Top Dividend Stocks (Market Close, May 15, 2023)
When we find a top dividend stock, it meets the following five criteria.
1. US-listed stocks
2. Traded every day, passed data validation
3. Profitable, net income > 0
4. Efficiency (risk-adjusted expected return) > diversified index
5. Dividends paid > S&P 500 Index ETF which paid 1.63% last year
Item 4 is based on our Chicago Quantum Net Score for each individual stock. This is a proprietary algorithm that compares risk-adjusted expected returns.
Our list of dividend paying stocks which have risk-return profiles better than the S&P 500 is limited. Do your due diligence, learn their stories, and decide where you will invest.
1. US-listed stocks
2. Traded every day, passed data validation
3. Profitable, net income > 0
4. Efficiency (risk-adjusted expected return) > diversified index
5. Dividends paid > S&P 500 Index ETF which paid 1.63% last year
Item 4 is based on our Chicago Quantum Net Score for each individual stock. This is a proprietary algorithm that compares risk-adjusted expected returns.
Our list of dividend paying stocks which have risk-return profiles better than the S&P 500 is limited. Do your due diligence, learn their stories, and decide where you will invest.
The top dividend stock identified by our CQNS Long model is:
No top dividend stocks were identified.
Here are some pretty good dividend yielding stocks. Dividend amounts were paid last year vs. average of the stock price (an effective historical dividend yield)
We excluded Canadian financial services and utilities stocks from our top dividend list today.
No top dividend stocks were identified.
Here are some pretty good dividend yielding stocks. Dividend amounts were paid last year vs. average of the stock price (an effective historical dividend yield)
- PNM PNM Resources 3.0% yield
- CEQPp Crestwood Equity Partners LP 12.2% yield
- KO Coca-Cola Co 2.9% yield
- ADP Automatic Data Processing Inc. 2.0% yield
- HON Honeywell International Inc. 2.6% yield
- PEP PepsiCo Inc. 2.7% yield
- MCD McDonald's Corp 2.2% yield
- ITW Illinois Tool Works 2.4% yield
- JNJ Johnson & Johnson 2.7% yield
- PAYX Paychex Inc. 2.7% yield
- MDLZ Mondelez International Inc. 2.4% yield
- KMB Kimberly-Clark Corp 3.6% yield
We excluded Canadian financial services and utilities stocks from our top dividend list today.
Some stocks pay a consistent dividend that is a sustainable percentage of profits and free cash flow (e.g., 20% to 50%). As the company grows profits and cash flow, it can afford to grow dividends. This works in reverse. When a company becomes less profitable, it feels pressure to shrink or eliminate its dividend. We see evidence of this in our Chicago Quantum Net Score analysis of US-listed stocks.
There are a significant number of companies that paid 7% or more in actual dividend yield over the past year. All of them are listed below (for US-listed stocks that pass our data validation process). Only a few 'money losing' companies pay a 7% or higher dividend, and that number keeps shrinking. We notice high-yielding stocks from 2022 cutting or eliminating their dividends. Buyer beware with dividend stocks. If the dividend is not sustainable in your opinion, and the company cuts the dividend, the stock may be sold off aggressively buy investors and portfolio managers that prefer dividend yielding stocks.
There are exceptions to the 'sustainable dividend' story above. Some companies pay a one-time dividend to return cash to shareholders. This could be due to a windfall profit (e.g., winning a lawsuit), or restructuring their business (e.g., sell or spin-out a business).
Below is a list of listed US common stocks based on their actual payout / average share price over the past year. This is an actual, historical dividend yield for an owner of the stock every day for the past year. This is not a forward-looking dividend yield.
These are the top dividend paying stocks over the past year for companies. A value of 1.10 means the company paid 10% of their average closing price in dividends in the past 253 trading days.
