividend yield, there is a broader metric that can improve your results that’s worthy of your attention: shareholder yield.

When it comes to analyzing stocks, there’s rarely anything new under the sun. But shareholder yield is a relatively new concept. The term was first introduced in the 2005 paper “The Case for Shareholder Yield as a Dominant Driver of Future Equity Returns.”

The idea is straightforward. A company has a finite number of ways it can use its free cash (that is, cash that’s available after paying for planned capital investments, taxes and interest payments). The company can use free cash flow to:

• Pay cash dividends
• Repurchase stock
• Reduce debt
• Acquire another business
• Reinvest in the company

The last two applications involve growth. And if a company can generate a strong return on reinvested capital, that’s great. But income investors are rightly concerned with how profits get distributed to them, the company’s shareholders.

It’s the first three uses of cash (paying dividends, repurchasing stock and paying down debt) that comprise shareholder yield. Let’s take a closer look at each one:

Dividends. Most investors are familiar with this type of shareholder return. A company will distribute some of its cash to shareholders. Usually, American companies do this quarterly. Many international companies pay out once or twice per year. The term “dividend yield” simply refers to how much the company is paying out in annual dividends relative to its stock price.

As an example, retailer Target (TGT), has paid $4.36 per share in dividends over the past 12 months. Its current stock price is $108.21. That equates to a trailing 12-month dividend yield of 4.0%. That’s well over double the dividend yield of the S&P 500.

In addition to regular dividends, some companies further reward shareholders with special dividends — one-off payments akin to getting an unexpected bonus check. This is a pretty common practice among energy and other commodity companies, but certainly not exclusive to them. Costco (COST), as an example, has paid out four special dividends since 2011.

Stock repurchases. These are also known as share buybacks. This is when a company repurchases its own shares from existing shareholders. Stock repurchases benefit current shareholders who are looking to reduce their ownership (it provides additional liquidity). And it can benefit shareholders who don’t want to liquidate, because when the number of outstanding shares is reduced through repurchases, that means investors who keep their shares end up owning a larger percentage of the company (and are entitled to a bigger piece of the profit pie).

Online marketplace operator Etsy (ETSY) is a company that could easily be looked over by income investors. It doesn’t pay a dividend at all. Instead of paying cash to shareholders, it has spent over $576 million buying back stock over the past 12 months.

Debt reduction. This is the component of shareholder yield that isn’t particularly intuitive. It’s certainly a more subtle way of rewarding shareholders. By reducing interest costs, companies can funnel more future profits to shareholders. Debt reduction also increases the percentage of the enterprise value that is owned by equity shareholders — just like when a homeowner pays down their mortgage, the net value of their home goes up (value of home – mortgage debt = equity value).

Airline operator Alaska Air (ALK) doesn’t pay a dividend, and share buybacks have been modest. Instead, it has been focused on paying down debt, to the tune of $295 million over the past 12 months.

When you combine these three components — dividends, buybacks and debt reduction — you get shareholder yield. The three companies used to demonstrate these components operate very different businesses. How they allocate their cash varies quite a bit as well. Yet, when looked at through the lens of shareholder yield, they have a lot in common.

Source: Bloomberg, SAM analysis. Data as of 11/13/23.

If you’re an investor who’s looking only at dividend yield, you’re missing the broader shareholder return picture. At SAM, we’ve found that approaches emphasizing shareholder yield can outperform the broader market over time. That’s why shareholder yield is a big priority in our Income strategy. If you’re investing on your own, we highly recommend going the extra mile to calculate shareholder yield. Or if you have an adviser, it’s worth finding out if they’re making those calculations on your behalf.

Stansberry Asset Management ("SAM") is a Registered Investment Advisor with the United States Securities and Exchange Commission. File number: 801-107061. Such registration does not imply any level of skill or training. This presentation has been prepared by SAM and is for informational purposes only. Under no circumstances should this report or any information herein be construed as investment advice, or as an offer to sell or the solicitation of an offer to buy any securities or other financial instruments.

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When it comes to blue chip stocks that pay dividends and play defense, Walmart's (WMT) reputation is pretty tough to beat.

Indeed, Walmart is indisputably one of the best dividend stocks for dependable dividend growth.

This member of the S&P 500 Dividend Aristocrats has increased its payout annually for more than half a century. For those reasons and more, Walmart ranks as one of analysts' favorite Dow Jones stocks.

Walmart's defensive characteristics certainly came in handy in 2022, as you can see in the chart below. The S&P 500 generated a total return (price change plus dividends) of -18.1%, a historically bad result.

On the other hand, Walmart's total return came to -0.5% – or essentially flat – to beat the broader market by more than 17 percentage points.

The other side of WMT's defensive coin can be seen in its performance during 2023's remarkable rally. While the S&P 500 returned more than 26%, Walmart returned less than 13%.

As for 2026, WMT's defensive characteristics once again proving their worth. Shares have returned 16% so far this year, while the S&P 500 is basically flat. This recent outperformance has helped WMT turn in solid market-beating returns on a 20-year basis.

That's a change in fortune. WMT stock was a long-time laggard following a torrid run in the 1990s, hurt by the market's preference for growth over value, as well as worries about the future of bricks-and-mortar retail.

The bottom line on Walmart stock

Walmart stock was actually one of the best stocks of the 30 years between 1990 and 2020, but as you can see in the chart below, WMT basically traded sideways for the first decade-plus of the 21st century.

Walmart shares went nowhere for a long time, but then that's not necessarily unusual given how far and fast they appreciated during the bubblicious 90s.

Between the beginning of 1997 and the end of 1999, WMT gained more than 500% on a price basis. The broader market didn't quite double over the same span.

Also weighing on WMT during the first decade of the new century was the threat from e-commerce.

Walmart responded by becoming the second-largest e-commerce retailer in the U.S. after Amazon.com (AMZN) – albeit a distant second. Walmart got serious about its digital strategy sometime around 2006, but it took a while for what was regarded as "show-me" story to ultimately prove successful.

Whatever the causes, that lost decade on Walmart's stock chart hurts its long-term results. Over the past 20 years, WMT stock has generated an annualized total return of 13.5% vs 10.8% for the S&P 500.

To get a sense of what this sort of ride looks like on a stock chart over the past two decades, see the chart below.

The chart illustrates the fact that if you invested $1,000 in Walmart stock 20 years ago, today it would be worth about $12,600. The same thousand bucks invested in an S&P 500 ETF would be worth about $7,700 today.

As for its entire history as a publicly traded company, WMT's annualized total return beats the broader market by about 3 percentage points.

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There is a doctrine that one year's investment champions become the subsequent year's failures. In 2023, this again is true, but the fallen heroes are unexpected: high-dividend-yield stocks and funds. The puzzle is whether dividend-focused strategies are set for years of relative decline, or if this is a case of massive short-term outperformance predictably returning to earth. I vote for the latter. 

The backdrop: In 2022, high-dividend shares, led by energy and utility stocks, were the stoutest line of defense, along with the Dogs, the highest-yielding listings in the broad averages or each industry sector. 

