Are you looking to beef up your portfolio's exposure to dividend-paying holdings? Now's certainly the right time to do so. Not only will the Federal Reserve's expected interest rate cuts over the next couple of years drag dividend yields lower, it will do so by inflating prices of dividend stocks themselves. By stepping in now, you'll lock in above-average yields on any new dividend names before they catch the brewing bullish tailwind.
The question is, which dividend stocks are the best ones to load up on right now? Here's a look at three of your top prospects.
1. British American Tobacco
If you think the worldwide smoking-cessation movement is working, well, you're right. But, it's not working nearly as well as you might expect.
The World Health Organization reports there are still roughly 1.25 billion regular smokers peppered across the planet, down only slightly from 2000's count of 1.36 billion. The movement is losing steam too, with the organization predicting that there will still be almost 1.2 billion tobacco users come 2030.
In other words, despite the well-organized, well-funded resistance effort, smoking remains relatively common. A massive amount of money remains to be made for years to come from this still-growing, $1 trillion global business.
Enter British American Tobacco(NYSE: BTI).
Although it's technically a foreign company (to U.S. residents), with most of its business being done overseas, you're likely more familiar with it than you think. This is the parent to cigarette brands like Kent, Lucky Strike, and Pall Mall, and its 2017 acquisition of Reynolds added a handful of popular American brands such as Newport and Camel to its offerings. It's even developing alternative products like heated tobacco and a vaping platform.
This diverse portfolio (geographically as well) means British American's top line is pretty consistent. Following last year's modest improvement in organic revenue, sales through the first half of 2024 more or less match last year's total top line at this point. Its bottom line is similarly stable, ultimately supplying the cash needed to fund continued dividend payments.
There's no real growth in store here, to be clear. This is purely a dividend play. At a forward-looking yield of 8.7% based on a dividend that could persist for decades, though, British American Tobacco offers a superior, long-lived income opportunity.
2. Bank of America
The arguments against owning Bank of America(NYSE: BAC) right now are plentiful. Chief among them are a tepid economy and falling interest rates, both of which work against banks' bottom lines. Never even mind the growing number of loan delinquencies and defaults; Bank of America's net charge-offs through the first three quarters of the year are up 75%. BofA stock's modest forward-looking dividend yield of only 2.5% isn't exactly thrilling either.
There's a reason, however, that Bank of America shares have been climbing since late last year in defiance of the warnings. That is, these worries are more proverbial bark than bite.
That's not to suggest you should simply dismiss these concerns. The economic backdrop is changing, and could still take a turn for the worse.
But, it's wiser to respond to what's actually happening and what the plausible future holds, rather than presuming the worst-case scenario is on the verge of materializing. And what analysts suggest is apt to happen in 2025 is top-line growth of 4.6% driving per-share profits up from this year's expected $3.25 to $3.64.
Simply put, things aren't quite as ugly for the economy as they're being made out to be.
Obviously, this stock's recent bullishness leaves a little less upside potential on the table. There's still plenty of it to be tapped, though. Wall Street's current consensus 12-month price target of $47 per share is still quite a bit above Bank of America stock's present price of just over $41. Most of these analysts also currently rate BofA stock as a strong buy despite its recent rally.
3. Verizon
Last but not least, add wireless telecom giant Verizon Communications(NYSE: VZ) to your list of dividend stocks to double up on right now.
There's not a lot of meaningful growth in store for this company, and by extension, for its shareholders. Pew Research reports that 97% of U.S. adults already own a mobile phone -- mostly smartphones. And, while Verizon also still operates a landline business, that industry continues to shrink.
Although the company offers institutional-level (factories, office buildings, etc.) connectivity service and benefits from individual customers needing more and more connected devices, much of any growth it musters is driven by mere population growth. By and large, it and its peers/rivals like AT&T and T-Mobile are simply swapping customers.
What Verizon lacks in growth firepower, however, it more than makes up for in reliable dividends.
Simply put, consumers are addicted to their mobile devices. Data from Reviews.org indicates more than half of Americans admit to feeling addicted to their smartphones, with even more saying they feel uneasy when they leave home without them. Separately, healthcare technology outfit Harmony Healthcare IT says the average American spends more than four hours per day looking at their phone's screen.
So what? Healthy or not, these people are unlikely to stop using their devices anytime soon, if ever. They're going to pay whatever is required to stay connected. Verizon just needs to remain price-competitive, which it has.
The resulting demand has translated into consistent revenue, which in turn has produced reliable income, ultimately driving reliable dividends. Indeed, not only has the telco company paid a quarterly dividend like clockwork since becoming the company consumers know today back in 2000, it's raised its annualized payout every year for the past 18 years. That growth streak isn't apt to end anytime soon, either.
Newcomers will be plugging into this dividend payer, while its forward-looking dividend yield stands at a solid 6.5%. You'd be hard-pressed to find better from a company of this caliber.
Should you invest $1,000 in British American Tobacco right now?
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Bank of America is an advertising partner of Motley Fool Money. James Brumley has positions in AT&T. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends British American Tobacco P.l.c., T-Mobile US, and Verizon Communications and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