There are a significant number of companies that paid 7% or more in actual dividend yield over the past year. All of them are listed below (for US-listed stocks that pass our data validation process). Only a few 'money losing' companies pay a 7% or higher dividend, and that number keeps shrinking. We notice high-yielding stocks from 2022 cutting or eliminating their dividends. Buyer beware with dividend stocks. If the dividend is not sustainable in your opinion, and the company cuts the dividend, the stock may be sold off aggressively buy investors and portfolio managers that prefer dividend yielding stocks.
There are exceptions to the 'sustainable dividend' story above. Some companies pay a one-time dividend to return cash to shareholders. This could be due to a windfall profit (e.g., winning a lawsuit), or restructuring their business (e.g., sell or spin-out a business).
Below is a list of listed US common stocks based on their actual payout / average share price over the past year. This is an actual, historical dividend yield for an owner of the stock every day for the past year. This is not a forward-looking dividend yield.
These are the top dividend paying stocks over the past year for companies. A value of 1.10 means the company paid 10% of their average closing price in dividends in the past 253 trading days.
Stocks that paid 7% or more in dividends last year (vs. actual average stock price)
CBIO 3.59 Catalyst Biosciences Inc
VHC 2.03 Virnetx Holding Corp
ZIM 0.83 Zim Integrated Shipping Services Ltd
PFSW 0.77 PFSWEB Inc
UAN 0.42 CVR Partners LP
LPG 0.40 Dorian LPG Ltd
ICL 0.39 ICL Group Ltd
ACI 0.36 Albertsons Companies Inc
DSX 0.28 Diana Shipping Inc
SBLK 0.25 Star Bulk Carriers Corp
EQC 0.25 Equity Commonwealth
ARR 0.23 ARMOUR Residential REIT Inc
IVR 0.21 Invesco Mortgage Capital Inc
TRMD 0.21 Torm Plc
CHMI 0.19 Cherry Hill Mortgage Investment Corporation
CHRD 0.19 Chord Energy Corp
GOGL 0.18 Golden Ocean Group Limited
GNK 0.17 Genco Shipping & Trading Limited
IEP 0.17 Icahn Enterprises L P
AJX 0.16 Great Ajax Corp
MFA 0.16 MFA Financial Inc
SPOK 0.16 Spok Holdings Inc
AFCG 0.16 AFC Gamma Inc
LOCO 0.16 El Pollo Loco Holdings Inc
CIM 0.15 Chimera Investment Corp
KRP 0.15 Kimbell Royalty Partners LP
CVI 0.15 CVR Energy Inc
DMLP 0.15 Dorchester Minerals LP
BSM 0.15 Black Stone Minerals L.P.
RC 0.15 Ready Capital Corp
ORC 0.15 Orchid Island Capital Inc
GFF 0.15 Griffon Corp.
AGNC 0.15 AGNC Investment Corp
SACH 0.15 Sachem Capital Corp
EFC 0.14 Ellington Financial Inc
EARN 0.14 Ellington Residential Mortgage REIT
ARI 0.14 Apollo Commercial Real Estate Finance Inc
RGR 0.14 Sturm Ruger & Co. Inc.
RTL 0.14 Necessity Retail REIT Inc (The)
CBL 0.13 CBL& Associates Properties Inc.
EGLE 0.13 Eagle Bulk Shipping Inc
GNL 0.13 Global Net Lease Inc
AFG 0.13 American Financial Group Inc
NLY 0.13 Annaly Capital Management Inc
MFIC 0.12 MidCap Financial Investment Corporation
AMBP 0.12 Ardagh Metal Packaging S.A.
BRMK 0.12 Broadmark Realty Capital Inc
CTO 0.12 CTO Realty Growth Inc
SBRA 0.12 Sabra Healthcare REIT Inc
PKE 0.12 Park Aerospace Corp
DX 0.12 Dynex Capital Inc.