Exchange-traded fund ALPS Sector Dividend Dogs (SDOG) lost just 0.2% last year as the S&P 500 Index, including dividends, disgorged 18.1%. The ETF starts each year with equal stakes in the five highest-yielding stocks of 10 S&P 500 sectors (excluding real estate). So it's an indication broadly of whether big dividends are in or out of favor. Four times since 2013, the fund placed in the best 25% by total return among its Morningstar peers. (Funds I like are in bold; prices and returns are as of July 31 unless otherwise noted.)

But now the bulls are running the Dogs ragged. The ALPS ETF is up just 3.1% in 2023, compared with 20.6% for the SPDR S&P 500 Trust (SPY), the giant S&P 500 ETF. (That is nearly an exact reversal of last year's numbers.) This is due to the 500's cluster of low- or zero-yielding tech kingpins, but even within tech, high-dividend listings such as Cisco Systems (CSCO), International Business Machines (IBM) and Texas Instruments (TXN) are going nowhere. Bank and energy stocks, which usually outyield the full market, are down. Utilities are in the red. Selective dividend ETFs, such as Schwab US Dividend Equity (SCHD) and Franklin US Low Volatility High Dividend (LVHD), are treading water, eroding excellent long-term performance records.

No question, U.S. cash dividends are in a rut, with 2023 increases running at a 4% pace – half last year's rate. Cash-rich and profitable companies including Apple (AAPL) and lithium king Albemarle (ALB), despite its 29 straight years of hikes, only granted quarterly boosts of 1 cent and half a cent, respectively. S&P Dow Jones Indices analyst Howard Silverblatt says that companies of all kinds thought (and may still think) the economic and earnings outlook is poor and stinted on their latest dividend actions despite evidence from 2022 that generous payouts protect shares from catastrophe. 

Mark Barnes, of FTSE Russell, notes that 18 months ago, banks and money market funds paid zero or barely above, so a 2% dividend was decent. Now cash is competition, with risk-free yields exceeding those of nearly all common and preferred stocks, as well as corporate bonds. 

What should income investors do now? 

It depends on your cash needs and how your dividend distribution compares to your original or average cost. There is an argument for holding longtime stock positions that are treading water but not cutting payouts or suffering scandal or mismanagement. 

Funds pay you well, too, but I suggest patience with new money. Create a waitlist for the Franklin and Alps ETFs as well as for the ProShares S&P 500 Dividend Aristocrats (NOBL) and pounce once the Federal Reserve finally quits tightening credit. There are also covered-call-option-enhanced ETFs: Global X NASDAQ 100 Covered Call (QYLD) and JPMorgan Equity Premium Income (JEPI). The Global X ETF, yielding 11.9% in late July, is an index fund; the JPMorgan ETF (7.8%) is actively managed.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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U.S. dividend growth continued its "steady deceleration" during the April through June period to mark a sixth consecutive quarter of slower dividend increases, according to a study by the Janus Henderson Global Dividend Index.

Although the latest data might sound somewhat alarming, note that difficult comparisons against prior-year periods of unusually robust growth are partly to blame for the deceleration in dividend increases. While many of their global counterparts were enacting steep dividend cuts during the pandemic, U.S. companies managed to grow their payouts with "exceptional resilience," writes Ben Lofthouse, head of global equity income at Janus Henderson Investors.

On a headline basis, second-quarter U.S. dividend growth rose 2.6% year-over-year to $148 billion. Excluding lower one-off special dividends, the underlying growth rate came to 4.6% in Q2. While investors certainly would have preferred to see stronger year-over-year dividend growth, the figures still represent a "creditable increase," Janus Henderson reports.

"Notably, 98% of U.S. companies in our index either raised payouts or held them steady, well above the global average," Lofthouse says.

On a global basis, dividends rose 4.9% to a record $568.1 billion in Q2, per Janus Henderson. Underlying growth, which adjusts for lower one-off special dividends and other minor factors, came to 6.3%.

Healthcare leads U.S. dividend growth

Looking at the U.S., companies in the healthcare sector were the biggest contributors to second-quarter dividend growth, led by Eli Lilly (LLY) and UnitedHealth Group (UNH). UNH happens to be Wall Street's top-rated name among all 30 Dow Jones stocks. 

U.S. real estate companies also helped boost domestic dividend growth, with logistics property specialist Prologis (PLD) being the sector standout. Real estate investment trusts, or REITs, are especially valued by equity income investors for their typically generous disbursements.

Pulling in the other direction on U.S. dividend growth were Intel (INTC) and Blackstone (BX), both of which cut their dividends in bids to preserve or redirect cash. Intel, a member of the Dow, may have returned to profitability in Q2, but this blue chip stock has been a poor investment over the past 20 years. 

Although economic growth around the world is moderating amid higher interest rates, Janus Henderson expects dividend growth to continue in 2023. 

"One of the reassuring features of dividend income is that it is typically much less volatile than earnings," Lofthouse adds. "Payouts lagged behind profit growth last year and so can therefore exceed it this year."

For all of 2023, Janus Henderson forecasts global dividends to increase 5.2% on a headline basis to $1.64 billion. Underlying growth is expected to hit 5.0% vs 2022. 

While accelerating dividend increases would be the preferable state of affairs, the data remain indisputably good news for buy-and-hold dividend growth investors. Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with. 

Fears of an economic slowdown or outright recession are likely to keep a lid on the rate of dividend growth for the foreseeable future. Be that as it may, loads of stocks can be counted on to hike their dividends regardless of economic conditions. Investors looking to add such names to their portfolios will find plenty of candidates among the best dividend stocks for dependable dividend growth. 

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Shares of AT&T (T) and Verizon Communications (VZ) sport two of the highest dividend yields in the S&P 500, and that's making some equity income investors increasingly nervous. 

The reason being that the dividend yields on these telecommunications stocks are unusually elevated because their share prices are in the dumps.

Recall that stock prices and dividend yields move in opposite directions. It's possible that a too-good-to-be-true dividend yield is simply a side effect of a stock having lost a lot of value. And anytime a company's stock is slumping badly, it's worth wondering if its dividend is sustainable at current levels.

AT&T and Verizon, the latter being one of the Dow Jones stocks, are historically dividend stalwarts. But with their share prices under duress, worries about dividend cuts are to be expected.

Both companies are contending with concerns about increased competition in wireless and slower industry growth, but the issue most punishing their shares these days are concerns over costs related to lead contamination cleanup. 

An investigation by The Wall Street Journal published in July found that "AT&T, Verizon and other telecom giants have left behind a sprawling network of cables covered in toxic lead that stretches across the U.S."

Costs associated with any cleanup could have ramifications for AT&T and VZ's free cash flow (FCF), or the cash remaining after expenses, capital expenditures and financial commitments have been met. Dividends are ultimately supported by free cash flow.

AT&T, VZ dividends look safe

AT&T stock has lost about a fifth of its value for the year-to-date, pushing up the yield on its dividend to 7.8%. As for VZ, shares are off about 12% for the year-to-date, also lifting its dividend yield to around 7.8%.

In what should come as a relief to investors, analysts say the selloffs on lead contamination fears are overdone. Perhaps more importantly, the dividends look safe.

