Buying and holding stocks is easier said than done. Ideally, you find a great company, buy the stock and let it grow, paying dividends forever. The problem is that few companies meet these requirements. The world is changing and competition is ruthless. A company must evolve and stay at the top to be able to own shares year in, year out.
Still, there are some exceptions, and these are companies with wide moats and competitive advantages that have stood the test of time. If you want decades of passive income from steady dividend streams, listen up. Now consider buying and holding these two stocks.
1. The proven leader of the major oil companies
ExxonMobil (NYSE:XOM) is an integrated oil company, a company that explores, drills, refines and sells oil and gas to the market. By participating in different parts of the oil and gas supply chain, the company is diversified, making it resilient to fluctuations in commodity prices. For example, falling oil prices would hurt ExxonMobil’s exploration business but boost profit margins in the refining sector. In total, ExxonMobil generates more than $340 billion in annual revenue.
The company has an extensive portfolio of assets, including land and equipment, valued on its balance sheet at nearly half a trillion dollars. ExxonMobil has proven its ability to reallocate its assets, selling off pieces to raise cash or acquiring new assets when an opportunity presents itself. Earlier this year, it acquired Pioneer Energy for nearly $60 billion, expanding ExxonMobil’s footprint in resource-rich regions such as the Permian Basin and Guyana.
ExxonMobil’s management team has also managed the company’s balance sheet well, which acts as a safety net when industry downturns hurt profits. The company has an excellent AA credit rating of Standard & Poor’s and a debt-to-equity ratio of just 0.16, the lowest in a decade.
If that’s not enough to give you peace of mind, take a look at ExxonMobil’s dividend history. Management has raised the dividend for 42 years in a row, including through multiple recessions and a global pandemic that effectively froze the global economy and even sent oil prices below zero for the first time.
ExxonMobil is as proven as it is in the energy sector. Renewable energy and climate change could erode demand for fossil fuels in the coming decades, but oil and gas are not going away anytime soon. At the very least, ExxonMobil should have time to diversify its operations or acquire smaller competitors as the industry consolidates.
The stock offers investors a solid 3% yield at the current share price, so investors can confidently buy ExxonMobil and collect the dividends for the foreseeable future.
2. An agricultural titan with top brand power
Deere & Company (NYSE: DE) sells agricultural, forestry and construction machinery worldwide. The company’s iconic John Deere brand is known for its signature green paint, perhaps one of the most recognizable colors in the world. Deere does more than just sell equipment; it also makes money from financing, repair and maintenance services.
In total, Deere generates more than $54 billion in annual revenue. There is competition, but Deere’s long history and recognizable brand have generated consistently strong loyalty among farmers.
The Earth is only so big and the world population continues to grow. According to the United Nations, the world population could increase from 8.2 billion to 9.7 billion by 2050. This means that it will be crucial to farm as efficiently as possible and get the most out of the land available to society. Deere sells next-generation technology, such as autonomous equipment and cloud-based software, designed to help farmers become more efficient.
Farmers generally finance this expensive equipment, which poses some risk to Deere because the company owns these loans. However, Deere comfortably maintains an investment-grade balance sheet with an A rating from Standard & Poor’s. When it comes to the dividend, management doesn’t always increase it. But make no mistake: Deere is a dividend growth stock. The dividend has grown by 145% over the past ten years.
Perhaps most importantly, Deere hasn’t cut its dividend since the 1980s, so management has maintained it through multiple agricultural industry cycles. The dividend yields 1.4% today, which isn’t a ton, but it’s expected to grow over time. Analysts estimate that Deere will grow profits at an average annual rate of 12% over the next three to five years.
I wouldn’t be surprised if there are many more years of solid growth ahead in a world that will need more food and more efficient agriculture. Dividends should follow.
Should You Invest $1,000 in ExxonMobil Now?
Consider the following before buying shares in ExxonMobil:
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Deere & Company and S&P Global. The Motley Fool has a disclosure policy.
Do you want passive income for decades? 2 Stocks to Buy Now was originally published by The Motley Fool