RITM 0.12 Rithm Capital Corporation
BRSP 0.12 BrightSpire Capital Inc
USAC 0.12 USA Compression Partners LP
ARLP 0.12 Alliance Resource Partners LP
OMF 0.11 OneMain Holdings Inc
NS 0.11 Nustar Energy L P
CAPL 0.11 CrossAmerica Partners LP
CEQP 0.10 Crestwood Equity Partners LP
CWH 0.10 Camping World Holdings Inc
CFFN 0.10 Capitol Federal Financial
DEA 0.10 Easterly Government Properties Inc
UWMC 0.10 UWM Holdings Corporation
RWAY 0.10 Runway Growth Finance Corp
CALM 0.10 Cal-Maine Foods Inc.
RILY 0.10 B. Riley Financial Inc
BLX 0.10 Banco Latinoamericano De Comercio Exterior SA
TWO 0.10 Two Harbors Investment Corp
NFE 0.10 New Fortress Energy Inc
ET 0.10 Energy Transfer LP
FTAI 0.10 FTAI Aviation Ltd
BGFV 0.10 Big 5 Sporting Goods Corp
STLA 0.10 Stellantis N.V
CEQPp 0.10 Crestwood Equity Partners LP
SIGA 0.10 SIGA Technologies Inc
MPLX 0.10 MPLX LP
SFL 0.10 SFL Corporation Ltd
OHI 0.10 Omega Healthcare Investors Inc.
KNOP 0.10 KNOT Offshore Partners LP
SLG 0.09 SL Green Realty Corp.
ACRE 0.09 Ares Commercial Real Estate Corp
KNTK 0.09 Kinetik Holdings Inc
HPP 0.09 Hudson Pacific Properties Inc
CEIX 0.09 Consol Energy Inc
AM 0.09 Antero Midstream Corp
ENB 0.09 Enbridge Inc
LADR 0.09 Ladder Capital Corp
NCMI 0.09 National Cinemedia Inc
GLP 0.09 Global Partners LP
UNIT 0.09 Uniti Group Inc
EVA 0.09 Enviva Inc
ETRN 0.09 Equitrans Midstream Corporation
NTB 0.09 Bank of N T Butterfield & Son Ltd.
FRG 0.09 Franchise Group Inc
CNQ 0.09 Canadian Natural Resources Ltd.
GOOD 0.09 Gladstone Commercial Corp
GMRE 0.09 Global Medical REIT Inc
PAA 0.09 Plains All American Pipeline LP
SPH 0.09 Suburban Propane Partners LP
TFSL 0.09 TFS Financial Corporation
MMP 0.08 Magellan Midstream Partners L.P.
MO 0.08 Altria Group Inc.
CIO 0.08 City Office REIT Inc
NAT 0.08 Nordic American Tankers Ltd
EIG 0.08 Employers Holdings Inc
GSL 0.08 Global Ship Lease Inc
SUN 0.08 Sunoco LP
HEP 0.08 Holly Energy Partners L.P.
HESM 0.08 Hess Midstream LP
BITO 0.08 ProShares Bitcoin Strategy ETF
FLNG 0.08 Flex Lng Ltd
JHG 0.08 Janus Henderson Group plc
EPR 0.08 EPR Properties
BBW 0.08 Build A Bear Workshop Inc
BGS 0.08 B&G Foods Inc
BNS 0.08 Bank Of Nova Scotia
EPD 0.08 Enterprise Products Partners L P
OLP 0.08 One Liberty Properties Inc.
MFC 0.08 Manulife Financial Corp.
NYCB 0.08 New York Community Bancorp Inc.
SCCO 0.08 Southern Copper Corporation
IIPR 0.08 Innovative Industrial Properties Inc
EOG 0.08 EOG Resources Inc.
MC 0.08 Moelis & Co
CM 0.08 Canadian Imperial Bank Of Commerce
FRO 0.08 Frontline Plc
MCRI 0.08 Monarch Casino & Resort Inc.
