It is sometimes said that the stock market is divided into two types of companies: growth and income. When the stock market is on a roll, investors want growth. But when it starts to hit the skids, they shift to income.

Most investors discount the importance of dividends since they tend to be modest in size and add up gradually over a number of years. However, you may be surprised to learn that more than half of the long-term return of the stock market has been in the form of dividends.

That’s because most dividend stocks continue to pay out during good times and bad.

If you reinvest dividends into more stock, you buy more shares when they are cheaper and fewer when they are more expensive.

Over time, the compounding effect of reinvesting dividends can be enormous.

For that reason, many companies offer “DRIPs” (dividend reinvestment plans), which will automatically reinvest your dividends into more shares of stock at little or no cost.

Want to know what our top picks are for dividend stocks going into 2019?

Keep on reading!

Our Top 3 Dividend Stocks

If you’re in a hurry, below are my top picks for dividend stocks as of this writing.

1. W. P. Carey: Diversified REIT with a 6% dividend yield.
2. Altria Group: A “Dividend Aristocrat” yielding 5%.
3. Enterprise Products Partners: A midstream MLP with a 6.5% distribution rate.

Keep on reading to learn about these companies and my thoughts on each.

What Are Dividend Stocks?

Dividend stocks are publicly traded companies that share their financial success with shareholders in the form of regular dividend payments. These payments represent a portion of the company’s profits.

Most dividend stocks declare and pay dividends quarterly. Dividend payments are usually made in cash, but sometimes a company will pay a stock dividend which increases the number of shares that you own.

A company’s dividend payment is often referred to as its “dividend yield”, as explained in this video:

https://www.youtube.com/watch?v=BsZ3RUSDL8k

A small number of companies enjoy the distinction of being “Dividend Aristocrats”, which means they have increased the amount of their dividend payment every year for at least 25 years.

How Do You Determine What Qualifies As a Top Dividend Stock?

A top dividend stock is one that:

• Does not cut its dividends, even during tough times.
• Increases its dividend periodically as profits increase.
• Offers a DRIP so small investors can enjoy the benefit of compound interest.

Since dividends are paid out of earnings, a top dividend stock is one that generates enough income to pay its dividend without having to dig into savings. For that reason, a stock’s “payout ratio” should be less than 1.0 so there is money left over to cover the company’s expenses and other operating costs.

A top dividend stock does not need to choose between income and growth since it will generate enough cash flow to pay a dividend while investing money back into the business. Here are three of our favorite dividend stocks for 2019.

Read Also: What are the best gold mining stocks?

W.P. Carey

What is it?

W.P. Carey is a publicly-traded “triple net lease” REIT (real estate investment trust), with a stock market value of nearly $7 billion. A “triple net lease” requires the tenant to pay real estate taxes, property insurance, and maintenance in addition to the monthly rent payment.

Most “triple net” REITs operate solely in the North American retail market. However, a significant portion of WPC’s portfolio is made up of international assets, with 30% of the property it controls located in Europe.

Also, it owns property across a variety of industries including Industrial, Office, and Warehouse.

Why is it a good dividend stock?

W.P. Carey has increased its dividend every year since going public in 1998. Its full-year dividend payment of $4.10 in 2018 was more than twice its payment ten years earlier.

With a current dividend yield of 6%, WPC pays out nearly twice the amount of income as a U.S. Treasury security while maintaining an “investment grade” rating from S&P.

W.P. Carey offers a DRIP through its transfer agent, Computershare.

Altria Group

What is it?

Although Altria Group (NYSE: MO) is best known for its cigarettes, it has taken steps to diversify. Altria has built strong market positions in the smokeless tobacco and machine-made cigar spaces. Altria owns the Copenhagen and Skoal brands, which control roughly half of the smokeless space.

Altria also is an alcohol company. MO’s wine business makes up nearly 3% of its revenues. And probably most importantly with regards to Altria’s diversification efforts, the company owns more than 10% of Anheuser Busch InBev (NYSE: BUD), the world’s largest brewer. More speculatively, now that marijuana legalization is all the rage, there are thoughts that Altria might join the rush into this new growth space.

Why is it a good dividend stock?

Altria has been a favorite stock among income-oriented investors for decades. It offers the best of both worlds when it comes to dividend yield and annual dividend growth. Since 2012, Altria has returned more than $30 billion to shareholders in the form of dividend and stock buybacks.