Citi analyst Michael Rollins this week raised his recommendations on both AT&T and Verizon to Buy from Neutral (the equivalent of Hold). He also maintained his "High Risk" rating on both stocks. Rollins argues that T and VZ could become turnaround stories if the costs associated with lead cleanup are lower than expected. 

"Market capitalizations for the telcos with possible [lead contamination] exposure are down $21 billion vs an estimated $15 billion cost of remediation based on latest disclosures and our estimates," Rollins wrote in a note to clients. 

Rollins' calculations suggest the costs of cleanup have been more than adequately discounted in the sectors' valuation. AT&T and VZ could also get a boost if the competitive environment stabilizes, the analyst adds.

At AT&T, shareholders can take additional comfort in the fact that the company has been chipping away at its heavy debt load and freeing up cash. AT&T generated positive free cash flow of $103.4 billion in 2022. That compares favorably against negative free cash flow of $67.7 billion the previous year. 

Over at Verizon, the company generated free cash flow of $11.5 billion for the 12 months ended June 30, 2023. That was after disbursing $10.9 billion in dividends.

Buy, sell or hold?

For the record, analysts as a group aren't quite as bullish as Citi's Rollins. 

Of the 29 analysts covering AT&T tracked by S&P Global Market Intelligence, 10 call it a Strong Buy, two have it at Buy, 15 say it's a Hold and two rate it at Strong Sell. That works out to a consensus recommendation of Buy, with tepid conviction. 

As for VZ stock's prospects for beating the market over the next 12 to 18 months, Wall Street is split. Analysts' consensus recommendation stands at Hold.

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After rising more than 20% in both 2023 and 2024, the S&P 500 Index added another 18% in 2025. But rising volatility during the first quarter of 2026 has investors wondering whether the bull market is intact.

Indeed, recent price action and the market's "fear index" rising well outside its normal range again is a good reminder to be ready for anything. That includes allocating some space in your portfolio for defensive stocks.

In his groundbreaking book on value investing, "The Intelligent Investor," Benjamin Graham discusses the primary characteristics of defensive stocks.

Such stocks have good records of paying dividends, are conservatively financed and are moderately priced. These factors mean defensive stocks are well equipped to ride the inevitable ups and downs of the stock market.

Those same factors also mean defensive stocks can generate stable returns, generous income and long-term wealth for you.

What are defensive stocks in the stock market?

The typical defensive stock has three defining characteristics.

These include a good history of dependable dividend growth; a conservatively financed balance sheet with little debt; and an inexpensive valuation.

Dividends. Companies that have a long history of dividend payments and have grown them over time tend to have stable price histories.

For example, the best dividend stocks for dependable dividend growth tend to fall less in bear markets. This works if the market believes the company will maintain the dividend, even while other stocks are tumbling.

Let's say that a stock has a stable history of dividend payments over an extended period of time. Also, let's assume the stock presently has an attractive dividend yield of 3.5%.

If its dividend payment rises by 5%, the market will tend to push the stock price higher by 5%, so as to maintain the same 3.5% dividend yield.

There is a more fundamental point about dividend-paying stocks that makes them defensive investments.

Companies normally can only pay dividends over a long period if they have positive earnings or strong free cash flow (FCF).

FCF is the money left over after expenses, interest on debt, taxes and long-term investments that are needed to grow the business have been paid.

In other words, they are fundamentally healthy.

At the same time, the best defensive stocks typically have low payout ratios. This means that no more than 50% to 60% of the company's earnings are paid as dividends.

This allows the company to reinvest its retained earnings for future growth.

Balance sheet. Another major trait of a good defensive stock pick is a conservative balance sheet. This means investors should stay away from certain types of stocks with the highest dividend yields.

Their share prices could be spiraling, making their yields rise and/or fall because they may have taken on large amounts of debt in order to pay out their dividends.

Another pitfall to avoid is a company that has issued too many shares. For example, some high-yield real estate investment trusts (REITs) can only afford their lofty dividends by constantly issuing new shares.

So, despite the high yield, the stock will not tend to do well over time.

Valuation. The third major characteristic of top defensive stocks is a cheap valuation.

Academic studies have shown that over long periods, stocks with low price-to-earnings (P/E) ratios and low price-to-book value (P/B) ratios do well over time.

What are drawbacks to buying defensive stocks? 

One drawback of buying even the best defensive stocks is that they tend to generate conservative returns. They typically won't rise as much as other stocks during bull markets.

Of course, the opposite side is also true — they tend to not fall as much in bear markets.

Another drawback is that defensive stocks tend to be either in cyclical industries or low-growth arenas that aren't popular. The company might be profitable, but its earnings or sales growth rate could also be low.

And that is the conundrum for investors. The stock has an inexpensive valuation because of its defensive traits.

But it could be a cheap stock due to its slow growth rate, despite its stable dividends and conservative balance sheet.

What are examples of defensive stocks? 

Here are a few examples of defensive stocks in today's market.

Old Republic International (ORI) is a large multiline insurance company that has a 45-year history of annual dividend growth. And its dividends account for less than 40% of earnings.

Meanwhile, ORI stock has an inexpensive valuation of 12.7 times forward earnings, boasts a 2.9% dividend yield and has a conservatively financed balance sheet.

Chevron (CVX) is a very large oil and gas company that reported revenue of $189 billion and free cash flow of $17 billion for fiscal 2025.

That FCF allows the company to pay an ample dividend, which has grown every year for the past 39 years.

As it stands, the blue chip stock now has an attractive 3.8% dividend yield. Its valuation is also attractive at 20.9 times forward earnings.

And Chevron finances its operations very conservatively, with just 14.4% net debt compared to its shareholders' equity.

HP (HPQ) is a profitable imaging and printing products company that offers related technology solutions and services. HPQ is a defensive stock for several reasons.

First, the company has a history of paying a dividend that traces back more than 50 years. And HP has raised its payout each of the past 15 years. Second, its valuation is attractive, with the tech stock trading at just 6.2 times forward earnings.

And HPQ is considered a defensive stock as its balance sheet is reasonably financed.

It ended 2025 with $4.2 billion in cash. This can be used to cover its dividends and continue to pay down the $8.8 billion of net debt on its balance sheet.

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Dividend investing is an excellent and proven way to grow your wealth over time.

So, what is dividend investing?

When someone says they're a dividend investor, it means they buy common and preferred stocks of public corporations that share earnings with their stakeholders, or dividend stocks.

There are several great advantages to dividend investing, especially compared to other types of investing such as buying growth stocks or REIT stocks.

At the same time, dividend investors should avoid some common pitfalls. The first thing is to understand how a dividend yield works.

Basically, you want to avoid buying stocks with the highest dividend yields because that high yield can often indicate a future dip in both the dividend payment and the stock price.

There are other issues successful dividend investors must navigate.

Let's take a look at these pitfalls as well as the advantages of dividend investing.

Why dividend investing is a good idea

The chief advantage of buying and holding dividend stocks is that, over time, consistently profitable companies tend to raise their dividends as their earnings grow.

This allows their shareholders to earn more income as time goes on. Moreover, it helps push the underlying stock price higher.

