Best Dividend Stocks
The best dividend stocks pay interest, maturing debt, and the upkeep of the business out of cash flow and cash on hand, and still have room for the dividend. That has to hold in each of the next several years. The dividend comes last in that line, and a company can afford it only after it has paid everything ahead of it.
The pages on page one for this search, from Morningstar, Fidelity, Kiplinger, and Motley Fool, rank on yield, on a streak of annual increases, or on a discount to a fair value estimate, then add a quick payout ratio check. None of them tells you if the dividend clears the bills in front of it next year, or the year after.
Key points
- Most best dividend stocks lists rank on yield, raise streaks, or fair value discounts.
- Line up interest, maturing debt, and upkeep spending year by year, with the dividend last in line.
- Blackstone Mortgage Trust paid 62 cents a quarter from 2015 until a 24% cut in July 2024.
- BREIT’s 2023 cash flow covered 95% of its payouts, against about 125% for listed U.S. REITs.
- Use the lists for names, then check whether each year’s dividend coverage depends on refinancing.
What Do the Best Dividend Stocks Lists Select On?
Most of these pages are screens, and a screen is reasonable as far as it goes. It picks candidates fast, from what’s public and easy to compare, and leaves the harder test to you.
The same three shortcuts drive the picks. Each one tells you something. None of them tells you if cash flow and cash on hand can clear interest and debt maturities ahead of the dividend, year by year.
| What the List Selects On | What It Tells You | What It Can’t See |
|---|---|---|
| Dividend yield (Fidelity, Motley Fool) | How much cash you get per dollar of price | The debt maturity the dividend may be standing behind |
| A streak of increases (Kiplinger, via the Dividend Aristocrats) | That the board raised the dividend every year for at least 25 years | Next year’s obligations. A streak records the past |
| Discount to a fair value estimate (Morningstar) | What the shares may be worth against an analyst’s estimate | Next year’s cash, after interest, maturities, and upkeep |
Yield is a price signal as much as an income figure. In April 2020, Valens noted that Iron Mountain’s dividend yield had passed 9%, nearly double the yield on its 2025 bonds. It read that as equity investors demanding more for the risk than bondholders were. The Dividend Aristocrats are S&P 500 companies that have raised their dividend every year for at least 25 years, which records what the board chose to do. It says nothing about what next year’s cash can cover. Morningstar ranks by discount to its own fair value estimate, and a cheap-looking stock can still be a trap when the business can’t fund what it’s promising.
Most of these pages also warn about high-yield names and add a quick check of the payout ratio, dividends paid divided by net income. That ratio can flag obvious stress. It’s one year’s dividend against one year’s earnings, and it says nothing about the cash that has to go out first.
How Do You Test If a Company Can Afford Its Dividend?
Lay the obligations out by year, in the order the company pays them. Interest comes first, then any debt that matures, then the capital spending needed to keep the business running. The dividend comes last. A comfortable payout ratio reads as if the dividend were first in line. It isn’t. The creditors are.
Altimetry draws this as a chart it calls the Credit Cash Flow Prime. In its words, “the stacked bars represent the … companies’ obligations each year for the next five years. These obligations are then compared to cash flow (blue line), cash on hand at the beginning of each period (blue dots), and undrawn credit revolver (blue triangles).”
Cash flow is what the business generated in the year, read from the cash flow statement. Reading the statements the way a forensic accountant does puts that figure on a comparable basis. Cash on hand bridges a timing gap, but only once, because spending it this year means you don’t have it next year. An undrawn credit line can fill a gap too, but then the dividend depends on the bank rather than on what the company earned.
Valens states the result in one line on its public tearsheets. The line reports where “total obligations, including debt maturities, maintenance capex, and dividends” fall against cash flow and cash on hand. In February 2024 the tearsheet for Turning Point Brands read “cash flows and cash on hand are 5x its total obligations,” and rated it “a high credit risk and a low dividend risk.” Credit risk and dividend risk are separate reads, and that line answers the dividend one.
Two questions settle it. Does the dividend stay covered after the bills in front of it, in each of the next several years? And does that coverage rest on borrowing, or on cash that has to be there for the next maturity?
What Did the Test Show at Two Dividend Payers?
Blackstone Mortgage Trust paid 62 cents a quarter from 2015 until July 24, 2024, when it cut to 47 cents, a 24% reduction. The stock dropped 11% the next day. Nine years at the same rate is the kind of record a streak screen rewards. Six weeks after the cut, Altimetry’s chart of its obligations through 2030 still showed that “In 2025 and 2027, it won’t be able to pay dividends.”
The order matters even at a company that hasn’t cut anything. In May 2024, Thomson Reuters’ CEO described an “$8 billion ‘war chest'” for AI spending. Altimetry’s chart showed the company “should have about $1 billion in spending money this year,” with “about $1 billion in debt coming due next year” and “nearly $1 billion in annual dividends.” Its conclusion was plain. “Starting in 2025, it’s going to need to save all its cash just to pay its existing bills.”
Why Do REIT Dividends Have the Thinnest Margin?
REITs must pay out at least 90% of their income by law, so the margin is thin by design. Blackstone Real Estate Income Trust, BREIT, is a non-traded REIT and a different entity from the mortgage trust above. Altimetry showed that it generated $2.7 billion of cash flow in 2023 and paid out $2.8 billion, so its 2023 cash flow covered 95% of its payouts, against about 125% for listed U.S. REITs on average. With a margin that thin, a small drop in cash flow puts the payout in question.
A distribution that stays level isn’t proof of coverage. The SEC warns that non-traded REITs “frequently pay distributions in excess of their funds from operations” and may use offering proceeds and borrowings to do it.
How Should You Use the Lists?
Use the lists for names, then do the work they don’t. For each name, line up the next three years of interest, debt maturities, and the spending needed to keep the business running. Put the dividend behind them and measure the whole stack against cash flow and cash on hand. A dividend that clears this year but depends on refinancing in year two isn’t the same as a dividend covered with cash to spare in every year.
What’s left after the bills ahead of it decides it. If cash covers the dividend in each year, the name belongs on a short list. If coverage depends on refinancing, or on drawing down cash that’s needed for the next maturity, the yield is the price of that risk. Running that across every income holding is a data job. FA Alpha publishes the names its own screens and this kind of test produce each month in the FA Alpha 50.
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Frequently Asked Questions
What Are the Best Dividend Stocks?
The ones whose cash flow and cash on hand cover interest, maturing debt, and upkeep first and still leave room for the dividend, in each of the next several years. Most best-dividend-stocks lists don’t rank on that, because they don’t run that test.
How Do You Know If a Dividend Is Safe?
Map the obligations year by year. Then see what’s left for the dividend after interest, debt maturities, and the capital spending needed to keep the business running. Altimetry describes this as stacked obligations compared to cash flow, cash on hand, and undrawn revolver capacity.
Are the Highest Dividend Yields the Best?
No. A yield is a price signal as well as an income figure. Valens read Iron Mountain’s yield above 9% in April 2020, nearly double what its 2025 bonds offered, as equity investors demanding more yield than bondholders were.
Are Dividend Aristocrats Safe Dividend Stocks?
A long streak tells you what the board chose to do in the past. The Dividend Aristocrats are S&P 500 companies that have increased dividends each year for at least 25 years. That is a useful screen, and it doesn’t replace a year-by-year test of what the company can afford next.