Top 10 Buy-and-Hold Dividend Stocks
The Top “Buy-and-Hold” Stocks
Buy and hold stocks are definitely underrated. Some investors spend copious amounts of time tracking their investments and hoping their value increase.
Then there are dividend investors. Sure, they like watching the value of their stocks rise, but they also like getting free money every three months—money they can either cash or reinvest.
Dividend investing might not be as exciting as trying to find the latest tech stock that is about to soar, but that’s because dividend investing is a long-term sport for patient investors. Dividends are typically paid out by larger, well-established companies and have become increasingly popular in the current near-record-low interest rate environment.
After all, it’s easier to have your money work for you when you invest in a company that provides an annual dividend of four percent and has a long history of increasing its annual dividend than, say, putting your money in the bank or bonds, where the yields are virtually zero.
Dividends are typically by companies that make a lot of money, but don’t need all of the cash to fund growth. Instead of reinvesting all of their money into the company, they pay some of it out to shareholders.
Long-term investors can take full advantage of dividend stocks by harnessing the power of compounding interest. The best way to do that is to sign up for a dividend reinvestment plan (DRIP) and direct stock purchase plan (DSPP), should the company offer it. This allows you to automatically reinvest your dividends. You can also purchase shares, fractional or whole, without the need of having to use a broker. Buy-and-hold investing might not impress your friends, but it can be lucrative.
That said, not all dividend stocks are created equal. You don’t want to invest in a company that pays most of its profits in dividends. This is a sign that the company is not reinvesting enough to promote future growth. If the company hits lean times and its cash starts to dry up, one of the first things to go is the dividend.
There are exceptions to this rule. For example, a real estate investment trust (REIT) must return at least 90% of its profits to investors.
If you’re looking at adding dividend growth stocks to your portfolio, pay particular attention to the price/book (P/B), price/earnings (P/E), return on equity (ReE), payout ratio, and levered free cash flow. Also, look for stocks with a high barrier to entry. This prevents other companies from entering the fray and taking a bite out of profit margins, which keeps the company making money and the dividend yield safe.
Here are my top 10 “buy-and-hold” stocks.
General Mills, Inc.
Headquarters: Minneapolis, Minnesota
Share price: $61.93
Market capitalization: $36.63 billion
Forward P/E: 18.11
Annual sales: $16.26 billion
Dividend yield: 3.08%
Payout ratio: 66.1%
Levered free cash flow: $1.83 billion.
One of the world’s biggest food companies, General Mills, Inc. (NYSE:GIS) sells its products in over 100 countries. Many of the company’s brands hold the first- and second-place selling positions, including “Gold Medal” flour, “Pillsbury” refrigerated dough, “Cheerios,” and “Betty Crocker” dessert mixes. (Source: “Businesses,” General Mills, Inc., last accessed October 11, 2016.)
This doesn’t mean General Mills has been resting on its laurels. The company is in the process of altering its portfolio, now focusing on brands and geographic markets with the best opportunities for growth. Moreover, General Mills has been acquiring new businesses in an effort to make its product portfolio more modern for the sake of its consumer base’s changing tastes.
General Mills is a classic “buy-and-hold” stock. The company provides an annual dividend of 3.05%, or $1.92 per share. For income-starved investors, General Mills has paid an annual dividend for the last 117 years and increased its annual dividend yield for 14 consecutive years. (Source: “Dividends,” General Mills, Inc., last accessed October 1, 2016.)
Costco Wholesale Corporation
Headquarters: Issaquah, Washington
Share price: $149.25
Market capitalization: $65.3 billion
Forward P/E: 22.68
Annual sales: $118.72 billion
Dividend yield: 1.20%
Payout ratio: 31.19%
Levered free cash flow: NA
Costco Wholesale Corporation (NASDAQ:COST) is the country’s largest wholesale club operator, with 715 warehouses and 86.7 million cardholders.. Most of the company’s warehouses are located in the U.S. (501), Canada (91), Mexico (36), the United Kingdom (28), and Japan (25). (Source: “Corporate Profile,” Costco Wholesale Corporation, last accessed October 11, 2016.)
