Best Dividend Stocks to Watch in February 2025

Why Are These the Best Dividend Stocks?

The dividend stocks included on our list represent companies trading on the Nasdaq or the New York Stock Exchange with share prices of $5 or more, a market capitalization of $300 million or more, and a daily trading volume of at least 100,000. Companies with payout ratios that are either negative or over 100% were also excluded from the list. From the pool of companies remaining, we selected those with the highest forward dividend yield for inclusion on our list. Because dividend yield changes all the time with the price of a company’s stock, this list is also likely to change quickly. Further, these are not the best dividend stocks of all time; they represent those that rose to the top of the list based on our methodology for this month.

Investors prioritize dividend stocks because they provide a steady passive income stream and enjoy the potential for share price growth in the future. Dividends are not necessarily a given, however, even among companies with a history of paying them for many years. Investors should remember that:

Market conditions impact dividends. The broader economic environment has a significant impact on dividend payments. When there is concern about the ability to maintain operations and top- and bottom-line performance due to external market factors, companies may move to reduce or even eliminate dividends as an early protective measure. This allows them to preserve capital in case of turbulent times to come. On the other hand, booming economies can sometimes prompt companies to increase their dividend payments.

Dividend yields may be misleading: Dividend-paying companies may increase a dividend yield to entice investors, but higher dividend payments can be unsustainable. Similarly, a dividend yield may appear higher because of falling stock prices. These are reasons why the payout ratio is an important metric to monitor for dividend stocks.

How to Pick Dividend Stocks

Strong dividend stocks tend to be those of companies with solid fundamentals, a strong profitability horizon, and a sustainable dividend yield that has maintained or, ideally, increased over a period of years.

How to Find Dividend Stocks

Not all sectors and industries are the same when it comes to dividend-paying companies. Finance and energy tend to be sectors with higher dividend payments than others, and real estate investment trusts (REITs) are required to pay out a substantial portion of their income in dividends to shareholders. But it’s also important for investors to look not just at a company’s sector, but also at its dividend performance relative to other companies in that sector.

What Should Investors Look For in Dividend Stocks?

Dividend Payout Ratio (DPR)

DPR is a measure of how much of a company’s earnings are paid to shareholders. The DPR is calculated by dividing total dividends by net income and is often included on brokerage platforms as well as financial news sites.

As an example, if Company X reported a net income of $50,000 and paid $10,000 in yearly dividends, its DPR would be 20% because $10,000 / $50,000 = 20%. In other words, Company X pays 20% of its earnings to shareholders each year. A DPR of under 50% is typically considered stable and sustainable and may be indicative of long-term growth potential. Higher percentages may mean that a company is overpaying on dividends.

Dividend Yield

Dividend yield is a measure of the annual value of dividends received by a shareholder relative to the security’s per-share market value. It can be calculated by dividing the annual dividend per share by the current stock price. Like DPR, this information is often easily found online.

If Company X pays $5 in dividends annually and has a current share price of $100, its dividend yield is 5% because $5 / $100 = 5%. Investors sometimes begin a search for dividend stocks by screening for companies with dividend yields above a certain percentage.

Dividend Coverage Ratio

The dividend coverage ratio measures the number of times a company is able to pay dividends to shareholders and is calculated by dividing annual income by annual dividend per share.

Company X generated $5 million in net income and pays $1 million annually in dividends, hypothetically. In this case, the company has a dividend coverage ratio of 5, or $5 million / $1 million. Higher dividend coverage ratios mean companies can pay dividends a greater number of times based on current income levels.

Besides these metrics, there are other fundamentals that investors should consider as well, including earnings per share (EPS) and total return.

The Bottom Line

For investors looking to generate income from their investments, dividend-paying companies may be a good option. However, before investing in a dividend stock, it is important to research the overall financial health of that company. Higher dividend yields are generally seen as attractive but may be misleading and even a sign of financial instability.

Investors pursuing dividend stocks may be able to reinvest dividends to buy more shares, therefore taking advantage of compounding returns.

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As of the date this article was written, the author does not own any of the above stocks.