Because buying dividend stocks is such a successful investment strategy over the past 100 years I gravitate towards them in my portfolio. It means I also look for stocks that have a proven track record of raising their payouts over time.
Data from J.P. Morgan Asset Management found that stocks that initiated a dividend and then increased them over the 40 years between 1972 and 2012 handily beat non-payers. They returned an average of 9.5% annually versus just 1.6% for non-dividend-paying stocks.
Although they’re not going to rise as high in a bull market as growth stocks, they also won’t fall as low when the bear bites. Your situation and risk tolerance will be different.
Not every stock in my portfolio pays a dividend and some naturally offered up stellar results. The following three stocks were my top performing stocks of 2023. Let’s see if these winners can top the list again next year.
Warner Bros Discovery (WBD)
I didn’t buy my shares of entertainment giant Warner Bros Discovery (NASDAQ:WBD). I received them when AT&T (NYSE:T) spun off its WarnerMedia division and merged it with Discovery. Many people sell off shares received from spinoffs but it’s a good place to look for special situation opportunities. Investing great Joel Greenblatt points to spinoffs as an example in his investing classic The Little Book That Beats the Market.
I saw potential in the standalone movie studio. It would have control over its future and not as some afterthought of a telecom. Let’s just say the investment thesis hasn’t panned out yet. The stock is down 54% since I was gifted it but jumped over 26% last year.
It started the year well as the company laid out new plans for a combined HBO Max and Discovery streaming service. Dumping the HBO brand in favor of a more generic Max was a dubious choice but the streamer had a clear roadmap. Unfortunately, the stock tanked soon afterward as it dealt with a string of box office bombs. Barbie was the exception rather than the rule but helped it turn a profit.
Warner Bros still trades below its highs but talk of a possible merger with Paramount Global (NASDAQ:PARA) revived its fortunes. Merging with another studio gives it a deep library while providing additional content for its streaming service. I’m hopeful 2024 will be a good year for Warner Bros Discovery. It doesn’t pay a dividend but may eventually if it gets its business back on track.
Cardinal Health (CAH)
Pharmaceutical and medical supplies distributor Cardinal Health (NYSE:CAH) was bought as a long-term dividend play. Performance in any one year is less important, but the stock rose 30% in 2023. Healthcare is a fundamental concern. Individuals need their prescriptions and medical facilities require the pharmaceuticals, equipment and supplies to provide it. That makes Cardinal Health a no-brainer stock for me.
It serves nearly 90% of all U.S. hospitals, more than 60,000 U.S. pharmacies, and over 10,000 specialty physician offices and clinics. It also provides more than 3.4 million patients with more than 46,000 home healthcare products. Business is booming because of the weight-loss drugs Ozempic and Wegovy from Novo Nordisk (NYSE:NVO). Pharmaceutical stocks Eli Lilly (NYSE:LLY) and AstraZeneca (NYSE:AZN) want in on the phenomenon, boding well for Cardinal Health.
As I mentioned I bought Cardinal for its dividend. It’s not the highest-yielding payout at 2% but it’s increased the dividend for 27 consecutive years. That makes it a Dividend Aristocrat. Over the past 30-plus years, Cardinal Health has a total return of almost 7,500%, far outstripping the 2,700% return of the S&P 500.
Smith & Wesson Holdings (SWBI)
Smith & Wesson Holdings (NASDAQ:SWBI) is my best-performing stock of 2023. It generated a near-68% total return or almost three times greater than the broad-based index. The strength of the firearms manufacturer’s performance is based on growing gun ownership for personal protection. About one-third of Americans own a firearm, according to the Pew Research Center. Personal protection was the reason cited by 72% of them and with good reason.
The federal Bureau of Justice Statistics’ National Crime Victimization Survey shows a 44% increase in violent crime. Yet the FBI’s National Instant Criminal Background Check System (NICS) is likely to show a drop in background checks on gun buyers this year. About half the checks the FBI makes are on existing concealed carry permit holders to see if they are still eligible to possess a permit. Yet the total for the first 11 months of 2023 is almost the same number of background checks performed for all of 2016. The investment thesis behind my purchase of Smith & Wesson stock is the gunslinger is the largest firearms manufacturer and the overall trend of gun ownership is up.
Smith & Wesson pays a dividend that currently yields 3.4% annually and trades at elevated multiples of earnings and sales. That would normally make me think the stock won’t perform so well in 2024. However, we’re heading into a presidential election year where passions will undoubtedly run high. It means gun sales might just break records again as it did during the last two cycles.
On the date of publication, Rich Duprey held a LONG position in WBD, T, CAH, and SWBI stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.