The Smartest Dividend Stocks to Buy With $5,000 Right Now

Many active investors seem to focus on growth stocks in the hottest new industries. In a sense, that is understandable, as these stocks can sometimes offer outsized gains over a relatively short period of time.

However, other investors may prefer more dividend stocks, moving toward such stocks as they prioritize income over growth.

Dividend investors have to be discerning, as the S&P 500 average dividend yield of 1.1% falls well short of what many investors can earn in the bank. Also, most companies can adjust a dividend payment at any time, pushing investors to look for stocks with less incentive to reduce dividends.

Fortunately, a few stocks offer generous dividend yields along with dividend safety, and these stocks might be a good place to invest one's $5,000 in dividend-producing stocks.

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Realty Income

Realty Income (NYSE: O) is in a particularly strong position to deliver rising amounts of income to investors. As a real estate investment trust (REIT), it must pay at least 90% of its net income in dividends to avoid taxes on its operational income.

The company owns more than 15,500 single-tenant, net-leased properties. Under this arrangement, the tenant pays for maintenance, insurance, and property taxes, ensuring a steady income stream.

Companies such as Walmart, Dollar General, and Tractor Supply lease its properties. Also, nearly 99% of its properties are occupied, prompting it to either buy out competitors or develop new properties.

Moreover, Realty Income bills itself as the "monthly dividend company," and true to its name, it pays investors every month. Those payments have risen at least once annually since 1994, and not maintaining that streak could sour investors on its stock, reducing the likelihood the dividend will fall.

Currently, the annual dividend is $3.24 per share. That amounts to a dividend yield of 5.6%, far surpassing the aforementioned S&P 500 average.

Despite the high yield, Realty Income reported $4.20 per share in funds from operations (FFO) income over the trailing 12 months, a measure of a REIT's free cash flow. This is well above the yearly dividend, indicating its payout is stable.

Additionally, its stock trades at around 30% below its 2020 high, as higher interest rates from earlier in the decade weighed on profits. Nonetheless, the falling rate environment could help the stock, meaning overall returns could deliver returns over and above the dividend.

At current prices, investors can buy 43 shares for just under $2,500. With that, shareholders are not only paid generously to wait, but they could experience high long-term returns if company growth and lower interest rates draw more investors to the stock.

AT&T

Admittedly, AT&T (NYSE: T) may not be the safest choice in terms of dividend stocks. The company ended a 35-year streak of payout hikes after selling DirecTV and its stake in what is now part of Warner Bros Discovery at tremendous losses. The stock struggled for years as the company dealt with the fallout of the dividend cut.

However, AT&T stock's yearly dividend of $1.11 per share has remained stable since that time. Even with past struggles and a recovery in the stock, its dividend yield is 4.6%.

Although AT&T is no longer supported by annual dividend increases, the company is doing more to boost confidence in its stock. Amid its competitive battle with Verizon and T-Mobile, it is moving aggressively to improve service.

It will buy Lumen's mass market fiber business for $5.75 billion and will pay EchoStar $23 billion for wireless spectrum. Spectrum control allows a company exclusive use of prime radio frequencies in a given area, enabling AT&T to offer higher-quality wireless service.

The company reported 405,000 wireless net additions and 288,000 fiber net additions in the latest quarter, indicating the need for its wireless and fiber investments.

Business conditions seemed to have also improved. AT&T generated more than $17 billion in free cash flow over the trailing 12 months, well more than the $8.2 billion in dividend costs. That indicates the payout is sustainable.

Now may also be a good time to buy the stock for valuation reasons, as its price-to-earnings (P/E) ratio of 8 could become a draw for investors. At current prices, $2,500 will buy more than 102 shares, positioning investors to earn income and possibly benefit from stock gains as more customers turn to AT&T's networks.

Will Healy has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income, Tractor Supply, Walmart, and Warner Bros. Discovery. The Motley Fool recommends T-Mobile US and Verizon Communications and recommends the following options: short January 2026 $58 calls on Tractor Supply. The Motley Fool has a disclosure policy.