Costco sells mostly grocery items, produce, and consumer goods (many in bulk packaging), but you can find just about anything, including clothes, electronics, seasonal goods, jewelry, books, furniture, and home improvement items.
Costco’s dividend yield may not be the highest at 1.2% ($1.80 per share), but the company is a slow and steady workhorse, providing investors with capital appreciation and consistently raising its annual dividend yield. You can’t get much more dependable than this, which is why I added Costco to my “buy and hold” list.
Procter & Gamble Co
Headquarters: Cincinnati, Ohio
Share price: $88.84
Market capitalization: $236.99 billion
Forward P/E: 20.89
Annual sales: $65.3 billion
Dividend yield: 3.00%
Payout ratio: 70.1%
Levered free cash flow: $7.67 billion
It’s probably a safe bet to say that every home in American has at least one Procter & Gamble Co (NYSE:PG) product on the shelf. The company is a consumer products juggernaut, with five billion customers in more than 180 countries.
Some of the company’s top brands include “Tide,” “Pampers,” “Always,” “Bounty,” “Head & Shoulders,” “Olay,” “Gillette,” “Braun,” “Venus,” “Crest,” “Oral B,” “NyQuil,” and “Duracell.” (Source: “Company Strategy,” Procter & Gamble Co, last accessed October 1, 2016.)
Procter & Gamble might not be the most exciting stock, but it’s one of the best long-term stocks that has been quietly rewarding buy-and-hold investors. The company currently pays an annual dividend of three percent, or $2.68 per share. It has raised its annual dividend for the last 60 consecutive years. That’s what I call a “buy-and-hold” stock.
The vast majority of investors believe Procter & Gamble is an excellent long-term dividend stock. Just 1.96% of the company’s shares are shorted. (Source: “The Procter & Gamble Company (PG),” Yahoo! Finance, last accessed October 1, 2016.)
The Coca-Cola Co
Headquarters: Atlanta, Georgia
Share price: $41.65
Market capitalization: $179.75 billion
Forward P/E: 20.72
Annual sales: $43.25 billion
Dividend yield: 3.36%
Payout ratio: 78.16%
Levered free cash flow: $5.56 billion.
The Coca-Cola Co (NYSE:KO) is the number-one non-alcoholic beverage company in the world, with a portfolio of more than 3,500 beverages. If you feel like it, you could drink a different Coke product every day for nine-and-a-half years. (Source: “Financial Tear Sheet,” The Coca-Cola Co, last accessed October 11, 2016.)
Coke is home to four of the top five soft drinks: “Coca-Cola,” “Diet Coke,” “Fanta,” and “Sprite” and also has the world’s largest beverage distribution system, reaching consumers in more than 200 countries.
Coca-Cola provides an annual dividend of 3.36%, or $1.40 per share, and has raised its annual dividend for the last 11 consecutive years.
Altria Group Inc
Headquarters: Richmond, Virginia
Share price: $61.79
Market capitalization: $123.43 billion
Forward P/E: 18.90
Annual sales: $19.1 billion
Dividend yield: 3.95%
Payout ratio: 78.2%
Levered free cash flow: $5.19 billion
Admittedly, not everyone is keen on investing in a cigarette maker. But for those investors not opposed to making money on sin stocks, then Altria Group Inc (NYSE:MO) is certainly one of the best long-term dividend growth stocks out there.
Altria controls more than half the U.S. market, with leading brands such as “Marlboro,” “Copenhagen,” “Skoal,” and “Black & Mild,” as well as e-vapor products “MarkTen” and “Green Smoke.” But Altria isn’t just a tobacco company; it also owns Ste. Michelle Wine Estates, a leading producer of wine in the Washington State area, with brands such as “Chateau Ste. Michelle,” “Columbia Crest,” and “14 Hands.” Ste. Michelle may not be the biggest revenue generator for Altria, but it was the company’s most successful segment in 2015. (Source: “At-A-Glance,” Altria Group Inc, last accessed October 11, 2016.)
