Want to know the best dividend stocks for 2018?
Don’t just look for the usual indicators of a good dividend stock, like a long dividend history: focus on factors that will attract more investors to the stock short-term. Those can include big dividend increases, earnings beats and of course a stock chart that’s moving up.
Companies whose earnings growth is expected to accelerate next year—meaning analysts expect earnings to grow even faster in 2018 than they did in 2017—are likely to attract more investors as 2018 passes, pushing their stock charts up. They’re also likely to deliver the big dividend increases that draw more investors into a stock.
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And dividend stocks that are already in an uptrend are simply more likely to keep going up in 2018. The trend is your friend, as we say around the office.
The 5 Best Dividend Stocks for 2018
Combining screens for strong momentum and accelerating earnings growth with my usual dividend stock screens (like low payout ratios, long dividend histories, and reliable revenue growth) led me to these five top dividend stocks to own in 2018.
Best Dividend Stock for 2018 #1: American Express Company (AXP)
You know Amex for their credit cards, which typically come with more perks—but are harder to get—than typical co-branded credit cards. The company is a dividend stalwart, with a 40-year history of quarterly dividend payments. But recently, competition from MasterCard and Visa has intensified, with the introduction of high-end cards like the Chase Sapphire Preferred Card. On top of that, American Express lost their exclusive relationship with Costco in 2015, triggering two straight years of revenue declines.
But management isn’t taking the beating lying down. The company responded to the competition by making the Amex brand more inclusive, reaching out to smaller merchants and broadening their customer base by launching the Amex EveryDay card. They also improved their Platinum offerings, introducing new features and benefits at the end of 2016. Over the next 12 months, Platinum member and volume numbers both hit record highs.
Revenues and the stock price both started to recover in 2017, and in the last four quarters, Amex has beat analyst expectations for both revenue and earnings growth. In the latest quarter, revenue rose 10%, the fastest rate since 2011. Revenues are expected to grow another 9% this quarter and about 8% for full-year 2018.
Earnings growth is accelerating as well: analysts expect lower taxes to contribute to a 22% EPS boost in 2018, followed by low double-digit growth in 2019. The stock is reflecting that improvement: AXP has been in an uptrend since October 2016, and has so far advanced about 50%, and more of the same is likely to attract even more investors to AXP in 2018. The stock pulled back after management temporarily suspended buybacks in January, to adjust for a one-time non-cash charge related to the tax bill, providing a buying opportunity for longer-term investors.
Best Dividend Stock for 2018 #2: BB&T Corp (BBT)
Headquartered in Winston-Salem, North Carolina, BB&T has banks in 15 states and Washington, D.C. In the aftermath of the financial crisis, BB&T weighted its portfolio toward commercial lending, both reducing the size of and improving the credit quality of its mortgage portfolio. The company’s best growth areas are now corporate loans, recreational vehicle loans, commercial mortgages and wealth management.
BB&T’s EPS rose 9% this year, and in 2018, earnings are expected to jump from $2.79 to $3.93, growth of over 40%. Over the next five years, analysts expect EPS growth to average about 6% per year. That should fuel dividend increases—the company has increased the dividend every year since 2011, by an average of 8% per year—and attract more investors to the stock.
BBT is near all-time highs, but the stock didn’t do as well as it could have in 2017 because of financial industry selloffs. But the stock is still trending generally up, via a series of higher highs and higher lows. Financial stocks are now trending up, as interest rates rise and tax cuts provide a tailwind, and if they can sustain their momentum into 2018, BBT should have a great year.
Best Dividend Stock for 2018 #3: CME Group (CME)
CME Group owns and operates exchanges where options, futures and derivatives are traded. Most recently, CME Group introduced a bitcoin futures contract, allowing speculators to bet on the price of bitcoin without owning bitcoin.
This steady expansion of the derivatives market has fueled steady growth at CME Group. Revenues have increased in each of the last five years, by an average of 4% per year. Net income has also increased every year, by an average of 11% per year.
And 2018 is expected to be a great year for CME, with 7% revenue growth contributing to EPS growth of over 30%.
That should fuel growth in CME’s regular dividend, as well as their special dividend. CME Group pays regular quarterly dividends of 66 cents, for a current yield of just about 2.0%. However, the company also distributes excess cash as a special dividend at the end of each year. It’s too late to get 2017’s special dividend of $3.50 per share, but this year’s distribution is likely to be just as generous.
And of course CME has great momentum—the stock has been trending up since July 2016, and just broke out past its pre-financial crisis highs for the first time at the end of 2017.
Best Dividend Stock for 2018 #4: Emerson Electric (EMR)
Emerson Electric is an industrial conglomerate with a high 2.8% yield. The company recently went through a multi-year restructuring to divest itself of small interests and focus on two core businesses. The first, Commercial & Residential Solutions, includes heating and cooling systems, construction and plumbing tools, ceiling fans and more. Offerings of Emerson’s other core business, Automation Solutions, include industrial equipment and consulting services. Customers include the auto, energy, marine, and medical industries, among others.
Both businesses should benefit from an upcycle in industrial spending and strong U.S. and international economic growth in 2018.
Emerson has paid a dividend since 1957 and has increased the dividend every year for 60 years, making the company a “Dividend Aristocrat.” Dividend increases were de-prioritized during the restructuring but growth is returning: analysts expect Emerson to deliver 13% EPS growth in 2018.
Investors are noticing, and have been piling into the stock since it put in a double bottom two years ago. EMR just surpassed its late 2013 highs for the first time as 2018 started, so now all overhead resistance is gone and the sky is the limit.
Best Dividend Stock for 2018 #5: Microsoft (MSFT)
As one of the oldest tech giants, Microsoft has a much stronger dividend history than many of its peers: the company has paid dividends since 2003 and increased its dividend in each of the past 13 years. Today, Microsoft’s dividend is nearly double what it was five years ago.
And the company is still growing: analysts expect sales and earnings to rise 10% and 3% in 2018.
The stock is no slouch either—MSFT is now trading at all-time highs after finally breaking out past its 2000 high-water mark in late 2016. After a short consolidation in December, the stock started 2018 with a quick 10% gain, and momentum is excellent.
For additional updates on these stocks and to get the list of other best stocks to own in 2018, consider a trial subscription to Cabot Dividend Investor.
Chloe Lutts Jensen developed Cabot's proprietary Individualized Retirement Income System (IRIS) and Cabot Dividend Investor to provide both high income and peace of mind. If you’re retired or thinking about retirement, her advisory is designed for you.