For example, let's say a dividend stock pays a $1.00 per-share dividend and the stock price is $33.33. That gives it a 3.0% dividend yield.

So if the company hikes the dividend to $1.20, the investor will make 20% more income. The stock will often but not always rise to bring the dividend yield back to what it was before.

In this case, the share price would have to increase by $6.67 to $40 to hit that 3.0% yield.

Another more subtle advantage of dividend investing is that the best dividend stocks are often less volatile. This is because stocks that pay dividends tend to be more stable over time.

For example, the market often rewards companies it believes have the earnings power and cash flow strength to maintain their dividends. Often the stock price will trade within a well-defined historical dividend-yield range.

As a result, the share prices of dividend stocks tend to display more stability than growth stocks, which can gyrate wildly based on their own momentum and other non-fundamental traits.

Finally, dividend investing, especially with profitable companies, can directly benefit from companies that buy back their stock.

For example, let's take a dividend-paying company that buys back 3% of its shares each year.

As a result, the company might raise its per-share dividend by 3%. The same dividend cost is spread over fewer shares outstanding.

Growth stocks that don't pay dividends don't gain this advantage.

Is dividend investing a bad idea?

Dividend investing is not a "bad idea." But there are several pitfalls to avoid when you deploy the strategy.

One of the most common is avoiding high-yield dividend stocks. The market tends to have a good sense of when a company can't afford to maintain its present dividend.

As the stock falls, the dividend yield rises. That's because the market sees a dividend cut coming and reacts by lowering the price to maintain the yield after the cut.

Don't be tempted to buy these high-yield stocks before the dividend cut actually occurs.

Another pitfall is excessive trading. This can prevent you from getting favorable tax treatment on your dividends.

For example, to earn qualified dividend tax treatment, investors need to hold the dividend stocks for longer periods.

The exact qualified dividend rules are complicated, but it essentially involves holding a dividend stock for at least 60 days.

It also depends on the exact date when an investor buys the dividend stock and when the next dividend record date is set.

Just keep in mind that favorable tax treatment of dividend income accrues to long-term investors.

And note that distributions from REITs and MLPs (master limited partnerships) do not have this qualified tax treatment. The basic explanation is that these public companies are not structured as corporations.

To avoid this tax treatment pitfall, successful dividend investing means not day trading dividend stocks and constantly buying and selling shares.

Three rules for dividend investing

Investors who follow three simple rules can enjoy the benefits and avoid the pitfalls of dividend investing.

First, stick with dividend stocks that have at least a 10-year record of growing their dividend payments on an annual basis.

One way to do this is to screen for stocks using Seeking Alpha, Yahoo! Finance or even Value Line.

Second, avoid small-cap stocks, even if they have a good dividend track record.

Many of these companies have less cash flow available, or debt or revenue issues that make dividend investing difficult.

Third, target stocks with dividend yields no higher than 4.0% to 5.0% (and, rarely, 6.0%, unless the company has a very healthy financial condition).

This will allow the investor to avoid the high-yield dividend investing pitfall mentioned earlier.

And don't forget: You must always monitor your portfolio to be a successful dividend investor.

Just like pulling weeds is critical to the gardening process, keeping a clean portfolio is important for growing wealth through dividend investing.

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Warren Buffett's Berkshire Hathaway (BRK.B) initiated a small stake in The New York Times Company (NYT) in the fourth quarter but continued to pare back bets on core holdings such as Apple (AAPL) and Bank of America (BAC).

Buffett, who stepped down as CEO at the end of 2025 but remains chairman of the holding company, continued to cut Berkshire's exposure to equities as the market hit record highs.

In what was perhaps a nod to stretched valuations, Berkshire was once again a net seller of stocks, with net sales of approximately $4 billion in Q4. The holding company has now sold more stocks than it has bought for 13 consecutive quarters.

While exact figures will have to wait until Berkshire releases quarterly earnings on February 28, it's estimated that the company was a net seller of stocks to the tune of $14 billion in 2025.

Over the past three years, Berkshire sold more than $190 billion worth of equities. Also noteworthy is that Berkshire hasn't bought back its own stock since May 2024.

With a market cap of more than $1 trillion, Berkshire maintains a sort of "barbell" portfolio, as it holds approximately $280 billion in stocks and more than $380 billion in cash.

Although Berkshire has become more cautious, it did do some shopping in Q4. In addition to buying NYT, the holding company increased stakes in four of its holdings.

Before we get into Berkshire's most recent buys and sells, it's important to know that Buffett has always run a highly concentrated portfolio.

Excluding the company's Japanese brokerage stocks and other overseas equities, Apple alone accounts for more than a fifth of Berkshire's stock portfolio. (That's down from more than 40% at its peak.)

Furthermore, Berkshire's top five U.S. equity holdings comprise about 70% of its portfolio value, while the top 10 account for 88%.

As Buffett likes to say, diversification is for those who don't know what they're doing.

Also, please note that while Warren Buffett traditionally managed Berkshire Hathaway's largest equity positions, the management structure has officially transitioned.

Buffett has confirmed that CEO Greg Abel now oversees the entire portfolio, supported by investment manager Ted Weschler. Notably, Todd Combs – who previously managed a portion of the portfolio alongside Weschler – departed in late 2025 to take a role at JPMorgan Chase (JPM).

Stocks Warren Buffett is buying

Berkshire boosted its biggest bet in the energy sector, increasing its stake in Chevron (CVX) by almost 7%, or more than 8 million shares. Berkshire, which has owned the Buy-rated Dow Jones stock since the fourth quarter of 2020, now owns more than 130 million shares worth $19.8 billion as of the end of Q4. With a weight of more than 7% in the portfolio, CVX is Berkshire's fifth-largest holding.

In a boost of confidence for Chubb (CB), Berkshire once again upped its stake in the insurer. The holding company, which first bought CB in the first quarter of 2024, increased its position by more than 9%, or almost 3 million shares. With a market value of $10.7 billion as of December 31, CB remains the eighth-largest Berkshire Hathaway holding.

Elsewhere, Berkshire made minor additions to four of its smaller holdings.

Berkshire continued to add to its investment in Domino's Pizza (DPZ), which it initiated in the third quarter of 2024. The holding company increased its stake by more than 12% and now owns nearly 3.4 million shares in the pizza chain worth $1.4 billion as of the end of Q4. However, with a weight of 0.5% in the portfolio, DPZ is Berkshire's 20th-largest position.

As noted above, Berkshire initiated a small stake in NYT, purchasing 5 million shares worth $352 million at the end of Q4. With a weight of about 0.1%, the stake is Berkshire's 30th-largest position.

Lastly, Berkshire made an incremental and essentially immaterial additional investment in Lamar Advertising (LAMR). With a market value of $152 million, LAMR accounts for less than 0.1% of the portfolio.

Stocks Warren Buffett is selling

Buffett continued to pare back Berkshire's position in Apple, which, as recently as 2024, accounted for roughly 40% of its U.S. holdings. The company sold more than 10 million shares over the course of the fourth quarter – a 4% reduction – but Buffett has hardly lost faith in the iPhone maker.

