Stocks are pieces of real businesses. Legendary investors like Peter Lynch and Warren Buffett have repeatedly stressed this point. And for good reason.
A lot of people out there make the mistake of looking at stocks like digital tickers that are meant to be traded like baseball cards. When you buy a stock, you’re buying a small ownership stake in a business.
It’s a business relationship. And like any other relationship, it’s best if it’s approached with a long-term mindset. That’s how you achieve real success over time.
Well, some businesses make this easier than others. I’m talking about some of the very best businesses on the planet. Businesses that have incredibly consistent, reliable, and predictable business models.
They’ve been making a lot of money for a long time, and it’s highly likely that they’ll continue to do that for many decades to come.
These businesses are so wonderful, an investor can go into the relationship with the intention of being invested forever.
And while you remain invested over the coming decades, these businesses are paying safe, growing dividends.
You get paid ever-more passive dividend income while you perform the very easy job of sitting on your shares and letting them exponentially increase in value.
Today, I want to tell you about five high-quality “forever” dividend growth stocks. Ready? Let’s dig in.
The first dividend growth stock to consider owning forever is Apple ( AAPL).
Apple is a multinational technology company with a market cap of $2.4 trillion.
Stocks are pieces of real businesses, right? Well, if you want to own the best stocks, own the best businesses. It’s as simple as that. Apple is a shining example of this. It might just be the best businesses in the entire world. But don’t take my word for it. Warren Buffett, who is almost certainly the greatest investor to ever live, has called Apple “probably the best business I know in the world”.
He feels so strongly about it that he’s put his money where his mouth is – his conglomerate, Berkshire Hathaway Inc, has more than $130 billion invested in Apple, making it the single largest position, by far, in the common stock portfolio that Buffett manages for his firm. What else do we know about Buffett? He loves dividends. And not just dividends but growing dividends.
Apple has increased its dividend for 11 consecutive years.
Apple’s dividend growth track record is still somewhat nascent, but I think they’re just getting started. Even Dividend Aristocrats out there with 30, 40, or 50 straight years of dividend increases had to start somewhere. And Apple is off to a great start. The five-year DGR is 9.2%. With the payout ratio at only 15%, and with the company laying claim to $200 billion in cash and marketable securities, this is one of the safest dividends I’ve ever laid my eyes on.
The one downside is the fact that the stock only yields 0.6%. But if you’re young and can let that compounding process play out over the next few decades, Apple could produce gobs of wealth and aggregate dividend income for you. Buffett, who is the ultimate long-term investor, knows this, which is why he’s so heavily invested in Apple.
If you get the opportunity to scoop up Apple shares for your portfolio, you’d be wise to strongly consider holding those shares for the rest of your days.
Our world is becoming more reliant on all things technology. People are practically glued to their smartphone and computer screens now. This is probably only going to become exacerbated in the future when AR/VR becomes viably mainstream. Guess who is working intently on AR/VR? Apple, of course. This company is providing the tech we need today while simultaneously working hard on the tech we don’t yet know we need for tomorrow. Tech will be with us forever. And increasingly so.
This is why Apple is a prototypical “forever” dividend growth stock. The best investor we’ve ever seen owns a significant chunk of the best business he’s ever seen. I think that says it all. I’ve called Apple a “must-own” stock for serious dividend growth investors. And once you do own it, be careful to not let it slip from your grasp. Let Apple work hard for you and compound your wealth and passive dividend income for the rest of your life.
The second high-quality “forever” dividend growth stock is Johnson & Johnson (JNJ).
Johnson & Johnson is a global healthcare conglomerate with a market cap of $469 billion.
We covered tech. Now health. And why not? What’s more enduring than the need for healthcare? Our human bodies dictate it by virtue of the fact that they’re slowly deteriorating. There is no future reality in which we’ll need less healthcare. If anything, it’s the opposite. The global population is growing. So that’s more human bodies needing more healthcare. Simultaneously, we’re living longer. That extends the size of the potential customer pool even more.
And then you can throw onto it the fact that global citizens are, on average, becoming wealthier, giving them more access to quality healthcare. It’s more demand and more access. As one of the largest healthcare companies on the planet, with operations spanning pharmaceuticals, medical devices, and consumer products, Johnson & Johnson directly benefits from this. And so do their shareholders, partially evidenced by the growing dividend.
