Although there are a lot of investing strategies that have the potential to make investors richer over time, few have a better track record of success than dividend stocks.
Companies that pay a dividend are often profitable on a recurring basis and time-tested (i.e., they’ve proven they can withstand a recession… or 10). Further, they have a clear-cut history of outperforming their publicly traded peers that don’t pay a dividend.
Back in 2013, J.P. Morgan Asset Management released a report comparing the performance of companies that initiated and grew their payouts to stocks with no dividend over a 40-year stretch (1972-2012). The end result was a 9.5% average annual return for the income stocks versus a meager 1.6% average annual return for the companies without a dividend.
However, not all dividend stocks are created equally. Though the following six stocks may not offer the highest yields to their investors, they are among the highest nominal-dollar dividend payers on the planet. On a combined basis, these six stocks are doling out close to $83 billion a year in dividend income to their shareholders.
1. Microsoft: $18.5 billion in annual dividends paid to shareholders
Yield isn’t everything — just ask Microsoft (MSFT 0.53%) shareholders. Even though Microsoft’s yield is a pedestrian 0.9%, the second-largest publicly listed company in the U.S. is parsing out the largest annual payout ($18.5 billion).
Microsoft’s success is reflection of blending its legacy software operations with its high-growth initiatives. For instance, the company’s Windows operating system isn’t even close to the growth story it was two decades ago. Nevertheless, it hasn’t stopped Windows from accounting for roughly three-quarters of global desktop operating system market share. The cash flow generated from these legacy segments funds acquisitions (e.g., LinkedIn) and high-growth investments.
Speaking of high-growth investments, Microsoft is all-in on cloud services. According to estimates from Canalys, Microsoft Azure totaled 21% of worldwide cloud-service spending during the first quarter (No. 2 globally). Other cloud initiatives are paying off, too, with Dynamics sales growing 24% year-over-year, as of June 30, 2022.
2. Apple: $14.78 billion
Another tech stock with a deceptively generous dividend policy is innovation kingpin Apple (AAPL 0.63%). Even though Apple’s yield is below 0.6%, the largest publicly traded company in the world is doling out almost $14.8 billion annually to its shareholders.
Apple is a company Warren Buffett loves because it checks all the appropriate boxes of a great long-term investment. Apple’s brand is well-recognized, it has an extremely loyal customer base, and the company’s innovation is what’s driven its results. Ever since Apple unveiled its 5G-capable iPhone during the fourth quarter of 2020, it’s held at least a 50% smartphone market share or higher in the U.S., with the exception of one quarter.
However, Apple’s future is all about subscription services. CEO Tim Cook is overseeing this ongoing transition that’ll further improve customer loyalty, generate higher-margin recurring revenue, open doors to unique possibilities (i.e., building the foundation of the metaverse), and minimize the peaks and troughs associated with product replacement cycles.
3. ExxonMobil: $14.68 billion
If there’s one thing Big Oil is known for, it’s gushing dividends. Integrated oil and gas giant ExxonMobil (XOM -1.79%) is no exception. This is a company that’s raised its base annual dividend for 39 consecutive years and is parsing out close to $14.7 billion a year to its shareholders.
What makes ExxonMobil such a consistent income producer is the “integrated” aspect of its operations. While there’s no question that drilling oil and natural gas is where the higher margins can be hand, ExxonMobil also operates downstream assets, such as refineries and chemical plants. If and when the price of oil and natural gas declines, the input costs for these downstream segments goes down and consumer/enterprise demand usually rises. Effectively, the company is well-hedged against wild price swings in energy commodities.
The company has also benefited from prudent lever-pulling. It’s pared back capital expenditures when commodity prices have fallen, yet continued to invest in its most-promising projects. For instance, Guyana’s environment protection agency gave ExxonMobil the green light for its top-producing oil project (Yellowtail) in April. When complete by mid-decade, this deepwater drilling project will generate 250,000 barrels of oil per day.
4. Johnson & Johnson: $11.89 billion
Another company with an amazing dividend is healthcare conglomerate Johnson & Johnson (JNJ 0.48%). J&J, as the company is more commonly known, has raised its base annual payout for 60 consecutive years and is on pace to hand out nearly $11.9 billion in dividends to its shareholders over the next 12 months.
Johnson & Johnson is a company that really benefits from continuity and the defensive nature of the healthcare sector. With regard to the latter, people are always going to need prescription drugs, medical devices, and healthcare services, no matter how high inflation rises or how poorly the U.S. economy and stock market perform.
As for continuity, J&J has had just 10 CEOs since being founded 136 years ago. Having key leaders stick around is what’s helped the company thrive for so many decades.
It also doesn’t hurt that J&J has complementary operating segments. For example, pharmaceuticals generate the bulk of its growth and operating margin. However, brand-name drugs have a finite period of sales exclusivity. To counter this, Johnson & Johnson can rely on its medical device segment, which is well-positioned to capitalize on an aging domestic population and an international market where access to medical care is improving.
5. JPMorgan Chase: $11.72 billion
Money-center bank JPMorgan Chase (JPM 0.27%) is a big-time dividend payer, too. Based on an annual dividend of $4/share, JPMorgan expects to pay more than $11.7 billion to its faithful shareholders over the course of the next year.
Generally speaking, bank stocks are money machines. Although financial stocks are cyclical, and therefore susceptible to weakness during economic downturns, the fact of the matter is that recessions don’t last very long. On the flipside, periods of economic expansion are almost always measured in years. This allows JPMorgan Chase and its peers to pretty consistently grow their loans and deposits over time. Loan and deposit growth is the bread and butter of boosting bank profits.
JPMorgan Chase and most of the banking industry are also set to benefit from an aggressive shift in monetary policy. With the Federal Reserve rapidly raising interest rates in an effort to tame historically high inflation, bank stocks should see a hearty uptick in net-interest income, courtesy of their outstanding variable-rate loans.
6. Chevron: $11.13 billion
Have I mentioned that Big Oil pays some big dividends? In addition to ExxonMobil, Chevron (CVX -1.90%) is dishing out some big paydays for its shareholders. With a $5.68 annual payout, Chevron’s investors are taking home a little over $11.1 billion.
Like ExxonMobil, Chevron’s greatest attribute is its integrated operations. Chevron owns midstream assets, such as oil and gas transmission pipelines, which lean on fixed-fee or volume-based contracts to produce highly predictable cash flow. It also possesses refineries and chemical plants that act as an excellent hedge against downside price swings in crude oil and natural gas.
Chevron also deserves kudos for its prudent balance sheet management. Whereas most integrated oil and gas companies buried themselves in debt, Chevron sports one of the lowest debt-to-equity ratios among the majors. This means more financial flexibility to undertake projects, such as the Wheatstone and Gorgon natural gas projects designed to power the Asia-Pacific region, or to make earnings-accretive acquisitions.