PSA 0.07 Public Storage
WES 0.07 Western Midstream Partners LP
LUMN 0.07 Lumen Technologies Inc
AB 0.07 AllianceBernstein Holding Lp
VGR 0.07 Vector Group Ltd
MSBI 0.07 Midland States Bancorp Inc
MATV 0.07 Mativ Holdings Inc
HCC 0.07 Warrior Met Coal Inc
BCE 0.07 BCE Inc
BRDG 0.07 Bridge Investment Group Holdings Inc
ARC 0.07 ARC Document Solutions Inc
VNOM 0.07 Viper Energy Partners LP
OUT 0.07 Outfront Media Inc
HIW 0.07 Highwoods Properties Inc.
AROC 0.07 Archrock Inc
KSS 0.07 Kohl`s Corp.
EPM 0.07 Evolution Petroleum Corporation
PBA 0.07 Pembina Pipeline Corporation
APAM 0.07 Artisan Partners Asset Management Inc
BIG 0.07 Big Lots Inc
WU 0.07 Western Union Company
CATO 0.07 Cato Corp.
SRC 0.07 Spirit Realty Capital Inc
MOV 0.07 Movado Group Inc.
JXN 0.07 Jackson Financial Inc
AIRS 0.07 Airsculpt Technologies Inc
INSW 0.07 International Seaways Inc
PANL 0.07 Pangaea Logistics Solutions Ltd
SPG 0.07 Simon Property Group Inc.
TU 0.07 Telus Corp.
NHI 0.07 National Health Investors Inc.
XRX 0.07 Xerox Holdings Corp
AQN 0.07 Algonquin Power & Utilities Corp
BRKL 0.07 Brookline Bancorp Inc.
TU 0.07 Telus Corp.
CBIO 3.59 Catalyst Biosciences Inc
VHC 2.03 Virnetx Holding Corp
ZIM 0.83 Zim Integrated Shipping Services Ltd
PFSW 0.77 PFSWEB Inc
UAN 0.42 CVR Partners LP
LPG 0.40 Dorian LPG Ltd
ICL 0.39 ICL Group Ltd
ACI 0.36 Albertsons Companies Inc
DSX 0.28 Diana Shipping Inc
SBLK 0.25 Star Bulk Carriers Corp
EQC 0.25 Equity Commonwealth
ARR 0.23 ARMOUR Residential REIT Inc
IVR 0.21 Invesco Mortgage Capital Inc
TRMD 0.21 Torm Plc
CHMI 0.19 Cherry Hill Mortgage Investment Corporation
CHRD 0.19 Chord Energy Corp
GOGL 0.18 Golden Ocean Group Limited
GNK 0.17 Genco Shipping & Trading Limited
IEP 0.17 Icahn Enterprises L P
AJX 0.16 Great Ajax Corp
MFA 0.16 MFA Financial Inc
SPOK 0.16 Spok Holdings Inc
AFCG 0.16 AFC Gamma Inc
LOCO 0.16 El Pollo Loco Holdings Inc
CIM 0.15 Chimera Investment Corp
KRP 0.15 Kimbell Royalty Partners LP
CVI 0.15 CVR Energy Inc
DMLP 0.15 Dorchester Minerals LP
BSM 0.15 Black Stone Minerals L.P.
RC 0.15 Ready Capital Corp
ORC 0.15 Orchid Island Capital Inc
GFF 0.15 Griffon Corp.
AGNC 0.15 AGNC Investment Corp
SACH 0.15 Sachem Capital Corp
EFC 0.14 Ellington Financial Inc
EARN 0.14 Ellington Residential Mortgage REIT
ARI 0.14 Apollo Commercial Real Estate Finance Inc
RGR 0.14 Sturm Ruger & Co. Inc.
RTL 0.14 Necessity Retail REIT Inc (The)
CBL 0.13 CBL& Associates Properties Inc.
