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The Best Stock Sectors For Dividend Income and Growth

The best stock sectors for income and growth are pharmaceuticals, utilities and telecommunications (telecom).

Here at Blooming Wealth we believe that stocks are definitely worth an investment. But not just any stocks. We particularly love stocks that pay dividends, preferably above the rate of inflation.

That’s because, historically, stocks that return a dividend have given investors a larger return for their money than non-dividend paying stocks.

But while we’re at it, why not go for both income and growth? These types of stocks posted compound annual returns of 11.7% between 1986 and 2016, which is a sizable return and well above the rate of inflation.

Why These Stock Sectors Are Attractive

Beyond choosing random, individual stocks, I believe that there are certain sectors that tend to offer both income and growth, as well as stability: utilities, pharmaceuticals and telecommunications.

Utilities offer lower returns but the most stability of the three sectors. Pharmaceuticals can have moderate volatility that offer favorable points of entry and arbitrage opportunities and top telecom companies continue to grow at respectable paces as many of them integrate and develop modern technologies.

All the while, there are key players in all three industries that offer a healthy dividend that produces passive income.

Utility Stocks Offer Stability and Solid Yields

Utility stocks include electricity, water and gas. What makes them particularly attractive is their stability coupled with solid yields. Currently, utility stocks average a 3.96% dividend yield, which is above the current rate of inflation of 3.22%. And since everyone needs and uses utilities, it’s not like consumer sentiment can affect demand.

Added to their attractiveness from an investment perspective is that most utility companies operate in regulated markets, meaning they must conduct business under the watchful eye of local, state and federal governments. In other words, there will be no surprises when you turn over the proverbial corporate rock.

Also, in what other industry can you find companies that are allowed to hold a legal monopoly in their regions of operation? Eric Landis writes in his article “Regulated Utilities: The Market’s Legal ‘Monopoly,’” featured on, “The utility sector is unique to the stock market in the sense that it is the only sector allowed by regulators to act as a monopoly towards its customers.”

Even if a utility company isn’t regulated, it can still be a great choice for the long haul. Since utilities are a “must have” instead of a want, I think it’s fair to say that as the world population grows, the demand for utilities will naturally increase.

It is for these reasons that I think utility stocks that pay a healthy dividend are some of the best stocks to invest in.

Some utility companies to consider for both income and growth are:

American Electric Power (AEP) is a regulated electric company based in Ohio, serving 5.4 million customers in 11 states. It generates, transmits and distributes electricity to retail and wholesale customers in the U.S. It also supplies and markets wholesale electricity to other utility companies. AEP has increased its dividend by 6.3% over the past two years.

Current forward dividend & yield: 3.07%

Current payout ratio: 70.89%

Duke Energy (DUK) is another regulated electric company. It generates, transmits, distributes, and sells electricity in North and South Carolina, Florida, and the Midwest. It currently serves 7.4 million customers. Between 2016 and 2018, DUK had a CAGR of 3.8%

Current forward dividend & yield: 4.36%

Current payout ratio: 78.75%

Fortis Inc (FTS) is Canada’s private largest utility company. It operates as an electric and gas utility company in Canada, the United States, and the Caribbean. It generates, transmits, and distributes electricity to populations in five Canadian provinces, nine U.S. States and three Caribbean countries. It has an average annual dividend growth target of 6% through 2024.

Current forward dividend & yield: 3.61%

Current payout ratio: 49.52%

American Water Works (AWK) is a regulated water company based in New Jersey. It is the largest water utility company in the U.S. and provides approximately 14 million customers in 46 states and Ontario, Canada with clean drinking water, as well as other water-related services.

Current forward dividend & yield: 1.68%

Current payout ratio: 56.98%

Pharmaceutical Stocks Provide Income and Growth

The pharmaceutical industry has grown by 5.8% and shows no signs of slowing down. One downside of investing in pharmaceutical stocks is they are somewhat volatile. All of the pharmaceutical stocks mentioned below have had moments of moderate decline, usually following the news of a key drug losing its patent or being rejected by the FDA.

But if you can weather the temporary storms, pharmaceutical stocks can have a big payoff in the long run. These stocks always seem to bounce back and with solid yields and payout ratios, these stocks can be a good addition to any income and growth plan.