Through the years, Altria has gone through a number of well-known spin-offs including Kraft Foods (NSDQ: KHC) and Phillip Morris International (NYSE: PM). Overall, this company has increased its annual dividend for 49 consecutive years.

These are not token increases. Altria is known for high dividend growth. Altria’s most recent dividend increase pushed the company’s forward dividend yield up to 5.3% at a $60 share price. Altria’s 5-year average dividend yield is just over 4%.

Altria offers a DRIP through its transfer agent, Computershare.

Enterprise Products Partners

What is it?

Enterprise Products Partners (NYSE: EPD) is not a stock, but a “midstream” MLP (master limited partnership) that transports crude oil and natural gas from wellheads to refineries.

This company is the premier player in the distribution industry with exposure to every major energy basin in the United States. EPS operates a vertically integrated model including best-in-class assets throughout the midstream value chain.

The company owns 50,000 miles of pipelines transporting a combination of natural gas, natural gas liquids (NGL), crude oil, and other petrochemicals. EPD owns storage facilities with 260mm barrel storage capacity for NGL, crude, and other liquid petrochemicals as well as 14b cubic feet of natural gas.

Enterprise owns 26 natural gas processing plants strategically placed along its distribution network, 22 NGL and propylene fractionators, and extensive import/export terminal assets in Houston.

Why is it a good income investment?

Enterprise began paying quarterly distributions to shareholders in October of 1998. The company’s first payment was $0.32/share. Since then, the company has continued to reward unitholders with quarterly distributions during every quarter.

Today, the quarterly distribution stands at $0.43/unit, though it’s worth noting that EPD has had two 2-1 splits since 1998. Therefore, a unitholder dating back to the company’s IPO 20 years ago would have a yield on cost basis of over 45% today based upon today’s quarterly distribution.

EPD has embarked on a 20-year streak of consecutive distribution increases. More impressively, EPD has increased its quarterly distribution to shareholders for 56 quarters in a row. This means that as long as EPD continues on its generous path, the company will be crowned a dividend aristocrat in 2023.

An analyst with an uncanny knack for spotting investment value is my colleague Jim Fink, chief investment strategist of Options for Income. Jim’s team recently put together a free tutorial that walks you through one of his live trades. This presentation demonstrates how you can collect $1,732.05 in under two minutes! Watch it by clicking here.

What Else Should You Keep In Mind When Picking The Top Dividend Stocks?

Here are four more things to keep in mind when looking for the best dividend stocks to add to your portfolio:

• Take the long view: If you’re investing for income, your focus should always be on the health of the underlying business. The best dividend stocks are the ones that are in good shape and growing, so they can maintain and raise their payouts.
  
  Over time, stock prices will follow those dividends higher, so you’ll pocket capital gains by buying and holding, as well. This approach also leads to less-frequent trading, which cuts your brokerage fees.
  
  Of course, this is sometimes easier said than done, particularly during tumultuous periods like the 2008/09 financial crisis, but this strategy has consistently built wealth. As Warren Buffett wrote in Berkshire Hathaway’s 1990 shareholder letter: “Lethargy bordering on sloth remains the cornerstone of our investment style.”

• Focus on revenue reliability: Have the stock’s revenue and dividends held up well during past downturns, such as the 2008 financial crisis? If so, that’s a pretty good reason to be confident of their durability in future market storms.
  
  Examples of dividend-paying sectors with very reliable revenues include regulated electric, gas and water utilities, fee-generating energy midstream companies, such as pipelines, and big U.S. telecom firms.
  
  Note that energy companies generally don’t produce consistently reliable revenues, due to their exposure to unpredictable oil and gas prices. However, there are some exceptions, such as large cap oil stocks whose massive scale gives them a big edge when it comes to weathering downturns.

• Don’t overlook debt: In our earlier article, we looked at one of the most important figures for zeroing in on the best dividend stocks: the payout ratio. However, something that’s also crucial to dividend stability is debt. You’ll want to look for companies with healthy balance sheets, including significant cash holdings and low debt.
  
  However, it’s important to keep in mind that what is considered a high debt level varies by industry. Utilities, for example, typically have higher debt loads because of the large sums they must invest to maintain and grow their operations. However, as noted above, they tend to benefit from more reliable revenue streams.