Dividends and long-term investing go hand in glove, so advising income-seeking investors to keep their eyes focused on the horizon isn't necessary. You already know the benefits of holding on to your stocks through thick and thin, particularly when you're being paid for the privilege.
So, we asked three top Motley Fool contributors to highlight a stock that would appeal to this smart set and provide reasons why these dividend payers are good long-term deals. Read on to discover why J.M. Smucker (SJM -0.73%), Amgen (AMGN -0.55%), and Hershey (HSY -0.56%) are dividend stocks long-term investors would want to own.
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Hungry for dividends
Demitri Kalogeropoulos (J.M. Smucker): The beauty of a long-term investing mindset is that it allows you to look past temporary business declines like the one I think is pinching J.M. Smucker's stock today. The packaged foods giant, which owns a deep portfolio of brands including Folgers, Jif, and Pillsbury, hasn't wowed investors lately. In fact, operating income dove 20% at its last quarterly outing as profitability declined in the core coffee and pet food segments.
Both of these business lines have their challenges, including demand struggles in the Folgers and Meow Mix franchises. Long-term financial trends still look healthy, though. J.M. Smucker's overall sales should tick slightly higher in fiscal 2018 after declining 5% last year. And the company is on track to generate over $1 billion in operating cash. Free cash flow should be close to $800 million, too, compared to a dividend commitment of less than $350 million.
As it has for decades now, J.M. Smucker plans to support its core brands with heavy marketing spending while branching out with bold innovations to drive the next leg of growth. Over the next few quarters, these launches will include additions to the Uncrustables, Cafe Bustelo, and Nature's Recipe brands. That's why investors who believe the company's time-tested formula will continue to generate market-beating sales and profit growth should take a closer look at J.M. Smucker and its tasty 2.3% dividend yield.
Image source: Getty Images.
One of the fastest-growing dividends around
Keith Speights (Amgen): Not too long ago, I conducted an analysis to find out which stocks had the fastest-growing dividends. Amgen was near the top of the list. The big biotech has more than quadrupled its dividend since initiating a dividend program in 2011. Amgen's lowest dividend hike during this period was 15%.
Right now, Amgen claims a dividend yield of 2.8%. That's not bad at all. But if you're a long-term investor, you're more focused on the future than the present. If Amgen keeps on raising its dividend as it has in the past, an investment today would generate a tremendous stream of income a few years from now.
Can Amgen keep it up? Probably so -- at least for quite a while. The company currently uses less than 40% of its earnings to pay out dividends. And earnings continue to grow, with Amgen reporting 2016 net income of $7.7 billion, an 11% year-over-year increase.
However, the biotech does face some challenges. Sales for two of Amgen's top three drugs slipped in the first quarter of 2017 compared to the prior-year period. I don't think long-term investors have much to worry about, though.
Amgen expects higher sales from cholesterol drug Repatha and leukemia drug Blincyto. The biotech's pipeline candidates include potential blockbusters such as migraine drug erenumab and heart failure drug omecamtiv mecarbil. Plus, Amgen has plenty of cash and a strong cash flow, which positions the company well to make smart acquisitions to beef up its product lineup. With its obvious commitment to dividend hikes and avenues for future earnings growth, I think Amgen is a solid pick for long-term investors.
Image source: Hershey.
How sweet it is
Rich Duprey (Hershey): There's not really advantages and risks associated with an investment in Hershey, but rather good things and bad things. The good things are obvious, like the fact it's been in operation for 123 years; it has instantly recognizable brands like Reese's Pieces, Kisses, and of course, it's Hershey chocolate bars; it owns an industry-leading 31% of the candy, mint, and gum market; and it's paid dividends continuously since 1930.
The "bad" things aren't quite so out-in-the-open, such as the fact that it is controlled by a trust that has 80% of the voting power and has many times got in the way of progress at the chocolatier, as well as thwarting attempts by other snack and candy giants to take over Hershey. Also, the snack category is a tough place to be as consumers are shifting toward healthier foods.
Hershey's first quarter earnings saw sales grow 2.8% to $1.88 billion, which was slightly less than the candy company forecast and reflected much of the softening trends that are present in the broader U.S. food-industry market this year. Yet it did grow its gross margins, which expanded to 48.2% from 44.7% a year ago.
HSY Dividends Paid (TTM) data by YCharts.
After pausing its annual dividend hikes in 2009, Hershey resumed the increases and has raised the payout each year since. Yielding 2.2%, the dividend is respectable and currently sits at $2.41 per share. Even if snacks are being affected by changing consumer tastes, chocolate remains a welcome indulgence for many, and considering the trust running the chocolatier got some fresh blood to help run it, investors with a long-term mindset should find Hershey and its dividend a sweet treat as well.
