Buy these great dividend stocks and hold them forever

 

As regular readers already know… I am a big fan of dividend stocks. I love the income that dividend stocks provide, and believe that the positive long-term impact of dividend reinvestment can take an average portfolio and turn it into a powerhouse for generating solid returns.

The search for yield is never ending. Everyone wants to enjoy the feeling of nice quarterly payments being made into their portfolio, but as investors, we also need to be aware of the fact that not all dividends are as safe as others. You can easily screen for stocks with 5% or greater dividends, but you have to be careful you are not focusing too much on current yields and forget to make sure the dividends are sustainable.

In addition to dividend investing, I am also a big advocate of long-term investing. I prefer, although I know not everyone will agree with me, that the best way to build wealth is to find great companies to invest in for the long haul. Finding good solid companies with solid dividend histories is a great way to ensure that your money is relatively protected, and your portfolio's income is safe.

This week I am going to look for stocks with big dividends, that you can safely assume the companies will not only continue to pay, but most likely increase each year. My idea of big dividends is not 5% or greater, but I will be looking for stocks with dividends around 2.5% or more. I want stocks with dividends at or above this range, with long histories of annual dividend increases, but I also want to make sure the stock itself has upside potential. After all… dividends are nice, but if the stock loses more in value than the dividends you are pulling out of the company, then you are better off looking elsewhere.

The five stocks in this article are all solid dividend plays on companies with excellent long-term potential.

The Clorox Co.

While The Clorox Co. (CLX) is most closely associated with its namesake bleach, the company is much more than just a one-trick pony. Among its impressive stable of products is Formula 409, Liquid-Plumr, Pine-Sol and Tilex to name a few. Its products have strong brand recognition, and due to their nature as household staples, they will remain in demand regardless of the overall economic landscape. In addition to nice gains in recent years, investors have also been treated to some hefty dividends, with the stock currently boasting an annual yield of 3.2%. The company’s payout ratio is a bit high at 66.8%, but with 36 consecutive annual increases, the company will most likely continue to boost dividends each year, but the increases may be modest ones. It announced its latest dividend increase in May, and increased its dividend by 4.2%. With such a high payout ratio, I believe future increases will be around this same level, but the company's dividends are safe, and small increases should be expected each year.


Chart courtesy of stockcharts.com

Target

Retailer Target (TGT) not only has a hefty 3.6% dividend yield, but the company has increased its dividend for an impressive 46 straight years. The stock ran into some trouble during the latter part of 2013, but it found a steady level of support in February and has been trending sideways over the last five months. Target has suffered from a data breach, which impacted consumer confidence in the company and resulted in lower same-store sales and an earnings miss during its most-recent quarter. The good news for investors is that analysts expect the company to grow earnings by 18% in 2015, which should push shares higher. The company has a 59.8% payout ratio, which is not too high to put its dividend increase steak in jeopardy. Target last raised its dividend in June, so investors should not expect another increase any time soon, but the current dividend is safe, and additional increases in the future are highly likely.


Chart courtesy of stockcharts.com

Exxon Mobil

Oil giant Exxon Mobil (XOM) is a dividend champion, with a streak of 31 consecutive annual dividend increases under its belt. The company has a low payout ratio of 35.2%, so not only is the current dividend very safe, but the company can easily afford to continue increasing its dividend in coming years. Currently Exxon has a yield of 2.8%, which combined with its strong stock performance over the last year has given investors plenty of reasons to be excited. Exxon has one main problem, which is lower production, but higher oil and gas prices helped offset its production decline during the recent quarter, allowing a much stronger than expected quarterly report, with earnings rising from $1.55 a share in the year-ago period to $2.05. The stock traded off a bit due the 6% production drop, but Wall Street instead focused on the company's strong earnings. Looking ahead, analysts are forecasting a mere 1% earnings growth in 2015, but if oil prices remain high, the company could easily outpace its forward estimates and keep strength under the stock. Exxon has a nice dividend, and with such a low payout ratio there is little risk to the current streak of increases.


Chart courtesy of stockcharts.com

HCP Inc.

HCP Inc. (HCP) is a healthcare-focused REIT, which boasts a 5.3% dividend yield. REITs, by nature, are required to return the vast majority of its operating income to shareholders in the form of dividend payments in order for the company to retain its tax status with the government. This keeps the dividend juicy and dependable, and the company has boosted its payments each of the last 28 years. Not only is HCP a great dividend play, but because its real estate is in healthcare, and having invested heavily in senior housing, the company will benefit from previously uninsured people finding insurance under Obamacare, as well as an aging population that will put greater demand on senior housing facilities. I like HCP, and believe the future is bright for this big dividend payer.


Chart courtesy of stockcharts.com

3M Company

3M Company (MMM) is a highly diversified company, so much so that it is hard to really classify the company into one single category. The company is probably most widely known for its tape and adhesive products, but that is just the start. The company provides the healthcare industry with medical and surgery supplies, and its electronics and energy division offers optical films for displays, touch screens and touch monitors, and renewable energy components. It is hard to even begin discussing all the industries that 3M caters to, but you can get a better idea of just how diversified the company is on the market segments page on its website. The stock has been a strong performer over the last year, and pays a 2.4% dividend as well. The company's payout ratio is currently sitting at 45.7%, so the dividend is very safe, and having increased its dividend for 55 consecutive years there is little chance that it will allow its increase streak to come to an end. 3M is a great diversified play with a nice safe dividend that is likely to increase with time.


Chart courtesy of stockcharts.com

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.


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Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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