2017 has been a great year for the stock market.
The S&P 500 is up 20% this year.
Not to rain on the bull market parade, but 2017 is a year that appears too good to repeat. The S&P 500 is trading at 26 times earnings, at multi-year highs and well above the average of 16 times earnings.
For 2018, investors might need to be more selective. The best way to stay safe is with dividends.
Dividends stocks are great ways to build wealth. But it’s not just about a high dividend yield. A solid history of dividend growth is even better.
Dividend investing isn’t just about finding high yields, but about consistency. Investors will do much better by finding companies that consistently increase dividend payments.
Take the Vanguard Dividend Appreciation ETF (NYSE: VIG), which is one of the biggest dividend growth ETFs. It focuses on Dividend Achievers, which are companies that have managed to increase annual dividend payments for at least 10 straight years.
The Vanguard Dividend Appreciation ETF is up 123% over the last 10 years. Meanwhile, the S&P 500 is up just 81% for the same period. Companies with steady dividend growth can add meaningfully to investor portfolios.
With all that in mind, here are the top five dividend stocks for 2018:
Dividend Stocks for 2018: AbbVie (NYSE: ABBV)
AbbVie is a dividend name I wrote about at start of this year, where I highlighted the top three health-care dividends. AbbVie, a major drug company, pays a healthy 2.9% dividend yield and had a strong 2017. AbbVie has managed to increase its annual dividend by nearly 80% over the last five years. There’s more growth to come.
AbbVie was spun off from Abbott Laboratories (NYSE: ABT) in 2013 and its strength is in the immunology business. Some investors have worried that AbbVie’s top drug, Humira, is facing intense competition. But the company has shaken a lot of that off by finding new uses for Humira and rolling out new cancer drugs.
The pharma company is expected to grow earnings at an annualized rate of 15% for the next half-decade, more than enough to keep growing its dividend and investing in research and development.
Dividend Stocks for 2018: Johnson & Johnson (NYSE: JNJ)
No major dividend stock list would be complete without a mention of a dividend aristocrat. Dividend aristocrats are companies that have increased their annual dividend for at least 25 years. Johnson & Johnson has a 54-year streak of dividend increases.
Johnson & Johnson pays a 2.4% dividend yield and it’s paying out less than 50% of its earnings via dividends. This is a major dividend company in a stable and growing industry. Johnson & Johnson’s portfolio includes a number of top brands, from Tylenol to Neutrogena; the company also has major pharmaceutical and medical device businesses.
JNJ’s pharmaceutical segment accounts for over half its revenues and remains a major growth area. Johnson & Johnson generates plenty of cash flow with its steady business, enabling it to keep paying its solid dividend and develop new drugs.
Dividend Stocks for 2018: Visa (NYSE: V)
Visa is a name that doesn’t necessarily come to mind when thinking of dividend payers. The payment processor pays a 0.7% dividend yield. Visa has an eight-year record of consecutive annual dividend increases.
Visa is a major player in moving money, but also at the forefront of financial technology. It will be one of the biggest benefactors in the continued shift from cash to credit and debit cards. The rise of e-commerce is only further driving Visa, as it owns more than half the electronic payment market. Being at the forefront of a shift toward cashless payments is what keeps both Visa’s earnings and dividends growing.
Dividend Stocks for 2018: Home Depot (NYSE: HD)
Home Depot is one of the only names to own in the retail sector. Its dividend yield might not seem like much at 1.9%, but its dividend growth rate is what’s really impressive. Home Depot has managed to increase its annual dividend for four straight years — having upped its dividend for 90% over the period.
Home Depot is the dominant force in the home improvement retail sector. Its in-store shopping experience and strong brand can’t be rivaled by Amazon.com (NASDAQ: AMZN). Meanwhile, new homes and home improvement trends are big tailwinds for Home Depot. Families are buying more homes and upgrading their current homes.
Dividend Stocks for 2018: Walgreens Boots Alliance (NYSE: WBA)
Walgreens is another dividend aristocrat; it has a 42-year streak of consecutive dividend increases. The company pays a 2.2% dividend yield. Walgreens makes most of its money from the retail store business, but also has a solid pharmaceutical wholesale segment.
Walgreens Boots Alliance has been a laggard performer in the stock market. Yet it could be positioned for a big 2018. Shares were down 12% in 2017. Walgreens is also buying up some Rite Aid (NYSE: RAD) stores, which will further expand its footprint for 2018 and add another 2,000 pharmacies to its base of 12,500 locations. The Rite Aid move also gets Walgreens deeper into the higher-margin household and convenience goods business.
In the end, 2018 could be another strong year for the stock market. Either way, the five dividend stocks above will do just fine, poised to keep making money and paying shareholders hefty dividends.