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Traders are naturally attracted to high-growth stocks that offer impressive returns, but smart investors prefer dividend stocks. Growth stocks can bring big profits if chosen correctly, but they also carry greater risks. Focusing solely on growth can make your portfolio vulnerable if market conditions change unexpectedly. Therefore, it is wise to buy dividend stocks as part of your overall trading strategy. Dividend stocks offer more stable and reliable investment returns.
Dividend stocks can perform well in volatile markets. Factors such as the US presidential election and uncertainty about upcoming central bank policy actions may increase stock market volatility this year. Geopolitical issues also increase risk. In these conditions, dividend stocks can help shore up weaker parts of your portfolio and ensure stable investment returns even when turmoil occurs due to domestic and international issues.
Now might be a good time for investors and traders to consider which quality dividend stocks to buy.
AT&T (T)
AT&T (New York Stock Exchange:TTelecom, the communications giant, once diversified into the media business but faced reputational problems among investors. In 2022, it sold its last entertainment assets and refocused on its core utilities of communications and internet services. This allowed the company to focus on other solutions, including 5G, that offer long-term stability to income investors.
AT&T's shares have fallen following a strategy change that saw the market embrace more modest growth aligned with utilities over entertainment, but the company is now getting its fiber optic rollout under control and is seeing broadband revenue grow 7% this year thanks to the industry's lowest churn rate.
Despite the share price decline, AT&T has maintained an annualized dividend yield of 6.1%. That yield still looks solid, with free cash flow (FCF) expected to grow to $17-18 billion this year from $16.8 billion in 2023. At a price-to-earnings (P/E) ratio of 9.7, well below the utilities sector average of 20.9, AT&T stock is a very attractive dividend stock to buy.
Ares Capital (ARCC)
Ares Capital (Nasdaq:ARCC) is one of the largest business development companies (B.D.C.Ares Capital is the largest financial institution in the world, with $23 billion in assets. The company operates similarly to a bank in that it lends to mid-market businesses. As mid-market businesses seek capital, Ares Capital is well positioned to benefit from the current interest rate environment.
The company differentiates itself by looking at a variety of businesses with strong cash flows, which allows it to maintain a low accrued interest rate of 1.7%, below the industry average of 3.28%. As a result, ARCC makes an attractive choice for investors looking for their next dividend stock to buy.
Ares Capital offers a high dividend yield of 8.9%, despite trading at a low P/E ratio of 7.3. The company has proven resilient during volatile times such as the pandemic, cutting its dividend by just 5%. Given its stable cash flows and defensive, steadfast stance on dividends, Ares Capital is one of the top dividend stocks to consider.
Altria Group (MO)
The tobacco industry is out of favor among investors due to declining interest in smoking. However, tobacco companies maintain a stable customer base and continue to generate profits despite shifts in consumer demand. Artoria's (New York Stock Exchange:Missouri)'s profit margin was 45% in March.
Altria has been deliberate about offering a more attractive dividend to appeal to investors who question its business model, which could help it join a special group of companies known as dividend kings, those that have increased their dividend for more than 50 consecutive years. As part of that effort, the company also sold some of its shares in March to buy back shares.
Altria offers one of the highest dividend yields among the Dividend Kings at 8.5%. It also trades at a low price-to-earnings multiple of 9.7, making it a viable dividend stock to buy. Defensive stocks generally trade at a multiple of 19 or less.
On the date of publication, Stavros Tousios did not hold (either directly or indirectly) any positions in the securities mentioned in the article. The opinions expressed in this article are solely those of the author, subject to InvestorPlace.com copyright. Publication Guidelines.