With nearly 228 million shares worth $62 billion as of December 31, AAPL remains Berkshire's largest holding by far, accounting for nearly 23% of the portfolio's total value.

In another reprise from previous quarters, Buffett once again sold Bank of America stock, which has been a major holding since 2017. Berkshire reduced its investment in the nation's second-largest bank by assets by another 9% in Q4, selling more than 50 million shares.

With 517 million shares worth more than $28 billion as of December 31, BAC is Berkshire's third-largest holding, accounting for more than 10% of the portfolio value.

In other sales, Berkshire continued to ease up on DaVita (DVA), its 11th-largest holding, but only by 1.3%. The company also reduced exposure to Constellation Brands (STZ), a stake it initiated at the end of 2024, by 3%.

Other stocks Berkshire pared its stakes in included Aon (AON), Pool Corp. (POOL), Liberty Latin America Class A (LILA) and Atlanta Braves Holdings (BATRK).

Interestingly, Berkshire's most significant reduction in percentage terms was its stake in Amazon.com (AMZN). The conglomerate cut its position by 77%, offloading nearly 8 million shares of the Magnificent 7 stock. With a market value of approximately $525 million, Amazon has tumbled from Berkshire's 17th-largest holding at the end of Q3 to its 27th-largest position as of year-end 2025.

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Investors are presented with many choices for creating income in their portfolios these days.

One way is to buy dividend stocks. Dividend stocks with rising payouts over time are especially attractive.

What are dividend stocks? Why should you own them?

"Dividend income is often overlooked amid gyrations in the stock market," writes John Eade, president and director of Portfolio Strategies at Argus Research. "But dividends are an important element of return."

Dividends provide ballast during periods of market uncertainty as we saw in 2022, when the Federal Reserve began aggressively hiking interest rates to bring down inflation.

We saw it again in early 2025, when President Donald Trump introduced new tariffs and generated historic levels of economic uncertainty and stock market volatility.

Here, we answer the question "what are dividend stocks." And we review how dividend stocks differ from preferred stocks, bonds and money market funds.

We also discuss where investors can find the best dividend stocks.

How does a dividend stock work?

The law allows companies to pay a portion of either their income or their retained earnings to shareholders. These distributions include dividends, which can be paid in cash, stock or other property.

Dividends are paid in two basic ways.

Preferred stock is a senior security that usually includes a fixed dividend rate based on its par value.

Dividends paid on common stock (or "ordinary" shares in overseas markets) are determined on a monthly, quarterly, semi-annual or annual basis.

Preferred stock dividends are paid before common stock dividends. This priority is one of the main benefits of preferred stock.

The board of directors of a publicly traded company will generally consider dividend policy on an annual basis.

In the U.S., public companies tend to pay out a consistent portion of earnings each quarter in the form of common stock dividends.

Management teams at healthy and growing businesses often demonstrate their confidence with regular, incremental increases to their dividend rates.

Sustained dividend growth over time helps stabilize the stock price.

One basic fact separates dividends paid on preferred stock and common stock from interest paid on bonds, money market funds and CDs.

With these asset classes, the investor knows the exact amount of each payment for the life of the security.

A rising interest rate environment means bond prices are going lower and bond yields are going higher. That dynamic made these fixed-income assets attractive options for investors last year.

The Federal Reserve cut rates three times in late 2025, though market yields have remained stubbornly high amid persistently elevated inflation expectations.

The prospect of falling yields is something to keep mind should the Fed continue to ease and should its policy start to generate real affects in 2026.

As for dividend stocks, investors know their yield based on the annualized rate the company is forecast to maintain.

That dividend rate can grow, which means the dividend yield can rise.

The share price often follows, boosting total return.

Are dividend stocks a good buy?

For the most part, investing in dividend stocks is a good thing.

Indeed, simple math shows dividends boost total returns (price appreciation plus dividends) over time.

"Since 1926, dividends have contributed approximately 32% of total return for the S&P 500, while capital appreciations have contributed 68%," writes S&P Dow Jones Indices (PDF) in its study on the importance of stable dividend income.

"Therefore, sustainable dividend income and capital appreciation potential are important factors for total return expectations."

However, as with anything in investing, there are risks associated with dividend stocks.

One of the main pitfalls is buying shares in a company that can't afford to maintain its dividend. If the company's earnings have been consistently falling, chances are good that it will have to eventually lower its dividend.

For example, in early 2022, AT&T (T) — long known as one of the best dividend stocks on Wall Street — slashed its annual dividend by more than 46%, to $1.11 per share from $2.08. This was part of a complicated spinoff plan between AT&T and Discovery that created Warner Bros. Discovery (WBD).

However, Warner Bros. Discovery was not a dividend-paying stock at the time of the spinoff. Existing AT&T shareholders received 0.24 WBD share for each T share they owned, and they were also left with much lower income as a result of the dividend cut.

AT&T’s stock price fell by more than 20% and finally bottomed in July 2023.

Another potential pitfall is only seeking out stocks with high dividend yields.

"[A]n unusually high dividend yield can actually be a warning sign," writes Dan Burrows, senior investing writer at Kiplinger.com, in his article on S&P 500 stocks with highest dividend yields.

"That's because stock prices and dividend yields move in opposite directions. It's possible that a too-good-to-be-true dividend yield is simply a side effect of a stock having lost a lot of value."

Additionally, with some corners of the market like real estate investment trusts (REITs), dividend payments, or "distributions," are misleadingly high.

This is because REITs combine dividend payments with return of capital payments. In other words, they pay out a portion of their paid-in capital.

How to find the best dividend stocks 

The main advantage to be gained by adding dividend stocks to your portfolio is the ability to accelerate your total return over time through steady growth of their payouts.

Let's say a company pays out $3 per share, and the stock price is $100. Its dividend yield is 3.0%.

If the company grows its dividend by 20% in the next three years, the payout to the investor is $3.60 per share. The yield is 3.6%, or $3.60 divided by $100.

Even if the stock price stays at $100, we've seen a rise in total return.

Let's say the stock price increases by 10% over the same three-year period to $110, and the dividend rate rises from $3 to $3.30 to $3.60 per share. Including capital appreciation plus dividends received, the total return for the investor is 18%.

Bond payments don't rise over time, as they're set as coupons. The same is true for CDs. Money market funds can be volatile when their interest payments rise and fall quickly.

With stable dividend stocks, investors can experience higher income over time. This is based on the underlying earnings power of the company.

As such, investors will want to seek high-quality dividend growth stocks, and what better place to start than with the Dividend Aristocrats.

To be included on this list, a company must have raised its payout at least 25 straight years.

There are also the Dividend Kings, which have increased their dividends for a minimum of 50 consecutive years.

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Notwithstanding some recent weakness following a downgrade of the United State's credit rating, stocks are off to their best start in more than a quarter of a century. The question now is whether the remarkable rally of 2023 can continue to run through year-end and beyond.

It's a perfectly reasonable question to ask. Thanks to the cognitive bias of loss aversion, bull markets always climb the proverbial wall of worry. Besides, everyone knows that stocks never go up in a straight line. 