Some top pharmaceutical companies to consider are:

Glaxo-Smith Kline (GSK) is a British-based company that creates, manufactures and markets pharmaceutical products, vaccines and over-the-counter drugs to the U.K. and U.S., as well as across the globe. Its vast array of products are diverse and includes HIV and cardiovascular drugs, anti-virals, cold medicines, toothpastes and much more. GSK’s earnings are expected to grow by at least 12% in 2020 and beyond.

Current forward dividend & yield: 4.44%

Payout ratio: 90.6%

AbbVie Inc (ABBV) discovers, develops, manufactures, and sells pharmaceutical products in the United States and abroad. It offers drugs treating autoimmune and intestinal diseases, hepatitis, viral infections, as well as treatments for individuals battling leukemia and lymphoma, and more. It’s a spin-off of Abbot Laboratories and was founded in 2013.

Current forward dividend & yield: 5.46%

Payout ratio: 216.51%

Pfizer (PFE) is one of the world’s largest pharmaceutical companies and is based in New York, NY. Its medical products are sold world-wide and include vaccines, medical devices, consumer healthcare products, as well as treatments for cancer, cardiovascular issues, inflammation and more. It has numerous subsidiaries and in 2018 in completed a joint merger of their consumer healthcare division with GlaxoSmithKline.

Current forward dividend & yield: 3.82%

Payout ratio: 50.53%

Merck (MRK) offers healthcare solutions worldwide in therapeutic and preventative products. These range from diabetes, hepatitis, HIV, cancer, vaccines and more. It also operates an animal healthcare division that treats diseases and ailments in domesticated animals. It’s based in New Jersey and one of the largest pharmaceutical companies in the world.

Current forward dividend & yield: 2.86%

Payout ratio: 68.16%

Telecommunication Stocks Are a Nice Blend of Tech and Utility

Telecommunication companies can offer steady growth and a healthy dividend. While they used to be considered a type of utility, telecommunication companies have emerged as their own category in recent years. This is due to the fact that many of these companies are innovating and integrating modern technologies into their offerings, such as the latest 5G cellular network.

What’s more is the steady increase of people using their phones and tablets to search the web, stream videos and more. With internet service being such an integral part of web use, I think it’s safe to say that the demand for service from these companies will continue to grow.

Some key players in this industry that are poised for continued growth and income are:

AT&T (T) provides service via cell, internet, security and satellite television. They also provide telecommunications equipment. They have over 150 million phone subscribers and operate in 190 countries. The company has 35 years of quarterly dividend growth and is a Fortune 10 company.

Current forward dividend & yield: 5.43%

Payout ratio: 91.48%

Verizon (VZ) is based out of New York, NY and provides cell, internet and data services. It also provides network services for the federal government. It currently has around 119 million subscribers and operates in 150 countries. Verizon also has a cyber security division, a field projected to grow by at least 17% in the upcoming years.

Current forward dividend & yield: 4.13%

Payout ratio: 63.24%

Roger’s Communications (RCI) is a more diversified t-comm company. While the company offers wireless voice and data communication services, as well as cable television and high speed internet access, it also has a media segment. RCI owns the Toronto Blue Jays and Rogers Centre. It also does television and radio broadcasting, digital media and owns shopping platforms. The company is headquartered in Toronto and is Canada’s second-largest telecom company.

Current forward dividend & yield: 3.22%

Payout ratio: 49.75%

BCE Inc (BCE) is a Canadian company made up of three segments: Bell Wireless, Bell Wireline and Bell Media. It provides wireless data and voice services to residential and business customers across Canada through the Bell Wireless Segment, television, digital media and radio broadcasting through Bell Media, and internet and other communication services and products through its Bell Wireline segment. BCE currently has an A- rating with, is ranked #37 on Forbes’s top 100 digital companies list and is projected to grow between 1 and 3% in the upcoming years.

Current forward dividend & yield: 5.01%

Payout ratio: 95.77%

The Long-Term Appeal of These Sector-Based Stocks

I believe investing in these three sectors creates a nice balance of income and growth while providing stability. These sectors offer moderate to high profit margins, are less vulnerable to consumer sentiment compared to certain industries and often provide solutions in areas where the public has few other choices.

Compare their attributes to other sectors such as oil and gas, which can offer income but not stability, or consumer staples, which is slow growing with smaller profit margins.

These types of stocks offer less opportunity for day and swing traders but for the investor who wants to capture dividends while holding for long-term capital gains, they can be the perfect trifecta.

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