EGLE 0.13 Eagle Bulk Shipping Inc
GNL 0.13 Global Net Lease Inc
AFG 0.13 American Financial Group Inc
NLY 0.13 Annaly Capital Management Inc
MFIC 0.12 MidCap Financial Investment Corporation
AMBP 0.12 Ardagh Metal Packaging S.A.
BRMK 0.12 Broadmark Realty Capital Inc
CTO 0.12 CTO Realty Growth Inc
SBRA 0.12 Sabra Healthcare REIT Inc
PKE 0.12 Park Aerospace Corp
DX 0.12 Dynex Capital Inc.
RITM 0.12 Rithm Capital Corporation
BRSP 0.12 BrightSpire Capital Inc
USAC 0.12 USA Compression Partners LP
ARLP 0.12 Alliance Resource Partners LP
OMF 0.11 OneMain Holdings Inc
NS 0.11 Nustar Energy L P
CAPL 0.11 CrossAmerica Partners LP
CEQP 0.10 Crestwood Equity Partners LP
CWH 0.10 Camping World Holdings Inc
CFFN 0.10 Capitol Federal Financial
DEA 0.10 Easterly Government Properties Inc
UWMC 0.10 UWM Holdings Corporation
RWAY 0.10 Runway Growth Finance Corp
CALM 0.10 Cal-Maine Foods Inc.
RILY 0.10 B. Riley Financial Inc
BLX 0.10 Banco Latinoamericano De Comercio Exterior SA
TWO 0.10 Two Harbors Investment Corp
NFE 0.10 New Fortress Energy Inc
ET 0.10 Energy Transfer LP
FTAI 0.10 FTAI Aviation Ltd
BGFV 0.10 Big 5 Sporting Goods Corp
STLA 0.10 Stellantis N.V
CEQPp 0.10 Crestwood Equity Partners LP
SIGA 0.10 SIGA Technologies Inc
MPLX 0.10 MPLX LP
SFL 0.10 SFL Corporation Ltd
OHI 0.10 Omega Healthcare Investors Inc.
KNOP 0.10 KNOT Offshore Partners LP
SLG 0.09 SL Green Realty Corp.
ACRE 0.09 Ares Commercial Real Estate Corp
KNTK 0.09 Kinetik Holdings Inc
HPP 0.09 Hudson Pacific Properties Inc
CEIX 0.09 Consol Energy Inc
AM 0.09 Antero Midstream Corp
ENB 0.09 Enbridge Inc
LADR 0.09 Ladder Capital Corp
NCMI 0.09 National Cinemedia Inc
GLP 0.09 Global Partners LP
UNIT 0.09 Uniti Group Inc
EVA 0.09 Enviva Inc
ETRN 0.09 Equitrans Midstream Corporation
NTB 0.09 Bank of N T Butterfield & Son Ltd.
FRG 0.09 Franchise Group Inc
CNQ 0.09 Canadian Natural Resources Ltd.
GOOD 0.09 Gladstone Commercial Corp
GMRE 0.09 Global Medical REIT Inc
PAA 0.09 Plains All American Pipeline LP
SPH 0.09 Suburban Propane Partners LP
TFSL 0.09 TFS Financial Corporation
MMP 0.08 Magellan Midstream Partners L.P.
MO 0.08 Altria Group Inc.
CIO 0.08 City Office REIT Inc
NAT 0.08 Nordic American Tankers Ltd
EIG 0.08 Employers Holdings Inc
GSL 0.08 Global Ship Lease Inc
SUN 0.08 Sunoco LP
HEP 0.08 Holly Energy Partners L.P.
HESM 0.08 Hess Midstream LP
BITO 0.08 ProShares Bitcoin Strategy ETF
FLNG 0.08 Flex Lng Ltd
JHG 0.08 Janus Henderson Group plc
EPR 0.08 EPR Properties
BBW 0.08 Build A Bear Workshop Inc
BGS 0.08 B&G Foods Inc
BNS 0.08 Bank Of Nova Scotia
EPD 0.08 Enterprise Products Partners L P
OLP 0.08 One Liberty Properties Inc.