It's also true that valuations are indeed getting a bit stretched. To take just one example, consider the S&P 500 Shiller cyclically adjusted price/earnings ratio (CAPE). It has a solid track record of forecasting long-term annualized returns. At its current level, Shiller CAPE gives the broader market an implied annualized total return of 4% over the next 10 years. That's pretty crummy considering the S&P 500 delivered an annualized total return (price change plus dividends) of more than 12% over the past decade. 

Then there's the little matter of a possible economic downturn. As much as recession fears have receded – the staff of the Federal Reserve, for example, no longer expects one – sundry surveys and models still put the odds of a downturn hitting in the next year at uncomfortably high levels. Kiplinger's GDP outlook assigns a 40% probability to a recession happening over the next 12 months. More worrisome is the Federal Reserve Bank of New York's yield-curve model, which spits out a 67% chance of recession occurring in the next year. 

Stocks typically sell off ahead of an economic downturn, so investors may be forgiven if they find these recession odds somewhat less than reassuring. 

History sees more gains for stocks

Now for the good news. History suggests that stocks have plenty more upside to give in 2023 – although the gains are likely to be more modest than we've seen so far.

We know this based on work from the good people at Ned Davis Research. A new paper by Ed Clissold, chief U.S. strategist, and Thanh Nguyen, senior quantitative analyst, found that "strong starts to the year are followed by smaller gains the rest of the year, on average."

And what a start to the year it's been. The S&P 500 soared 19.5% on a price basis for the year-to-date through the end of July. That's the best start to a year since 1997, the Ned Davis folks found, and the 10th best start to a year since 1926.

When you consider that the tech-heavy Nasdaq Composite was up 37% on a price basis for the year-to-date through the end of July (and that the blue chip Dow Jones Industrial Average gained more than 7%), muted gains from here should be more than satisfactory. Let's not get greedy. 

To get a sense of what we might expect, Clissold and Nguyen found that in all the years since 1926 in which the S&P 500 rose at least 15% through July, the index finished the year with additional gains 86% of the time. Furthermore, the median gain for the S&P 500 from August through December was 7%. 

Put another way, history gives the broader market an 86% chance of finishing the year higher than it is now, and a 50% chance of putting up gains of at least 7%.

A more recent historical sampling of market performance is even more encouraging. Since World War II, in years in which the S&P 500 gained at least 15% through July, the benchmark index continued to rise from August through December 93% of the time. The median gain over those five months came to 7.6%.

Let's be bullish and project market performance using the more recent historical sample: if the S&P 500 were to add another 7.6% from its July 31 close, it would end the year at 4,938. That means the S&P 500 would deliver a 2023 price gain of 28.6%. Add in dividends, and the benchmark index would generate its third best total return of the past two decades. 

That's exciting stuff. And yet… it should go without saying that history is a highly imperfect guide. A lot can change in five months. If the past is anything like prologue, however, our incipient bull market should keep running. And if it does, 2023 will rank as an elite year of returns for equity investors. 

Fingers crossed.

More columns by Dan Burrows

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If you're looking for the best long-term investment stocks to buy, you have a few ways to approach the task. One is to follow the advice of Benjamin Graham, the father of value investing, in his classic book "The Intelligent Investor."

In what is one of the best books on investing, Graham suggests that a defensive investor should buy stocks of large, conservatively financed companies with good earnings power.

The companies should also have some of the best dividend stocks, with low valuations and consistent histories of payouts.

However, in today's world, many tech stocks don't pay dividends. Instead, they often return capital to shareholders through large share repurchases.

Why are stock buybacks important? "First, all the share buyback activity provides a natural buyer in the market that keeps the price elevated," as I explain in my article, "What Is a Stock Buyback?"

Second, "with fewer shares outstanding, the earnings divided by the average share count each go up."

How we chose the best long-term investment stocks

Applying Graham's criteria today, the idea is to find the best stocks to buy that return large amounts of capital to shareholders either through dividends and/or stock buybacks.

Doing so allows a company to increase its earnings and dividends per share. Moreover, a shareholder's stake rises over time. Both of these factors can push the stock price higher.

We also stick with stocks that have market caps of $100 billion or higher. They must also have low debt ratios and enough cash flow to reduce their debt, as well as pay dividends and/or buybacks.

With this in mind, here are nine of the best long-term investment stocks to buy now.

Data is as of June 5. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $4.5 trillion
• Dividend yield: 0.4%

Apple (AAPL) is the $4.5 trillion iPhone maker that's steadily emerging from overreliance on that and other devices such as Mac computers and iPads in favor of services.

The iPhone still represents more than half the company's sales. And incoming CEO John Ternus was senior vice president of hardware engineering before being named to succeed outgoing CEO Tim Cook. Ternus will replace Cook, who will remain as executive chair, on September 1.

Still, revenue from sources such as the App Store continue to increase as a share of the total. Investors are beginning to appreciate Apple's use of artificial intelligence, too. It's taken some time, but the market is showing its approval of management's vision.

Why not? The company is generating massive amounts of free cash flow (FCF), which is the money left after expenses to run, maintain and expand the business are covered. And Ternus seems more than competent enough to lead further execution of Apple's "hardware as a gateway" strategy.

Apple boosted its modest dividend in May by 4%, from 26 cents to 27 cents per share. AAPL stock yields 0.4%.

Apple's board also reauthorized a $100 billion share-repurchase program that will benefit long-term shareholders. It will raise AAPL's earnings per share over time, because there will be a lower number of outstanding shares for the income produced.

In addition, the dividend per share can rise faster than it would otherwise, since the dividend payments will be spread over fewer number of shares outstanding.

Shares traded in the market will be absorbed, effectively acting as a buying source that will push the blue chip stock higher.

Although the stock is trading well above its five-year forward price-to-earnings average, AAPL remains one of the best long-term investment stocks due to its consistent and powerful cash flow, dividends and buybacks.

• Market value: $373.1 billion
• Dividend yield: 3.8%

Chevron (CVX) is an integrated energy and chemicals company with both upstream and downstream operations in the U.S. and around the world.

Energy stocks have been volatile as the price of oil has spiked and fluctuated amid war in the Middle East between the U.S., Israel and Iran. CVX stock is now trading at a little more than 13 times forward earnings, well below its five-year average of 17 times.

And CVX meets the criteria for a good long-term investment because it's conservatively financed, produces good profits and pays an attractive dividend that it can afford.

Management continues to prioritize dividend and capital investment over share buybacks. Chevron has four decades of annual dividend hikes under its belt because, despite ups and downs for prices of oil and gas, as well as chemical industry cycles, the company has consistently produced large amounts of free cash flow.

Chevron generated about $34 billion in operating cash flow before working capital changes and about $5.5 billion in free cash flow in 2025. The company returned more than $27 billion of cash to shareholders, including share repurchases of more than $14 billion and dividends of nearly $13 billion.

These figures show how Chevron manages a fair balance between investing in the future and rewarding shareholders with its cash flow. It underscores why CVX is the kind of stock that long-term investors should have in their portfolio.

• Market value: $3.1 trillion
• Dividend yield: 0.9%

Microsoft (MSFT) operates in every key software arena: operating systems; cloud; gaming; application software; and, now, AI.

