Receiving dividends from your stocks is one of the nicest rewards you can experience. Dividends not only represent a tangible return on your investment but also act as a stream of passive income that goes straight into your bank account.

Fortunately, many stocks dole out a dividend every quarter, and accumulating a portfolio of such companies means you’ll receive a regular stream of additional income every three months.

One important factor in looking for suitable dividend stocks is the sustainability of the dividend. The business should be backed by a strong competitive moat that helps it generate healthy profits and free cash flow.

In turn, this increase in cash flow will lead to ever-increasing levels of dividends over the years. By owning such stocks, you can enjoy a steadily rising flow of dividends that help to more than offset the effects of inflation.

Here are three attractive stocks that can supply you with a dependable stream of passive income over the next two decades.

Abbott Labs
Abbott Laboratories (ABT) is a healthcare company with a wide portfolio of products spanning the diagnostics, medical devices, and nutrition segments. The business has been improving the lives of its customers for 135 years in the areas of diabetes care, cardiovascular care, and the treatment of chronic pain, to name a few.

The company has reported steadily improving financials over the past three years, with revenue rising from $34.6 billion in 2020 to $43.7 billion in 2022. Net income climbed from $4.5 billion to $6.9 billion over the same period, and the company generated an average free cash flow of $7.4 billion over the three years.

The good performance carried into the first quarter of the current fiscal year. Organic sales growth (less COVID-19-related revenue) rose 10% year over year, led by the company’s medical devices, pharmaceuticals and nutrition units.

Abbott Labs feels confident about 2023 and has raised its outlook for the year to high-single-digit year-over-year organic sales growth. What’s more impressive is that the company has increased its dividend without fail over the past 51 years, making it a Dividend King.

The company’s dividend track record can likely continue. It has bulked up its vascular disease treatment portfolio with the recent acquisition of Cardiovascular Systems for approximately $890 million. Just last month, the medical devices company received approval for two new products: the world’s first ablation catheter to treat patients with atrial fibrillation and an insertable cardiac monitor to provide continuous monitoring for abnormal heart rhythms.

In addition, the company also announced a series of partnerships and collaborations to increase diversity in clinical trials and help advance its research on new drugs and devices.

Nike
Nike (NKE) is well-known for its sports footwear and apparel, which has garnered a worldwide following and engendered strong customer loyalty. The company has posted healthy growth since pandemic-related restrictions were lifted, with revenue rising sharply from $37.4 billion in fiscal 2020 to $46.7 billion in 2022. Net income surged from just $2.5 billion to $6 billion over the same period, demonstrating the resilience of its business model.

Revenue for the first nine months of fiscal 2023 continued to rise 11% year over year to $38.4 billion, but net income saw a 12% year-over-year fall, due to higher expenses and supply-chain bottlenecks. Despite the lower profit, Nike continued to generate healthy free cash flow over all the periods mentioned.

Dividends have been on an unbroken upward trajectory for the past 15 years, rising sevenfold from a quarterly $0.046 in 2007 to $0.34 in 2023. There’s reason to believe Nike can continue to deliver, as its Consumer Direct Acceleration strategy helps it to tap into customer insights to increase engagement and deliver the right products to consumers amid changing preferences.

Nike also has an innovative culture that saw the introduction of new running shoes, such as the Invincible 3 and Pegasus Trail 4, with special features that should continue to endear customers to the brand.

Tractor Supply
Tractor Supply (TSCO) is the largest rural-lifestyle retailer in the U.S. with 2,164 stores in 49 states, as of April 1. The company has touted its “Life Out Here” strategy, which has attracted customers who appreciate rural lifestyles and see the business as an essential supplier for their needs.

The pandemic accelerated this demand as more people tended to their homes and farms, thus helping to push Tractor Supply’s sales from $10.6 billion in 2020 to $14.2 billion in 2022. Over the same period, net income jumped from $749 million to $1.1 billion, with all three years seeing healthy free-cash-flow generation.

Tractor Supply started paying a quarterly dividend of $0.04 per share in 2010 and has increased it without fail to $0.52 by 2021. In 2022, the company massively hiked its dividend by 77% to $0.92 per share. This year, it raised the dividend further to $1.03. Over the past 13 years, Tractor Supply’s dividend has increased by a compound annual growth rate of 28.4%.

Further increases look likely as the rural-lifestyle retailer reported a 9.1% year-over-year sales increase for the first quarter of 2023. Comparable-store sales were also positive at 2.1%, with the company maintaining its full-year outlook for sales of between $15 billion to $15.3 billion and comparable-store sales improvement of 3.5% to 5.5%.

Tractor Supply plans to open a total of 70 new Tractor Supply stores, and its highly successful rewards program, Neighbors Club, has seen double-digit year-over-year increases to its current 29 million members. Management believes that the company has a large total addressable market of around $180 billion and has pegged its new long-term store target to 2,700.

— Royston Yang

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Source: The Motley Fool