3 Top Dividend Stocks for 2018

As an asset class, dividend stocks typically outperform their non-dividend counterparts. And with dividend reinvestment plans, or DRIPs, the opportunity for compound returns only adds to their appeal. (See also: Introduction to Dividends: Investing in Dividend Stocks.)

A high-quality dividend stock never goes out of favor with sage investors building a balanced portfolio. And in times of market turbulence, dividend-paying stocks are a hedge against volatility.

In 2017, stocks have been gaining and positive sector expectations have come to fruition. Many dividend stocks have been outperforming with several industries posting handsome gains under the policy preferences of the new presidential administration. With a continued bullish outlook for stocks into 2018, investors who choose equity allocations on a price and income basis could generate considerably higher total returns. (See also: 6 Rules for Successful Dividend Investing.)

The three large-cap stocks below have been meeting target expectations in 2017 with strong dividends and returns compared to their sector peers. They stand to gain further as equity momentum and policy trends continue to take hold. All figures are as of December 22, 2017.

Verizon is trading at $53.19 with the top forward dividend yield in the Dow Jones Industrial Average. The company has a forward dividend yield of 4.47%. It has been incrementally growing its dividend over the past five years with an annualized dividend growth rate of 2.96%. Its payout ratio is also in the top half of the Dow 30 at 60% of net income. The year-to-date (YTD) return is 3.66%. Over the past three years the stock has reported an annualized return of 8.36%.

Analysts have a high target price for the company of $61. For 2018, a few factors are helping fuel expectations for a higher stock price. The company has announced a new streaming service in partnership with the NFL. The service will allow for consumer to stream live NFL football games on Monday, Thursday and Sunday nights. Analysts also believe that Verizon will greatly benefit from U.S. tax reform with the corporate tax decrease adding 20% to earnings per share.

PFE is trading at $36.74 with a forward dividend yield of 3.75%.  It has been steadily growing the dividend with a five-year annualized dividend growth rate of 8.45%. It also reports a payout ratio of 78% of net income over the past 12 months.

The company has a YTD return of 15.52%. Analysts are projecting steady revenue and earnings growth in 2018. Revenue is projected to increase from $52.75 billion to $54.88 billion in 2018. Earnings per share is also expected to increase from $2.63 to $2.85. Analysts are looking to new drug introductions and research and development to continue to fuel growth. Pfizer is also expected to benefit from tax reform as lower corporate taxes provide for increased investment in research and development.

Chevron is trading at $124.98 with a forward dividend yield of 3.60%. Chevron has managed to steadily maintain and increase its dividend over the past five years despite an oil market recession. It reports a five-year annualized dividend growth of 6.78%. It also has one of the highest payout ratios in the Dow Jones Industrial Average at 126% of net income.

As an energy market conglomerate Chevron has a leading position in the industry and is a top investment for investors betting on the energy market’s recovery. Over the past year it has gained 9.52%, outperforming the S&P 500 energy sector’s loss of -5.92%. The company has 12-month revenue of $135.6 billion. In 2018, analysts are predicting revenue of $165.5, and increase from $144.7 billion. Earnings per share is projected higher with estimates at $4.52 for 2017 and $7.21 for 2018. The company has announced a new deal with Schlumberger for drilling in Brazil. For 2008, the company has already released its budget for the year which shows capex of $18.3 billion and greater investment in areas with the highest return which will help to diversify away volatility in the oil market.