MSFT meets all the necessary qualities for being one of the best long-term investment stocks, as it has consistent earnings, is conservatively financed and generates large amounts of free cash flow. Moreover, it pays a dividend and spends most of its FCF on share buybacks.

Like many software socks, MSFT has been hit hard this year amid questions about how AI would impact Microsoft's core business. The stock is trading at 24.5 times forward earnings, well below a five-year average of 30.

Long-term investors are likely to do well with MSFT, and the reasons are simple. The company's massive cash flow, its products' ubiquity and acceptance and its shareholder rewards all work in the stock's favor.

More important, the company has plenty of room to increase its shareholder-friendly initiatives over time, because it spends just about half its free cash flow on dividends and buybacks. It plows the rest back into the company, reducing debt and making investments and acquisitions.

In the long run, Microsoft shareholders can expect the company to typically grow profits and cash flow, while consistently raising its dividends and buybacks.

Microsoft has raised its dividend for 21 consecutive years. That alone, not counting its buybacks and earnings power, makes the Dow Jones stock worthy of being a long-term investment.

• Market value: $154.4 billion
• Dividend yield: 1.4%

Charles Schwab (SCHW) is a well-known discount brokerage firm and investment banking company with which many folks are familiar.

SCHW meets all the best criteria for a long-term investment value strategy. It's conservatively financed, and it pays a consistent dividend.

As for that dividend, Schwab has consistently paid a dividend for 35 years, well above the 10-year average in its sector. Moreover, Schwab's most recent return on equity was 19.1%, well above its historical median of 13.7% and a sign of strong earnings power.

Jefferies analyst Dan Fannon has a Buy rating on the financial stock. "SCHW has an industry-leading platform that drives midsingle-digit organic growth at scale," Fannon writes.

The analyst pointed to additional potential synergies for both expenses and revenues following the integration of TD Ameritrade, and also cites positive balance sheet trends as well as continued franchise momentum.

"SCHW expects its capital management framework to remain opportunistic," Fannon adds. "The firm continues to prioritize capital levels that support (long-term) business growth and will look for ways for opportunistically returning capital to stockholders." The analyst forecast $6.2 billion in buybacks in 2026.

• Market value: $104.8 billion
• Dividend yield: 3.2%

Medtronic (MDT) is a $105 billion medical device and therapies company that was co-founded by one of the inventors of the pacemaker. The company is extremely profitable, which allows it to pay generous dividends and buy back big blocks of its own shares.

Medtronic pays a $2.88 annual dividend that will likely continue to rise. Management has raised the dividend for 49 straight years.

Share buyback activity has slowed from fiscal 2025, when Medtronic bought back $2.7 billion of its own shares. But every little bit helps towards allowing the company to keep raising its dividend. In addition, at just 13.6 times forward earnings, the stock is inexpensive.

Meanwhile, Medtronic has about $27.8 billion in net debt on its balance sheet, which is less than its $49.0 billion in shareholders' equity. The company's cash flow should continue to recover from supply chain issues we've seen in recent years, allowing Medtronic to reduce its debt reliance over time.

Given its powerful cash flow and shareholder returns, MDT is one of the best long-term investment stocks.

• Market value: $198.8 billion
• Dividend yield: 2.7%

McDonald's (MCD) is known to just about every investor as well as every American. But few realize it's actually one of the best long-term investment stocks because it generates large amounts of free cash flow.

In 2025, McDonald's produced $7.2 billion in FCF. That represents about 3% of its approximately $200 billion market capitalization.

Management uses that free cash flow to fund a generous dividend and stock buyback program. Last year, McDonald's paid $7.1 billion across these shareholder-friendly initiatives.

While some folks might not like MCD's quick-service restaurant fare, plenty of others do. They love its menu, buy McDonald's fries and hamburgers and generally can't get enough of its food.

Moreover, the company is conservatively financed, as its $40 billion in long-term debt is well-matched by the company's ongoing FCF generation. In addition, shareholders have benefited from its history of annually raising its dividend in the past 50 years.

MCD stock looks cheap right now on a historical basis. It currently trades at 21.4 times forward earnings, below its five-year average of 24.4. Nevertheless, everyone is "lovin" MCD stock for the long term.

• Market value: $341.2 billion
• Dividend yield: 2.9%

Procter & Gamble (PG) is a $340 billion consumer products giant with many iconic brand names — including Downy detergent, Mr. Clean cleaning supplies and Head & Shoulders shampoo — that produce large amounts of cash flow for the company.

Most everyone knows Procter & Gamble's brands and is familiar with their solid reputations. But few realize how incredibly profitable the company actually is and why PG is one of the best long-term investment stocks to buy.

For example, for its fiscal third quarter (ended March 31), PG generated $4 billion in operating cash flow and $3 billion in free cash flow.

The FCF represents a notable 14.3% of P&G's $21.2 billion in quarterly sales, which is a high free cash flow margin for a consumer products company. Some software companies don't make those kinds of margins.

This FCF also funds massive dividends and buybacks for shareholders. The company has raised its dividend annually for the past 70 years. Management said it expects to buy back approximately $5 billion in stock this fiscal year. That represents about 1.5% of its current market capitalization.

Meanwhile, PG is cheap at the moment relative to its historical valuation. It trades for 21.1 times earnings, which is below its five-year average of 23.5.

Procter & Gamble generates large amounts of cash flow from its brands and is working diligently to return value to shareholders. That makes it one of the best long-term investments value buyers can make.

• Market value: $342.0 billion
• Dividend yield: 2.7%

Coca-Cola (KO) is an iconic beverage company that generates large amounts of cash flow for its shareholders from its well-known brands such as Coke, Diet Coke, Fanta, Powerade and Minute Maid.

That makes it one of the best long-term investments a value buyer can make — just ask Warren Buffett, whose Berkshire Hathaway (BRK.B) holding company is KO's top shareholder.

What makes KO so attractive is that it's one of the best dividend stocks on Wall Street, having increased its payouts consistently for the last 64 years straight. Most recently, Coca-Cola hiked its dividend by 4% in February.

Today, KO stock yields an attractive 2.7%, and investors can expect the dividend payout to keep increasing.

On top of that, Coca-Cola has a strong stock buyback program, including approximately $400 million in net purchases during 2025 on a current repurchase authorization of $5.2 billion.

KO's dividends and share buybacks are made possible by the $5.2 billion in free cash flow the company generated in 2025.

For the long-term investor, this consumer staples stock looks like a good investment, given its strong cash flows and shareholder-friendly initiatives.

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The first half of 2023 was exciting for investors, as a new bull market was born and tech stocks went on a tear. Even supposedly staid dividends got a little spicier, as 36 firms in the broad-market S&P 1500 index paid out special dividends – extra, one-time payments on top of their regular dividend payouts – from January through June, according to S&P Global Market Intelligence. That's the highest rate in at least six years. 

Redistributing windfall cash via special dividends is a fairly common practice among energy and commodity companies. This year, investors also received extra payouts from firms including Ford (F), Host Hotels & Resorts (HST) and truck maker Paccar (PCAR). And more bonuses are likely coming. Costco Wholesale (COST) has been building up cash and is expected by many analysts to soon distribute much of that to shareholders, for example.