MFC 0.08 Manulife Financial Corp.
NYCB 0.08 New York Community Bancorp Inc.
SCCO 0.08 Southern Copper Corporation
IIPR 0.08 Innovative Industrial Properties Inc
EOG 0.08 EOG Resources Inc.
MC 0.08 Moelis & Co
CM 0.08 Canadian Imperial Bank Of Commerce
FRO 0.08 Frontline Plc
MCRI 0.08 Monarch Casino & Resort Inc.
PSA 0.07 Public Storage
WES 0.07 Western Midstream Partners LP
LUMN 0.07 Lumen Technologies Inc
AB 0.07 AllianceBernstein Holding Lp
VGR 0.07 Vector Group Ltd
MSBI 0.07 Midland States Bancorp Inc
MATV 0.07 Mativ Holdings Inc
HCC 0.07 Warrior Met Coal Inc
BCE 0.07 BCE Inc
BRDG 0.07 Bridge Investment Group Holdings Inc
ARC 0.07 ARC Document Solutions Inc
VNOM 0.07 Viper Energy Partners LP
OUT 0.07 Outfront Media Inc
HIW 0.07 Highwoods Properties Inc.
AROC 0.07 Archrock Inc
KSS 0.07 Kohl`s Corp.
EPM 0.07 Evolution Petroleum Corporation
PBA 0.07 Pembina Pipeline Corporation
APAM 0.07 Artisan Partners Asset Management Inc
BIG 0.07 Big Lots Inc
WU 0.07 Western Union Company
CATO 0.07 Cato Corp.
SRC 0.07 Spirit Realty Capital Inc
MOV 0.07 Movado Group Inc.
JXN 0.07 Jackson Financial Inc
AIRS 0.07 Airsculpt Technologies Inc
INSW 0.07 International Seaways Inc
PANL 0.07 Pangaea Logistics Solutions Ltd
SPG 0.07 Simon Property Group Inc.
TU 0.07 Telus Corp.
NHI 0.07 National Health Investors Inc.
XRX 0.07 Xerox Holdings Corp
AQN 0.07 Algonquin Power & Utilities Corp
BRKL 0.07 Brookline Bancorp Inc.
TU 0.07 Telus Corp.
Past dividends is not a guarantee of future dividends
You should not assume that a company will continue to pay dividends, nor pay them at the same rate. The decision to pay a dividend, and the amount paid, is based on earnings and availability of suitable investments available to the company. Companies change their dividend policies & dividend amounts frequently.
Money losing companies that pay dividends
You may also notice that a few companies are not profitable, but paid significant dividends over the past year. There are three simple cases that we think about:
1. The company was, but is no longer profitable
2. The company is designed to pay dividends based on operating cash flows (e.g., REITS or MLPs) but have 'non-cash' expenses like depreciation or amortization to cause an accounting loss.
3. The company paid a small dividend percentage, but then the stock price declined.
You should not assume that a company will continue to pay dividends, nor pay them at the same rate. The decision to pay a dividend, and the amount paid, is based on earnings and availability of suitable investments available to the company. Companies change their dividend policies & dividend amounts frequently.
Money losing companies that pay dividends
You may also notice that a few companies are not profitable, but paid significant dividends over the past year. There are three simple cases that we think about:
1. The company was, but is no longer profitable
2. The company is designed to pay dividends based on operating cash flows (e.g., REITS or MLPs) but have 'non-cash' expenses like depreciation or amortization to cause an accounting loss.
3. The company paid a small dividend percentage, but then the stock price declined.
How we calculate dividends
We use a novel method to compare stock dividend payouts. It divides the actual dividends paid by the average closing share price. This is an actual, historical dividend yield for an owner of the stock every day for the past year. This is not a forward-looking dividend yield, which is what you typically see. We use it in our platform.
