Beyond Ai: Why Our Top Dividend Stocks Remain Reliable Picks

Investor fervor for artificial intelligence (AI) keeps making dividend stocks look downright dumpy. Over the past 12 months, the S&P 500 has returned an eye-popping 29.8%, while the Kiplinger Dividend 15, the list of our favorite dividend-paying stocks, returned an average of 13.4%. Just three — Broadcom (AVGO), Johnson & Johnson (JNJ) and recent addition U.S. Bancorp (USB) — beat the market.

What a world we live in, when a 13% annual return is a middling performance. Of course, much of the story remains the mega-cap Magnificent Seven technology stocks that continue to drive the returns of the S&P 500 and now make up an outsize proportion of this primary measure of the markets. Although five of the seven pay teeny-tiny dividends, the stocks are not on anyone's list of income investments.

Slice and dice the S&P 500 numbers, and you'll see better news for the dividend-hungry. Of the 400-plus stocks in the S&P 500 that make a payout to their investors, the median 12-month return has been 14.0%, according to data from S&P Global Market Intelligence. The 100 or so that don't pay dividends had a median return of 6.4%.

In this context, the Dividend 15 looks okay, with seven outperforming the median and eight falling below. The weakness in our squad represents another market theme of the past year: fears that a faltering economy will crimp consumer spending.

Look at four of the five stocks that lost ground over the past 12 months: McDonald's (MCD), Home Depot (HD), Procter & Gamble (PG) and Mastercard (MA). The profits of all four depend on open wallets, but consumer sentiment is testing lows.

Take McDonald's. There's evidence that the world's biggest burger seller is succeeding in winning back value-oriented customers after years of price hikes. Sales at restaurants open for at least one year increased 3.8% worldwide in the first quarter. The company's CEO blunted enthusiasm on the company's May 7 investor call, though, by saying consumer sentiment "may be getting a little bit worse."

One believer that McDonald's has the special sauce: Goldman Sachs, which has it on its U.S. Conviction List of Buy recommendations. McDonald's, Goldman says, has "the right menu, at the right time, everywhere in the world."

Three of the Dividend 15 have raised their payouts since our last review, all modestly. J&J increased its dividend by 3.1%, P&G by 3.0% and Walmart (WMT) by 5.3%. All three are members of our Stalwarts list, where consistency of dividend hikes is paramount.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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