Johnson & Johnson has increased its dividend for 60 consecutive years.
This is one of the longest dividend growth track records in existence. It’s 50% longer than I’ve even been alive for. And that’s what you want. When you think about owning something for a lifetime, you want a business that has proven its ability to deliver the goods for a lifetime, right? The 10-year DGR is 6.4%, which is a growth rate that Johnson & Johnson has been super, super consistent with. You can almost set your watch to Johnson & Johnson’s mid-single-digit dividend increase every spring.
The stock also yields a nice 2.5% to go along with that. And since the payout ratio is just 42.2%, based on midpoint guidance for this fiscal year’s adjusted EPS, the dividend is very healthy. Also, Johnson & Johnson is one of only two companies with a AAA credit rating from Standard & Poor’s. So that gives them even more financial flexibility in regard to the dividend… and all other matters.
Johnson & Johnson has been successfully doing business for more than a century. I have zero doubts that they’ll be successfully doing business for another century.
This company has the credentials you’re looking for when you’re trying to find truly world-class businesses. They’ve been around since the 1800s. The dividend has been increased annually for six straight decades. One of the best balance sheets in Corporate America. A scaled-up, diversified operation squarely positioned in the middle of a favorable mix of demographic alchemy promoting secular long-term growth. I’ve personally owned shares in Johnson & Johnson for more than a decade. And I have no plans to ever sell those shares.
Those shares should still be with me when I’m an old man, increasingly in need of the very healthcare products that this venerable institution provides. I can’t picture a future in which this company doesn’t do very well, make substantially more money, and pay out a substantially bigger dividend. If there were ever a “forever” dividend growth stock of the highest quality, it’s Johnson & Johnson.
The third high-quality dividend growth stock that I immediately think of as a “forever” stock is PepsiCo (PEP).
Pepsico is a multinational food, snack, and beverage corporation with a market cap of $236 billion.
Want an idea you can bank on forever? Okay. How about people’s need to eat food and drink beverages. Yeah, that’s not going away… ever. Now, we can quibble about the difference between basic subsistence and a more discretionary diet, but the fact is that PepsiCo has been selling the foods and beverages that people enjoy for a long, long time. The company’s roots date back to the late 1800s. The’ve clearly demonstrated longevity. And that goes for the dividend, too.
PepsiCo has increased its dividend for 50 consecutive years.
Five straight decades of ever-higher dividends. That is not easy. Just try doing anything for 50 straight years. Then try doing incrementally more of it. Yeah, it’s super tough. That’s why only a small handful of companies have ever been able to pay out ever-higher dividends for such a long time. And it’s why PepsiCo is on this list. The 10-year DGR of 7.7% is very nice, and in almost any environment other than this one, easily beats inflation. The stock also offers a market-beating yield of 2.7%, which is very close to its own five-year average of 2.8%. The 69.4% payout ratio, based on core EPS guidance for this fiscal year, shows us a covered dividend.
Will it make you rich overnight? No. But this is the kind of business that you can sleep well at night being invested in.
The odds of waking up and suddenly finding out that your investment has gone bust is practically nil with PepsiCo. This is a company with 23 different billion-dollar brands, including the likes of Doritos and namesake Pepsi. You don’t build that overnight, nor do you destroy that overnight. Anything is possible, I suppose, but conjuring up a future world 20, 30, 40 years from now in which PepsiCo doesn’t exist is beyond my imagination. I just don’t see it.
Again, it won’t make you rich tomorrow. But PepsiCo pays out a safe dividend that grows each year like clockwork. And, by the way, the stock has compounded at a 12.6% annual rate over the last decade. All while you sleep like a baby at night. It’s very difficult to complain about that. In my view, this is definitely a super reliable dividend growth stock that one could consider owning “forever” once it’s in a portfolio.
The fourth high-quality dividend growth stock that I’d argue is a “forever” stock is Procter & Gamble (PG).
Procter & Gamble is a multinational consumer goods corporation with a market cap of $350 billion.
