As the economy continues to struggle and several stocks are trading range bound and off their highs as a result, many investors are looking for top dividend stocks to add to their portfolios.
Dividend stocks offer investors plenty of advantages, which is what makes them so popular. First off, they can help you begin to earn income immediately. With non-dividend-paying stocks, you could be waiting years to see a return on your investment.
Therefore, in this environment where stocks are struggling to rally, the income you can earn from dividend stocks might be the only income investors see until the next bull run.
In addition, though, when you buy a top dividend stock that begins to return you cash immediately, you also lower the risk of your investment. This is because you’re already seeing a return on the cash you invested, and you can take your dividend income and reinvest it in whatever stocks you see fit.
With non-dividend-paying stocks, though, these companies reinvest all their profits in future growth, which may or may not materialize.
Another reason dividend stocks are some of the top investments to make in this environment is that they are typically more established companies. To pay a dividend, businesses need to be consistently earning a profit.
Meanwhile, many stocks that don’t yet pay a dividend are likely still in growth mode and may not even be profitable yet.
Therefore, while stocks are struggling to rally and gain value in the current market environment, this impressive dividend stock is my top pick for immediate income.
My top dividend stock to buy right now
If you’re looking for a top dividend stock to buy now that can earn you significant income right away, I’d recommend investors check out Diversified Royalty (TSX: DIV), the impressive passive-income generator with a current dividend yield of more than 8.4%.
As its name suggests, Diversified Royalty earns a number of different royalties from businesses diversified across multiple sectors.
In fact, the company’s stated goal is to focus on acquiring top-line royalties from well-managed businesses and franchisors with multiple locations across North America.
For example, the dividend stock has partnerships with Mr. Lube, Air Miles, and Nurse Next Door, a home care provider. Furthermore, it earns a royalty from Oxford Learning, a franchise tutoring service; Mr. Mikes, a casual dining restaurant; Stratus, a franchisor in environmentally friendly commercial cleaning; and Sutton, a provider of services to residential real estate realtors.
Is Diversified Royalty’s 8.4% dividend yield safe?
The many diversified businesses that Diversified Royalty has partnered with help to lower the risk for the stock should the economy continue to worsen and impact some industries more than others.
This is crucial for the dividend stock because, as you might guess, with a dividend yield of nearly 8.5%, the stock is constantly paying out almost all the free cash flow that it’s earning.
In fact, in 2022, 2021, and 2020, Diversified Royalty’s payout ratio of free cash flow was 91%, 86%, and 80%, respectively.
It’s also notable that Diversified Royalty has been growing significantly in recent years, using both debt and issuing new shares to fund that growth. This growth and the addition of more royalty streams look intriguing and could give the stock a tonne of long-term potential.
However, with higher interest costs and more cash needed to fund a consistently growing dividend as well as more outstanding shares that need to be paid, it will be essential to watch Diversified Royalty closely over the next few quarters, especially while this economic environment persists.
For now, the dividend looks safe. But if a severe recession were to materialize, there’s no telling how badly Diversified Royalty could be impacted. So, while it’s my top dividend stock for immediate income now, it’s not immune from risks in this environment.
With that being said, though, analysts expect that in 2023, Diversified Royalty will grow its revenue by roughly 28% year over year and its free cash flow by roughly 12%.
Therefore, if you’re looking to boost your passive income and begin earning returns immediately, Diversified Royalty and its significant monthly dividend is one of the best stocks you can consider today.
