Recent studies prove once again that dividend stocks have the potential to:

  • Offer a plump income stream in good times and bad.
  • Provide diversification to growth-oriented portfolios.
  • Outperform the S&P 500 over the long haul.

Take a look at three dividend stocks that investment banking giant Barclays has given an “overweight” rating. One of them could be worth purchasing in 2022 with some extra cash.

JPMorgan Chase (JPM)

With inflation running hot, many investors are concerned about interest rate hikes from the Fed.

Banks, however, typically do well in a rising interest rate environment. They get to charge more to lend money, and higher rates signal a stronger economy in which people can afford to pay those loans.

JPMorgan Chase is the largest bank in the U.S., with an astounding US$3.8 trillion in assets. Trading at roughly US$168 per share, the stock has climbed 36 per cent over the past year.

Barclays sees even more upside ahead in JPMorgan, as it has an overweight rating on the bank and a price target of US$202.

Business has improved a lot from the pandemic-pained days of 2020. In Q3 of 2021, JPMorgan produced US$3.74 per share in earnings, marking a 28 per cent increase from the US$2.92 per share earned in the year-ago period.

In June, the bank announced an 11 per cent increase to its quarterly dividend rate to US$1 per share, which comes out to an annual yield of 2.5 per cent today.

Mind you, JPMorgan is not the only bank that gave a pay raise to shareholders this year. Peers like Goldman Sachs, Bank of America and Morgan Stanley have also increased their dividends.

If you don’t want to pick individual stocks, you can always build a diversified passive income portfolio automatically just by using your “spare change.”

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Microsoft (MSFT)

Tech stocks aren’t exactly known for their dividends, but the ones with massive recurring cash flows and healthy balance sheets can deliver solid cash payouts.

Take Microsoft, for instance.

When the tech giant first started paying quarterly dividends in 2004, it was paying investors US$0.08 per share. Today, Microsoft’s quarterly dividend rate stands at US$0.62 per share, marking a total payout increase of 675 per cent.

The stock currently offers a dividend yield of only 0.7 per cent. But given Microsoft’s highly reliable dividend growth — management has raised the payout for 12 straight years — it remains an attractive choice for many income investors.

On Oct. 27, Barclays reiterated an overweight rating on Microsoft and raised the price target on the stock to US$363, up about 10 per cent from current levels.

Microsoft trades at around US$330 per share at the moment. But you can own a smaller piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.

Shell Midstream Partners (SHLX)

This one is for the real yield-hungry investors.

Shell Midstream Partners owns, operates, develops and acquires pipelines and other midstream and logistics assets. It pays quarterly distributions of US$0.30 per limited partner common unit.

With SHLX stock trading at US$12.18 per unit, that quarterly payout translates to a jaw-dropping annual yield of 10.1 per cent.

Ultra-high-yielding stocks — especially those from the volatile energy sector — might seem too good to last. But on Oct. 19, Barclays upgraded Shell Midstream Partners from equal weight to overweight and set a price target of US$14 per unit.

Shell Midstream’s CEO, Steven Ledbetter, believes the market is undervaluing the partnership’s units and its “ability to deliver over the long term.”

“As such, we are evaluating options, such as using excess cash for a potential buyback program or increasing distributions in the future,” he said in the latest earnings conference call.

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A more colourful alternative

The right dividend stock can be a solid investment. But remember, stocks of all kinds are volatile and often correlate with each other. If a market-wide downturn lies ahead, even blue-chip dividend stocks could get pummeled.

If you want something that has little correlation with the stock market — and might offer even bigger potential — check out fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174 per cent over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, Jing was a research analyst and editor at one of the leading financial publishing companies in North America. Jing has covered numerous aspects of the financial markets, from blue chip dividend stocks to small cap tech stocks to precious metals and currency. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. In his spare time, Jing plays basketball, the violin and the ukulele.

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