Few stocks have the long-term appeal of Altria. From 2011 to 2015, Altria delivered total shareholder return of 204%; more than twice the return of the S&P 500. During the same period, the company produced adjusted diluted earnings per share (EPS) growth at a compound annual rate of approximately 8.1%. (Source: “Financial Strength,” Altria Group Inc, last accessed October 11, 2016.)
Altria is a high-quality dividend stock for long-term investors because it has one of Wall Street’s most impressive dividend growth stories. The company currently pays an annual dividend of 3.95%, or $2.44 per share, and has increased its annual dividend 50 times in the past 47 years. (Source: “Stock & Dividend Information,” Altria Group Inc, last accessed October 11, 2016.)
Headquarters: Houston, Texas
Share price: $44.10
Market capitalization: $54.62 billion
Forward P/E: N/A
Annual sales: $24.18 billion
Dividend yield: 3.35%
Payout ratio: Unknown
Levered free cash flow: -$821.25 million
When the markets getting gutted, it’s good to be the biggest. ConocoPhillips (NYSE:COP) is the world’s largest independent exploration and production (E&P) company based on proved reserves and production of liquids and natural gas.
As of December 31, 2015, the company had reserves of 8.2 billion barrels of oil equivalent (BoE). In 2015, the company produced 1.58 million BoE per day. (Source: “ConocoPhillips Overview,” ConocoPhillips, last accessed October 11, 2016.)
In mid-2015, ConocoPhillips announced plans to reduce future spending on deepwater exploration and is currently pursuing a phased exit. This decision will provide increasing capital flexibility over time. This is a good thing, as he company’s share price has more than halved since the summer of 2014 on the heels of a global economic slowdown, low oil prices, weak demand, and a market saturated with oil.
The market will eventually rebound, and along with it, ConocoPhillips’ share price. Until then, long-term dividend investors will have to contend themselves with ConocoPhillips’s annual dividend of 3.35%, or $1.39 per share.
Verizon Communications Inc.
Headquarters: New York, New York
Share price: $50.01
Market capitalization: $203.94 billion
Forward P/E: 12.41
Annual sales: $130.12 billion
Dividend yield: 4.6%
Payout ratio: 63.84
Levered free cash flow: $15.77 billion
Verizon Communications Inc. (NYSE:VZ) is one of the top communications providers in the U.S., with the country’s biggest wireless network and 113.2 million customers. (Source: “Verizon Fact Sheet, Verizon Communications Inc., last accessed October 7, 2016.)
Verizon is also taking a lead with the “Internet of Things.” The company serves 99% of Fortune 1000 companies and has over 80 submarine cable investment services, over 200+ data centers worldwide, and 800,000 route miles of network coverage. And with the addition of AOL in 2015, Verizon’s content, advertising, and cross-platform media capabilities are more robust than ever.
For long-term dividend investors, Verizon’s annual dividend stands at 4.61% or $2.31 per share, which it has raised for the last 12 consecutive years.
Verizon is the toll road of the information superhighway. That’s why it is on my list of “buy-and-hold forever” stocks.
Headquarters: Beaverton, Oregon
Share price: $51.95
Market capitalization: $87.19 billion
Forward P/E: 19.25
Annual sales: $33.02 billion
Dividend yield: 1.23%
Payout ratio: 28.7
Levered free cash flow: NA
Nike Inc (NYSE:NKE) is the world’s number-one designer of athletic shoes, apparel, equipment, and accessories for a wide variety of sports and fitness activities. The company’s wholly owned subsidiary brands include “Converse” and “Hurley International LLC.” (Source: “About Nike,” Nike Inc, last accessed October 11, 2016.)