It is always nice to receive an extra check, of course. "It's like chocolate Easter eggs: It's a thrill to find one," says Sam Stovall, chief investment strategist for CFRA Research.

In many cases, if not most, a special dividend simply reflects a welcome policy of returning excess cash to shareholders. But special dividends can also pose conundrums for investors. They can be difficult to work into a budget for investors who depend on dividend income, and they complicate the analysis for those trying to value a stock. In some cases, such as when a company can't really afford it, a special dividend can be a bearish sign. 

To understand the corporate reasoning behind special dividends, it helps to consider dividends generally. Think of them as profit-sharing checks issued by more than 40% of U.S. public firms. (Smaller and fast-growing companies tend not to pay dividends because they want to re-invest in the business.) U.S. dividend payers typically make distributions every three months – usually in cash, sometimes in stock. 

Most companies strive to maintain a steady payment and are conservative about committing to a dividend increase. If they can't support the dividend in perpetuity and must eventually cut the payout, the stock price typically plunges. "Dividend cuts are an abomination," says Jay Hatfield, portfolio manager of the InfraCap Equity Income Fund ETF. 

The cash challenge

The market's premium on predictable dividends poses a challenge to firms in boom-and-bust cyclical industries as well as to firms receiving one-time cash infusions from, for example, the sale of a factory or some other asset. Those companies can either buy, develop or expand businesses; buy back their company's stock; or pay out the money as a dividend. 

Some firms have decided to ignore the market's preference for stable payouts and vary their regular dividend distributions according to their financial situation. For example, asset management firm Blackstone (BX), a member of the Kiplinger Dividend 15, the list of our favorite dividend stocks, makes four scheduled dividend payments a year. But the amount of each varies. Variable payouts are also common overseas. But most U.S. companies looking to share a cash surplus follow a hybrid strategy: They maintain a consistent payout with regular quarterly dividends and issue a special bonus when they can. 

The best special dividends, from an investor's point of view, are those that combine a reliable regular payment and a clear and consistent policy for the timing and amount of special dividends, says Grace Lee, lead portfolio manager of the Columbia Dividend Opportunity Fund. Otherwise, she says, "to the extent that a dividend is unpredictable, it is hard to put a value on it." 

Oil giant ConocoPhillips (COP) says it plans to return 9% of its market capitalization (the value of all of its outstanding shares) to investors each year in the form of dividends or stock buybacks. Conoco has issued special dividends ranging from 30 cents a share to $1.40 on top of its regular dividend (currently 51 cents a share) every quarter since the start of 2022. Over the past 12 months, the energy stock's total return (price change plus dividends) was 21% – twice the return of the overall energy category, according to research firm Morningstar. 

Is a special dividend good or bad?

"Not all special dividends are created equal," says Steve Sosnick, chief strategist at Interactive Brokers. Some firms struggle to pay dividends they can ill afford. Borrowing to pay a special dividend is especially controversial. The grocery chain Albertsons (ACI) borrowed $1.5 billion of the $4 billion it paid out in a special dividend in January, a move opposed by several states' attorneys general who worried it would weaken the firm. 

Special dividends in lieu of regular-dividend hikes might also indicate that a company is expecting a downturn in profits or cash flow, says Infracap's Hatfield. That's one reason the firms that use special dividends the most tend to be subject to swings in business cycles and have volatile stocks, he says. 

Finally, a special dividend can also serve as a hint that a stock is fully valued or even overvalued, says Alex Edmans, a finance professor at the London Business School. "If a company's shares are undervalued, it should prefer a share buyback," Edmans says.

So it pays to be picky about investing in firms that rely on special dividends. A "poster child" for handling special dividends smartly, according to Hatfield: oil company EOG Resources (EOG). EOG's stated policy is to return 60% of free cash flow (money left after expenses and investing to maintain or expand the business) to shareholders through a combination of regular and special dividends and stock buybacks. Since January 2021, the company has raised its regular dividend from 37.5 cents per quarter to 82.5 cents and has issued seven special dividends. 

But EOG did not issue a special dividend in the second quarter this year. The company had already started buying back its shares, which over a volatile first half ended up with a price decline of more than 5%. In terms of deploying cash, "that is the way to manage it," Hatfield says. Hatfield nonetheless limits his stake in EOG, given its exposure to the ups and downs of the commodity market and economic cycles. 

It's the same with special dividends. Just like chocolate Easter eggs, you can't live on them, but they are a sweet treat – sometimes best enjoyed in small bites. 

* Through June 30. Source: S&P Global Market Intelligence

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Few companies are more closely associated with the rise and dominance of the American technology industry over the course of the 20th century than International Business Machines (IBM).

The company that came to be known as Big Blue is sort of the O.G. of big tech stocks. IBM, founded before World War I, became the industry leader in pretty much every market it entered, from early punch-card tabulating systems to electric typewriters to mainframe and personal computers.

IBM stock was a fantastic buy-and-hold bet over those many decades. From 1926 to December 2019, IBM created $525.9 billion in shareholder wealth, according to research by Hendrik Bessembinder, a finance professor at the W.P. Carey School of Business at Arizona State University.

Only seven U.S. stocks generated better returns for shareholders over that span.

Times change. IBM ceded ground to any number of peers, including some of the Magnificent 7 stocks sporting multitrillion-dollar market caps today. The result? Shares in this long-time Dow Jones stock have been a major disappointment for decades.

As a member of the S&P 500 Dividend Aristocrats, IBM is a top-notch name for dependable dividend growth. Not only has the company paid consecutive quarterly dividends since 1916, it has increased its payout annually for 30 years and counting.

However, even after factoring in those reliable and rising dividends, IBM stock has been a market laggard over the long haul.

The bottom line on IBM stock?

IBM stock has been mounting a comeback over the past few years, but as a truly long-term holding, it's been a serious market laggard.

Here's the breakdown: IBM stock's all-time annualized total return (price change plus dividends) comes to 4.6%. The S&P 500 generated an annualized total return of 10.8% over the same span.

It doesn't end there. Shares in the tech giant beat the broader market on an annualized total return basis in the past three- and five-year periods, but lag badly over longer time frames.

It should come as no surprise that if you invested a grand in IBM stock a couple of decades ago, you would be deeply disappointed by the results today.

Have a look at the above chart, and you'll see that if you put $1,000 into IBM stock 20 years ago, it would be worth about $5,700 today. That's good for an annualized total return of 9.1%.

The same sum socked away into an S&P 500 index fund over the past two decades would be worth almost $8,300 today, or 10.9% annualized.

The bottom line? Big Blue has been a buy-and-hold bust in the 21st century.

As for where IBM stock goes from here, Wall Street is cautiously bullish on the name. Of the 22 analysts covering the stock surveyed by S&P Global Market Intelligence, 10 call it a Strong Buy, two say Buy, eight have it at Hold, one says Sell and one rates it at Strong Sell. That works out to a consensus recommendation of Buy with mixed conviction.

More Stocks of the Past 20 Years

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