If I Had $5,000 to Put Toward Just 1 Dividend Stock, This Would Be It

With the 10-Year Treasury paying a 5.1% yield, it might seem smarter to invest in fixed-income instruments like CDs and bonds rather than dividend stocks. After all, fixed-income plays generate safer, guaranteed returns, and they must raise their yields as interest rates rise.

However, fixed-income instruments aren't a good fit for long-term investors, since their principal never appreciates. Meanwhile, most blue chip stocks appreciate over the long term, and reinvesting their dividends through downturns can create some massive compound returns.

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That's why the S&P 500 (SNPINDEX: ^GSPC) has delivered an average annual total return of 10% ever since its inception in 1957. The easiest way to capitalize on that trend is to simply buy an S&P 500 ETF, reinvest its dividends, and come back in a few decades.

However, the S&P 500's 1% yield might not satisfy income-oriented investors. So if you have $5,000 and want to park it in a higher-yielding stock, you should consider buying Altria (NYSE: MO) -- a component of the S&P 500 and a Dividend King (a stock that has raised its dividend for over 50 straight years) with 57 consecutive years of dividend hikes.

Why is Altria a good dividend stock?

Altria is the largest tobacco company in the United States. It owns Marlboro, the country's leading cigarette brand, as well as other cigarette brands, cigars, and smokeless products.

Altria might initially seem like a risky investment, since it generates most of its revenue from cigarettes. Adult smoking rates in the U.S. have dropped from more than 40% in the 1960s to less than 10% today, and its annual cigarette shipments have declined for decades.

But to offset that pressure, Altria raises cigarette prices, cuts costs, and buys back its own shares to boost its cash flow and EPS, even as revenue barely grows. It's also expanding its portfolio of smokeless products -- which include its NJOY e-cigarettes and On nicotine pouches -- to reduce its dependence on cigarettes. By 2028, it expects to generate at least $5 billion in smoke-free revenue, equivalent to nearly a quarter of its projected sales.

From 2025 to 2028, analysts expect Altria's EPS to grow at a 13% CAGR. Yet it trades at just 13 times forward earnings and pays a forward yield of 6%. So if you're looking for a simple way to generate $300 in annual income from a $5,000 investment, Altria checks all the right boxes.

Leo Sun has positions in Altria Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.