There are many investment strategies that can help you build wealth over time, but few have had lasting success quite like buying dividend stocks.
Companies that regularly pay a dividend to their shareholders (whether monthly, quarterly, semi-annually or annually) are generally profitable, have transparent long-term growth prospects and have demonstrated their ability to navigate difficult economic environments.
Even more important is the fact that dividend stocks have historically outperformed non-paying stocks over long periods. A 2013 report from JP Morgan Asset Management found that companies that initiated and increased their payouts over a 40-year period (1972-2012) produced an average annual return of 9.5%. By comparison, stocks that did not pay out a dividend worked their way to an annualized return of 1.6% between 1972 and 2012.
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While no two dividend stocks are created equal, some income stocks are truly in a class of their own. Here are five dividend-paying stocks investors can buy and never sell.
Johnson & Johnson: yield of 2.64%
Early leading income equity investors can buy and never worry about selling is healthcare giant Johnson & Johnson (JNJ 0.50%). While its 2.6% return may seem trivial, consider that J&J has increased its base annual payout for 60 consecutive years. Only a handful of publicly traded companies can claim a longer active streak.
Helping Johnson & Johnson meet the needs of its long-term shareholders are both macro-economic and company-specific. For the former, the health sector is a fundamental necessity. No matter how dire things may seem for the economy or the US stock market, people keep getting sick or needing preventative care. This provides stable earnings and operating cash flow for a healthcare company the size of J&J.
On an operational basis, Johnson & Johnson is built like a fine wine. Its pharmaceutical segment offers the higher margins and growth needed to move the needle now, while its medical technology segment is well positioned to provide sustainable organic opportunities as the domestic and global population ages.
If you need another good reason to hang on to J&J, consider this: it has a higher credit rating than the US federal government.
US Bancorp: return of 4.48%
A second, higher dividend-paying stock that can be purchased and held in perpetuity is American bank (USB 1.47%), the parent company of the well-known American bank. Even though banking stocks are cyclical, and therefore exposed to the ebbs and flows of the US economy, US Bancorp has two characteristics that make it an infallible dividend payer.
First, the management of US Bancorp has done an excellent job of steering this regional bank away from potential financial potholes. While most money banks were attracted to riskier derivative investments before the financial crisis (2007-2009), US Bancorp largely avoided these riskier bets. By focusing on growing its loans and deposits, US Bancorp has consistently delivered above-average return on assets among major banks.
The other factor working in favor of US Bancorp is digital engagement trends. Arguably, no major bank has managed to get its users to bank online or through a mobile app. There is a big difference in cost between in-person or phone interactions and digital sales. As more customer transactions move online, US Bancorp is able to consolidate some of its physical branches and become more operationally efficient.
Banks are known for their strong capital return programs, and US Bancorp’s 4.5% return does not disappoint.
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Philip Morris International: return of 5.65%
The third best dividend stock investor should never have to sell is tobacco stock Philip Morris International (PM 1.76%). Although consumer education on the dangers of smoking/using tobacco products has challenged the traditional tobacco operating model, Philip Morris has catalysts in its sails that keep the needle in the right direction .
The biggest advantage this company brings to the table is its geographic diversity. The company’s products, which include the premium Marlboro brand outside the United States, are sold in more than 180 countries. If tobacco regulations are tightening in a developed market, there is likely an emerging market that compensates for this weakness.
To add to this point, tobacco products contain nicotine, an addictive chemical. The addictive nature of tobacco products allows Philip Morris to pass on price increases that exceed any volume declines it might face.
Philip Morris is also investing in its future. The ongoing rollout of its IQOS heated tobacco system provides a fast-growing new revenue stream that can offset declining shipments of traditional cigarettes.
York Water: return of 1.75%
A fourth blue chip dividend stock to buy and never sell is water utility York Water (YORW -0.69%). While its 1.75% return might not be much to look at on the surface, I promise this company makes up for it in other ways.
The beauty of utility stocks is that they provide a basic service. Whether you own or rent, you will need water and sewage services. Additionally, your choice of utility provider is often limited to one or two companies. The key point here is that York Water can accurately forecast annual operating cash flow, as water and wastewater demand does not change much from year to year in the 51 municipalities it serves. in south-central Pennsylvania.
Additionally, York Water is a regulated utility. This means it needs approval from the Pennsylvania Public Utility Commission to raise its customers’ rates. While not being able to raise rates at any time might seem like bad news at first glance, it’s quite the opposite. Regulated utilities avoid uncertainties related to the wholesale prices of the underlying product with which they deal.
And did I mention that this little-known water utility has the longest consecutive active streak of dividend payments in the United States among publicly traded companies? York has paid consecutive dividends since 1816, which is 206 years (and counting).
Enterprise Product Partners: 7.62% return
The fifth and final dividend stock investors should never sell is an oil and gas company Enterprise Product Partners (EPD 0.08%). Enterprise Products’ 7.6% return is the high point on this list, and the company has increased its base annual distribution in each of the past 24 years.
While some of you may be hesitant to invest your money in oil stock after seeing what happened to the industry in 2020, Enterprise Products Partners mostly avoided the perils that plagued drillers. This is because it is a middleman company. It operates transmission pipelines, storage tanks and processing facilities that transport and store energy products.
The why Enterprise has been such a long-term success is his contracts. Midstream companies rely on long-term, fixed-fee or volume-based agreements that produce exceptionally predictable cash flows. Even if crude oil and natural gas prices fluctuate wildly, Enterprise can accurately forecast its operating cash flow in any given year. This is important because midstream companies need to disburse capital for new infrastructure projects, acquisitions and their distribution to shareholders.
As the demand for energy infrastructure is expected to increase in the years and decades to come, Enterprise Products Partners is in the sweet spot for growth in the energy sector.