Finding attractive dividend stocks to hold isn’t that difficult. Finding dividend stocks that you can comfortably buy and hold forever is another story. For your longer-term investments, you need companies that are not only leading names with staying power, but also operate in resilient markets – a rarer set of criteria.
Of course, if such a stock is currently on sale, you’re ready to take the plunge, so much the better. Buying a ticker when it is marked down will ultimately increase the net return on your invested dollars.
Do you miss the morning spoon? Wake up with Breakfast news in your inbox every market day. Register for free »
These three beautiful ones S&P500 (SNPINDEX: ^GSPC) Shares are down right now for reasons that probably won’t last long. In fact, they are all already rising from their recently reached cyclical lows.
As the biggest name in the wireless telecom industry (at least within the US), Verizon Communications (NYSE: VZ) needs no introduction. It also has no clear competitive advantage, other than being slightly larger than its two main rivals. Cell phone services have largely become a commodity these days.
However, there are a few less obvious details about the company that are worth highlighting.
First, while the U.S. cell phone market is almost completely saturated (Pew reports that 98% of U.S. adults own a cell phone), Verizon also operates an institution-focused business that provides enterprise intra-connectivity services, private 5G networks, and edge computing offers. as well as industry-specific solutions such as smart grid management tools and connected car solutions. Although this business currently only accounts for about a quarter of Verizon’s revenue, it is an avenue for more growth than could be achieved through cell phone service alone. For example, market research firm IDC predicts that global spending on edge computing technologies will grow 14% annually through 2028.
And the other major reason this telecom giant is a superior long-term dividend payer is its massive fiber optic network.
When Verizon first started spending billions of dollars to expand its fiber optic platform many years ago, investors balked at the cost. Now they see the value of the investment in almost 90,000 kilometers of fiber optic since 2020. The International Energy Administration says the number of internet users has doubled since 2010, while the amount of mobile digital data they create and consume will quadruple by 2028. All that digital data requires wired networks that can process it all. These must of course be fiber optic networks.
Verizon is still never going to be a fast-growing company. However, it is a steady growth company and has increased its dividends every year for the past eighteen years. Management isn’t likely to let this streak end anytime soon either – if ever – given how dependent we’ve become on our cell phones.
The 28% decline from the 2019 peak will see new investors step in while the dividend yield stands at 6.3%.
Real estate income‘S (NYSE:O) The expected return of 5.5% is not as strong as Verizon’s, but is still well above S&P500‘s current yield of 1.3%. It also has a more impressive track record of payout increases, with the stock’s annual dividend payout increasing at least once a year for the past 30 years. In fact, the monthly – yes, monthly – dividend has increased every quarter for the past 108 quarters.
How has this company managed to keep this momentum going during some particularly turbulent times for the economy?
Realty Income is a real estate investment trust (REIT): it owns a number of rent-bearing properties and must pass on most of the profits it makes from them to shareholders each year. Some REITs’ portfolios consist largely of apartment complexes; others focus on office buildings, shopping centers or even warehouses and logistics infrastructure. Even by REIT standards, however, Realty Income is relatively unusual. It mainly owns shopping centers and major retail locations. Top tenants include: Dollar general, Dollar tree7-Eleven, WalmartAnd Tescoalthough no company accounts for more than 3.3% of its rent payment stream.
At first glance, retail may seem like a risky focus. E-commerce continues to take away the share of physical consumer spending. Shops – and even entire retail chains – are still closing en masse. Coresight Research suggests that nearly 6,200 storefronts have closed in the U.S. so far this year, approaching 2020’s record.
However, Realty Income is largely avoiding these headwinds by serving the retail market’s biggest players: chains that have the financial and marketing resources to keep their stores open even when their peers are struggling.
In any case, that is what Realty Income’s occupancy rate indicates. Despite the retail sector’s challenges, 98.7% of properties were occupied by rent-paying tenants at the end of September, easily exceeding the S&P 500 REIT average of 94.2%. Even in pandemic-ravaged 2020, Realty Income’s occupancy rate only fell to 97.9%.
Finally, add Bristol Myers Squibb (NYSE: BMY) on your list of perpetual dividend stocks to buy, while shares are still down 27% from their late 2022 peak. You plug in while the dividend yield is a healthy 4.1%.
Most investors will know that Bristol-Myers Squibb is a pharmaceutical company. However, most of those same investors will be hard-pressed to name even one drug. It’s just not a splashy kind of developer, largely staying out of the pressure of the initial COVID-19 vaccine race, for example, even though it is fully capable of making vaccines. No drug accounts for more than a quarter of sales, while most treatments in the portfolio generate less than 10% of sales.
However, that strategy of staying focused on core strengths and strategic acquisitions is exactly why Bristol-Myers Squibb is such a great dividend investment. Slow and steady wins the race.
Not everyone necessarily always agrees with this bullish argument. One of the main reasons why Bristol-Myers Squibb shares performed so poorly in 2023 was that the company posted lackluster sales growth, especially from its best-selling oncology drug Revlimid (sales of which have fallen since the recent loss of patent exclusivity). The company also paid $12 billion for Karuna Therapeutics, $5 billion for Mirati and $4 billion for RayzeBio earlier this year in an effort to reload its portfolio and pipeline. Investing in growth may be a sound strategy, but investors were still shocked by the sheer collective scale of this expenditure.
What gets lost in the noise and worry, however, is that Bristol-Myers has a strong track record in deploying this particular strategy. Some of its strongest sellers, such as Revlimid and fellow cancer fighter Opdivo, were brought into the fold through acquisitions after proving their potential in some areas, while its current biggest breadwinner – blood thinner Eliquis – is the result of a joint development partnership with Pfizer. This is the norm for this company, and it works.
That doesn’t mean the pharmaceutical company’s top and bottom lines don’t ebb and flow. They do. It just means that Bristol-Myers Squibb is doing the same things that have allowed it to increase its dividend for 15 consecutive years now. The company will likely do everything in its power to keep this series alive, without running the risk of doing the same in the future.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Nvidia: If you had invested $1,000 when we doubled in 2009, you would have $350,915!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,492!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $473,142!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 25, 2024
James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bristol Myers Squibb, Pfizer, Realty Income and Walmart. The Motley Fool recommends Tesco Plc and Verizon Communications. The Motley Fool has a disclosure policy.
3 Great S&P 500 Dividend Stocks Dropped 27%, 28% and 29% to Buy and Hold Forever originally published by The Motley Fool