Thanks to its top position in just about every market in which it participates, strong brand awareness, and huge international footprint, Nike also has a solid balance sheet, with $4.8 billion in cash and small debt load. Nike pays an annual dividend of 1.23%, or $0.64 per share. The company has raised its annual dividend for the last 14 years.
In November 2015, Nike approved a four-year, $12.0-billion share repurchase program. As of August 31, 2016, Nike had purchased 39.0 million shares under the program for approximately $2.2 billion. That’s why this name is on my list of buy-and-hold stocks. (Source: “Nike, Inc. Reports Fiscal 2017 First Quarter Results,” Nike Inc, September 27, 2016.)
Headquarters: Columbus, Indiana
Share price: $128.60
Market capitalization: $21.59 billion
Forward P/E: 16.17
Annual sales: $18.20 billion
Dividend yield: 3.14%
Payout ratio: 53.13
Levered free cash flow: $1.65 billion
Cummins Inc. (NYSE:CMI) is a global powerhouse that designs, manufactures, sells, and services diesel and alternate fuel engines. The company is a high-quality dividend stock for long-term investors because it maintains a dominant market share position and has a massive dealer network with more than 7,200 locations in more than 190 countries and territories. (Source: “Investor Overview,” Cummings Inc., last accessed October 11, 2016.)
Cummins makes about half of its revenue from its Engine segment, which makes diesel- and natural gas-powered engines for the heavy and mid-duty truck, RV, automotive, and industrial markets, along with marine, rail, mining, and construction. Major customers include Fiat Chrysler Automobiles N.V. (NYSE:FCAU), Daimler AG, Ford Motor Company (NYSE:F), Komatsu Ltd, PACCAR Inc (NASDAQ:PCAR), and AB Volvo.
In 2015, the company earned $1.4 billion on revenue of $19.1 billion. Cummins currently pays an annual dividend of 3.14%, or $4.10 per share, and has raised its annual dividend yield for the last 11 consecutive years. This definitely makes Cummins a buy-and-hold stock name.(Source: “Dividend Information,” Cummings Inc., last accessed October 11, 2016.)
Wal-Mart Stores, Inc.
Headquarters: Bentonville, Arizona
Share price: $68.81
Market capitalization: $212.83 billion
Forward P/E: 15.43
Annual sales: $483.83 billion
Dividend yield: 2.88%
Payout ratio: 32.11
Levered free cash flow: $18.67 billion
Wal-Mart Stores, Inc. (NYSE:WMT) sells hundreds of thousands of products. And thrives when times are tough. Each week, nearly 260 million customers visit Wal-Mart’s more than 11,500 stores in 28 countries and e-commerce sites in 11 countries. (Source: “About Us,” Wal-Mart Stores, Inc., last accessed October 11, 2016.)
In fiscal 2016, ended January 31, Wal-Mart earned $14.69 billion on total revenue of $482.1 billion. The company’s massive sales volumes provide it with unrivaled bargaining power with suppliers, allowing it to price products lower and still make a lot of money. (Source: “Walmart reports Q4 adjusted EPS of $1.49, Fiscal year 2016 adjusted EPS of $4.59, Company continues to deliver on key strategic priorities,” Wal-Mart Stores, Inc., February 18, 2016.)
In fiscal 2016, Walmart returned $10.4 billion to shareholders through dividends and share repurchases. The company pays an annual dividend of 2.88%, or $2.00 per share. Moreover, Wal-Mart is an excellent dividend growth stock, which makes it one of the best stocks for long-term growth.
Case in point, in addition to providing buy-and-hold investors with long-term capital appreciation, Wal-Mart has increased its annual cash dividend every year since first declaring a $0.05 per share annual dividend in March 1974—that’s 43 consecutive years and counting. (Source: “Stock Information,” Wal-Mart Stores, Inc., last accessed October 7, 2016.)
With cash flow like that, this is a classic buy-and-hold stock.
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