Okay. We’ve covered tech, healthcare, and food. Well, how about basic goods that we all need and use every single day? I’m talking about stuff like toothpaste, soap, shampoo, detergent, razors, and tissue paper. Does it get any more everlasting than soap? Is there a future in which human beings stop washing themselves? I find it hard to believe. Procter & Gamble has been an unstoppable machine since coming into existence nearly 200 years ago, and I’d bet on them remaining an unstoppable machine 200 years from now. That obviously bodes well for their ability to continue rewarding their shareholders with a safe, growing dividend.
Procter & Gamble has increased its dividend for 66 consecutive years.
This company has the longest dividend growth track record of any company we’re discussing today. And these are some of the biggest, best, and most well-known businesses on planet Earth. If that doesn’t prove out how incredibly reliable Procter & Gamble has been and still is, I’m not sure what will. The 10-year dividend growth rate of 5.2% won’t knock your socks off. And neither will the stock’s yield of 2.5%. This isn’t about lights-out performance. It’s instead about a steady-eddy dividend being paid by a steady-eddy business. And both continue to steadily grow as sure as the sun rises and sets. The payout ratio of 63.9% indicates nothing other than business as usual as it pertains to the dividend and the growth of it.
There’s no gamble when it comes to Procter & Gamble. It’s as sure a bet as I know of.
When you’re thinking about potentially owning a business forever, you have to be really, really sure of its future prospects. There can be little doubt, if any, about its existence when you look out decades into the future. Well, Procter & Gamble fits this concept to a T. It’s endured for nearly 200 years. It has more than 20 different billion-dollar brands. Millions of consumers all over the world require the basic necessities this company provides.
And that’s what it comes down to. Necessity. Unless society goes back to the stone age, we’ll still be using toothpaste and tissue paper 50 years from now. And I’m willing to bet that they’ll be priced higher, which means more growth ahead for the business, its earnings, and the dividend. If you’re looking for a stock that you can buy with the intention of holding forever and never worrying about it, Procter & Gamble has to be in contention for that.
Last but not least, I want to discuss the high-quality “forever” stock that is W.P. Carey (WPC).
W.P. Carey is a global net lease real estate investment trust with a market cap of $16 billion.
Okay. We’ve touched on tech, healthcare, food, and basic consumer necessities. So what haven’t we covered yet? Real estate. Well, that’s where W.P. Carey comes in. Like the old saying about land goes, they’re not making it anymore. A REIT allows an investor to instantly own a slice of a scaled-up property portfolio. In the case of W.P. Carey, that means over 1,300 commercial properties mostly in the US and Europe, sporting an occupancy rate of 98.5%, leased to more than 350 different tenants across dozens of different industries. This is about as bulletproof as commercial real estate possibly gets, and that’s why the dividend is about as bulletproof as it possibly gets.
W.P. Carey has increased its dividend for 25 consecutive years.
Here’s the thing about W.P. Carey’s dividend. It won’t give you the high growth potential that an Apple will. And it doesn’t have the storied history that Procter & Gamble has. However, it does offer a lot of current income, which balances things out with the other choices in today’s video. The stock yields 5.2%, which is a significant yield in today’s market. Now, you give up a high growth rate to get that – the five-year DGR is only 1.3%.
But the high inflation could end up benefiting W.P. Carey and its ability to grow its dividend even more aggressively. Approximately 58% of its leases are linked to CPI. With CPI running hot, W.P. Carey is poised to be on fire. Meanwhile, the dividend is protected by a payout ratio of 81%, based on midpoint adjusted funds from operations per share guidance for this fiscal year.
A lot of things in the world have changed and will continue to change. What hasn’t changed and won’t change? The basic requirement for real estate on finite land.
Perhaps long after I’m dead, we’ll be colonizing Mars or something. But in this lifetime, we’re limited to the land we have on this planet. Land is a finite resource. And we need real estate on this limited land in order to provide for a number of basic functions in human society, like shelter, manufacturing, somewhere to educate children, trading, etc. This has been true for a very long time, and it’ll remain true for a very long time to come.
Real estate is great. But what makes W.P. Carey, in particular, so great is the fact their property portfolio is remarkably diversified. No one industry or tenant dominates the business. Great dividend, great business model, great portfolio. This is the kind of high-quality dividend growth stock that, once you buy it, you could plan on owning it forever.
— Jason Fieber
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Source: DividendsAndIncome.com