10 Dividend Stocks for the Next Decade and Beyond

Following the worst stock market year since the Great Depression, it's natural for investors to seek more stable and less stressful stock strategies. Dividend-paying stocks provide you with an opportunity to achieve both.

Among other things, dividend-paying stocks:

  • Are less volatile as a group than their non-dividend-paying counterparts.
  • Provide you with a real return right away; with non-dividend-paying stocks, returns aren't realized until you sell.
  • Allow you to choose what to do with the cash payouts -- reinvest in the stock, put them into savings, or buy groceries ... it's up to you.
  • Offer you an inflation hedge when companies increase their payouts.

Fortunately for us, the S&P 500 currently yields 2%. While that isn't a king's ransom, it's still slightly higher than the trailing-10-year average of 1.76%.

With this in mind, I've set out to find 10 of the most promising dividend-paying stocks for the next decade and beyond. Five of them will be focused on dividend growth, while the other five will be focused on higher dividend yields. You want to have a helping of both types in your portfolio to promote both payout growth and payout stability.

Dividend growth
High dividend yields are always nice right away, but smart long-term income investors will also plant the seeds for future dividend growth. These stocks may not have the juiciest yields on the market, but they generate more than enough free cash flow to boost their payouts and reinvest in the business for years to come.

Company

Dividend
Yield

5-Year-Trailing
Dividend Growth Rate

Free Cash Flow
Payout Ratio

Vulcan Materials (NYSE: VMC  )

2.3%

11%

54%

3M (NYSE: MMM  )

2.6%

7%

35%

General Mills (GIS)

2.8%

9%

32%

Kellogg (K)

2.9%

7%

43%

Colgate-Palmolive (CL)

2.7%

12%

36%

Source: Capital IQ, a division of Standard and Poor's.

High yield
Super-high dividend yields can be very tempting -- all a stock yielding 10% has to do is not lose value, and you've made 10% in one year! In more cases than not, however, a stratospheric yield is a bad sign for the stock.

Since dividend yields and stock prices move in opposite directions, a high yield usually means a depressed stock price based on market concerns about the underlying business. Remember: Dividends are not guaranteed, so you need to make sure the business is generating enough cash to pay the dividend, or else your investment loses its luster.

The yields on the following five stocks are more than 50% higher than the S&P long-term average of 1.7%. They may not grow as fast as the previous five stocks, but they have enough free cash to fully fund their higher yields.

Company

Dividend Yield

Free Cash Flow
Payout Ratio

Qwest Communications (NYSE: Q  )

7.5%

28%

Waste Management (NYSE: WM  )

4%

53%

Linear Technology (Nasdaq: LLTC  )

3.5%

59%

Nucor (NYSE: NUE  )

3.6%

56%

Lockheed Martin (NYSE: LMT  )

3.4%

39%

Source: Capital IQ, a division of Standard and Poor's.

Reach for the sky, but diversify
With stock prices still down and dividend yields up, now is the perfect time to double down on dividends and build a lower-cost, lower-stress stock portfolio worthy of holding for the next decade and beyond.

There are plenty of great businesses with rich dividend histories trading with yields we haven't seen in years, but in addition to owning a few "dividend growth" and "high-yield" stocks, please remember to diversify your picks across various sectors. As we learned with the implosion of the financial sector last year, no matter how nice the dividends are, you never want to put all your eggs in one basket.

If you're looking for more dividend stock ideas, our Motley Fool Income Investor service can help. Advisor James Early and the Income Investor team recommend stocks with high yields and those focused more on dividend growth. At present, their picks yield 4.4% on average and have outperformed the S&P by an average of seven percentage points since the service's inception in 2003.

A 30-day trial of Income Investor is free. If you'd like to learn more about the service, just click here.

Already a member of Income Investor? Log in at the top of this page.

This article was originally published Jan. 22, 2009. It has been updated.

Fool analyst Todd Wenning thinks Blades of Steel hockey on the NES was way ahead of its time. He does not own shares of any company mentioned. 3M, Vulcan Materials, and Waste Management are Motley Fool Inside Value selections. Linear Technology is a Motley Fool Stock Advisor pick. Waste Management is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 12, 2010, at 5:14 PM, weiwentg wrote:

    I'm not sure I like Vulcan as a dividend play. It's a very cyclical company that recently cut its dividend and diluted shareholders by issuing shares. I do like their chances for recovery and their competitive advantages, though.

  • Report this Comment On February 12, 2010, at 8:45 PM, valuwarrior wrote:

    LMT makes the best fighter jets, the best satellites, and now the best small navy ships. That would make it a Category Killer x 3. With a 9.3 PE and a 3.4% dividend I own a bunch of it and am buying even more. I think its the best Defense stock out there by any real measure, whether you see it as a Value play or a Growth stock.

  • Report this Comment On February 13, 2010, at 12:31 PM, langco1 wrote:

    google the online phone book has become so desparate to maintain its failing status that almost every day it comes out with its own version of its rivals better ideas.google is burning up its money chasing behind other companys but does not even realize you cant get ahead by following! googles founders have seen the writing on the wall and have begun massive sales of their stock holdings...

  • Report this Comment On February 14, 2010, at 2:50 PM, enjoyce15 wrote:

    Highest dividend yielding stocks top 250:

    http://www.TopYields.nl/Top-250-dividend-yields.php

  • Report this Comment On February 15, 2010, at 8:11 PM, SteveTheInvestor wrote:

    The longer I invest, the more I lean toward going to an all dividend payer portfolio. Virtually all the REALLY bad stocks I own pay no dividend. Those that do offer a dividend have not suffered nearly as much.

    I'm already in on Waste Management. The first five stocks you mention haven't hit my "magic" 3% minimum yield. Unless a dividend is expected to grow by leaps and bounds, 3% is my absolute minimum requirement (2.9% doesn't cut it).

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