Dividend payout: (1 + dividend %)
A. 1.15 = 15% payout
B. 1.00 = no dividend
C. 1.012 = 1.2% dividend yield (e.g., stock ABC paid $1.20 last year, and had an average close price of $100)
Do your due diligence, learn their stories, and decide where you will invest. Each of these stocks has a story.
We use a novel method to compare stock dividend payouts. It divides the actual dividends paid by the average closing share price. This is an actual, historical dividend yield for an owner of the stock every day for the past year. This is not a forward-looking dividend yield, which is what you typically see. We use it in our platform.
Dividend payout: (1 + dividend %)
A. 1.15 = 15% payout
B. 1.00 = no dividend
C. 1.012 = 1.2% dividend yield (e.g., stock ABC paid $1.20 last year, and had an average close price of $100)
Do your due diligence, learn their stories, and decide where you will invest. Each of these stocks has a story.
Dividend stocks tend to decline when interest rates rise
We were attracted to a particular dividend stock. It pays a high dividend, generates significant free cash flow, and is a consistent performer. This stock fell almost in lock-step with the rise of interest rates. This is because high dividend stocks can often look like a bond but with equity risk.
We were attracted to a particular dividend stock. It pays a high dividend, generates significant free cash flow, and is a consistent performer. This stock fell almost in lock-step with the rise of interest rates. This is because high dividend stocks can often look like a bond but with equity risk.
Why invest in dividend-paying stocks?
The simple answer is it reduces your risk. Each year a portion of your investment is returned.
Why avoid dividend-paying stocks?
On the other hand, dividends are taxed twice, once as the company generates the profit to pay them, and twice as you receive the dividend. In most situations, dividends are taxed higher than capital gains, so there is almost a 'triple tax' on dividends.
As an example of double taxation from dividends, a dollar earned by a company yields $0.70 after corporate taxes. They pay the $0.70 to shareholders who then pay Federal and State taxes of 40% on that income, yielding a final amount of $0.42 (out of the original dollar), or a tax of 58%.
Can you avoid double taxation on dividends?
Case 1: Invest in companies that reinvest earnings into growth (e.g., Amazon's strategy) so no tax would be paid and the company is expected to grow future earnings more quickly. In that case, no current tax is paid.
Case 2: Invest in companies that use free cash flow to increase per-share, shareholder equity. In this case, the company earns income, pays corporate taxes of $0.30, and uses the $0.70 (after taxes) to buy back shares of stock or pay down debt. The investor, in theory, could defer their share of taxes indefinitely by not selling their shares, or sells them after a year and pays lower capital gains taxes as low as 15%. In this case, the tax paid in the current year is $0.30 or $0.405 if the stocks were sold after one year.
The simple answer is it reduces your risk. Each year a portion of your investment is returned.
Why avoid dividend-paying stocks?
On the other hand, dividends are taxed twice, once as the company generates the profit to pay them, and twice as you receive the dividend. In most situations, dividends are taxed higher than capital gains, so there is almost a 'triple tax' on dividends.
As an example of double taxation from dividends, a dollar earned by a company yields $0.70 after corporate taxes. They pay the $0.70 to shareholders who then pay Federal and State taxes of 40% on that income, yielding a final amount of $0.42 (out of the original dollar), or a tax of 58%.
Can you avoid double taxation on dividends?
Case 1: Invest in companies that reinvest earnings into growth (e.g., Amazon's strategy) so no tax would be paid and the company is expected to grow future earnings more quickly. In that case, no current tax is paid.
Case 2: Invest in companies that use free cash flow to increase per-share, shareholder equity. In this case, the company earns income, pays corporate taxes of $0.30, and uses the $0.70 (after taxes) to buy back shares of stock or pay down debt. The investor, in theory, could defer their share of taxes indefinitely by not selling their shares, or sells them after a year and pays lower capital gains taxes as low as 15%. In this case, the tax paid in the current year is $0.30 or $0.405 if the stocks were sold after one year.
Here is a recent video on our top dividend stock service.