Like dividends? Even if your priority is growth (or capital appreciation), most investors’ portfolios benefit from the occasional cash rush. If nothing else, you can use this money to buy more growth stocks!
It’s not like finding dividend stocks is much of a challenge either. There are dozens of solid dividend payers that most investors can name off the top of their heads. And with a little more research, you’ll find hundreds more great dividend stocks.
However, a dividend stock that you can feel good about owning forever is a slightly different story. A true ‘forever’ holding company is a company that can adapt if necessary so that it can continue to make its dividend payments, or a leading company in a business that is stable and reliable.
If you have a few thousand dollars you want to spend on income-producing investments, here’s a look at three great dividend payers that you can buy with confidence and hold forever.
Real estate income
Many companies are able to generate recurring cash flows that finance dividend payments. To take Coca-Cola as an example. Consumers tend to buy their favorite drinks over and over again. Every time they do that, Coca-Cola pockets a few cents. However, if you’re looking for the world’s most reliable cash cow business, you won’t do much better than renting real estate.
Enter Real estate income (NYSE:O). It’s a real estate investment trust, or REIT. As the name suggests, these are companies that own income-bearing properties ranging from office buildings to hotels, apartments and warehouses. Most of the rental profits generated by these organizations are passed on to a REIT’s shareholders.
Even by REIT standards, however, Realty Income is remarkable. It specializes in retail space. Top tenants include: Dollar general, WalmartAnd Wal vegetablesalthough no tenant accounts for more than 4% of total rental income.
At first glance it seems risky. After all, the entire retail industry seems to be struggling to fend off the impact of online shopping. Retail research firm CoreSight suggests that 3,200 U.S. stores have already closed their doors for good this year.
Dig deeper, though. Most of Realty Income’s top tenants have staying power, or at least an incentive, to stay put once they’ve invested the time and money in setting up shop in a particular location. That’s why this REIT’s most recent occupancy rate is still above 98% despite these tough times.
This is also how this real estate investment trust has been able to not only pay a dividend every month (yes, every month) for the past 647 months, but also increase its monthly dividend every quarter for the past 107 quarters. Newcomers will join in while the rolling dividend yield is just under 5.8%.
JPMorgan Chase
JPMorgan Chase (NYSE:JPM) doesn’t pay that much. With its current dividend yield of just 2.3%, JPMorgan Chase doesn’t even pay half as much as Realty Income.
What the country’s largest bank (measured by total assets) lacks in current returns, however, is more than made up for by dividend growth. The trailing-twelve-month payout of $4.40 per share is about three times more than the annualized payout just a decade ago.
Investors who have been keeping a close eye on JPMorgan lately may have some concerns. Shares tumbled after the release of first-quarter results in April, which included disappointing expectations for the rest of the year. Indeed, the big bank’s net interest income outlook for 2024 remains around $90 billion, versus expectations for an increase between $2 billion and $3 billion.
Losses on soured loans are also increasing. It’s uncomfortably similar to the red flags that flew in the wake of the 2008 subprime mortgage collapse, which ultimately forced JPMorgan Chase to drastically cut its dividend.
However, there is a clear difference between then and now. At the time, no one thought what happened was even a possibility, leaving the world unprepared for the moment it happened. Now precautions have been taken to prevent a credit market crisis from ever happening again.
Also keep in mind that everything going against the banking business this time is cyclical. The industry has previously experienced and survived high interest rates, rising defaults and dried up demand for investment banking and asset management. It will do that again. Any weakness in these stocks during such tough periods is usually an excellent buying opportunity.
The fact that JPMorgan shares are holding up so well despite the gloomy backdrop says nothing else about the near future. As long as there is money, the world needs banking services.
Hercules capital
Last but not least, add Hercules capital (NYSE:HTGC) added to your list of dividend stocks you can buy and hold forever while yielding just over 8%.
Hercules belongs to a category of investments known as business development companies or BDCs. These organizations provide capital to emerging companies that may not qualify for a conventional bank loan, but may also not be ready to go public.
Sometimes this money is offered in exchange for shares in the borrowing company, although in most cases it is provided in the form of a loan. And given the riskier nature of these loans, they are typically provided at rates that are above market interest rates. Hercules reports that the effective portfolio return is currently around 14%.
Naturally, Hercules Capital’s shareholders do not collect all this effective return for themselves. The BDC must pay its own costs, and it is clear that some borrowers are struggling to pay off their loans. Nevertheless, Hercules shareholders benefit from above-average returns that reflect the level of risk they take on themselves.
But maybe there isn’t as much risk here as there seems to be on the surface. Hercules Capital is a specialist focused on life sciences, technology, sustainable energy and software. Not only are these sectors among the fastest growing companies in the market, but Hercules’ expertise in these areas provides an advantage to borrowers and Hercules shareholders alike.
The value of this specialization is underlined by the fact that of the more than 650 companies that Hercules has financed and the more than 1,000 that it has co-financed, more than 250 have ultimately gone public or been acquired.
The kicker: Hercules hasn’t failed to pay a dividend in any quarter since going public in mid-2005. It seems unlikely that streak will be broken anytime soon, if ever.
Should you invest $1,000 in Hercules Capital now?
Consider the following before purchasing shares in Hercules Capital:
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends JPMorgan Chase, Realty Income, and Walmart. The Motley Fool has a disclosure policy.
3 Dividend Stocks to Buy with $5,000 and Hold Forever was originally published by The Motley Fool
