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5 Top Dividend Stocks for the Long Term

Equity investors who are looking for income are often tempted by a particular stock's dividend yield. We believe they'd be wiser to focus on a company's expected dividend growth. That's the best way to earn outstanding long-term total returns.

Look at the amazing results of McDonald's (NYSE: MCD  ) over the past several decades, for example. The company has been able to deliver outstanding total returns by paying out higher and higher dividends each year over an extremely long time horizon. Ultimately, investors are willing to pay higher and higher prices for shares that offer a growing stream of dividends.

Given the importance of dividend growth for driving long-term, total returns, we've identified five remarkable companies that are projected to grow their dividends significantly over the next five years.

1. Coach (NYSE: COH  )
Coach designs, markets, and sells fashion handbags, apparel, and accessories.

Investing thesis: Coach will likely deliver increases in both its share price and its dividend payout over the next five years. That attractive combination could result in multibagger total returns for investors over the long term.

2. McDonald's
McDonald's is a global fast-food restaurant powerhouse.

Investing thesis: McDonald's has increased its dividend each and every year since it first started paying one in 1976. And the iconic fast-food franchise shows no signs of slowing down its ever-growing dividend payouts. The end result for investors will be market-beating total returns in the future.

3. Western Union (NYSE: WU  )
Western Union is the global leader of money transfers and payment services.

Investing thesis: Western Union's dividend will grow as the company's earnings steadily rise, and the company increases the payout ratio over time.

4. Intel (NASDAQ: INTC  )
Intel is the leading manufacturer of microprocessors.

Investing thesis: With a 4% dividend yield and the potential to increase its dividend 8%-12% per year, Intel's total return should outperform the market, even during tough industry conditions.

5. Apple (NASDAQ: AAPL  )
Apple creates mobile communication and media devices, personal computers, and portable digital music players. It also sells software, services, peripherals, networking solutions, and third- party digital content and applications that support its devices.

Investing thesis: Apple began paying a dividend again in 2012 -- the first in 17 years! With an incredible lineup of existing products, a rock-solid balance sheet, and tremendous growth possibilities, Apple offers one of the best risk-adjusted total return opportunities in the market over the next five years.

Improving the odds of beating the market
We feel confident that all five of the companies mentioned above will outperform the broader market over the long term. If you're looking for some more long-term investing ideas with great dividends, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Read/Post Comments (21) | Recommend This Article (103)

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 April 11, 2013, at 2:52 PM, Carioca58 wrote:

    Any justification for this positive outlook? Or is it just guesswork?

  • Report this Comment On April 11, 2013, at 7:00 PM, whyaduck1128 wrote:

    "McDonald's is a global fast-food restaurant powerhouse."

    We know. You know. You know that we know. If you have to tell us something this basic that you think we don't know, we don't belong in the market, we belong on the short bus. And if you don't think that we don't know, why are you telling us?

  • Report this Comment On April 11, 2013, at 8:05 PM, DaximusTheGreat wrote:

    What about KO? Coke has been paying solid dividends since 1927 without missing a beat. Or XOM with similar payouts. Apple just starting paying dividends and given their track record will stop paying at the drop of a hat. Not great picks for the long-term dividend investor. May want to shake up that crystal ball one more time.

  • Report this Comment On April 12, 2013, at 12:12 AM, yishaika wrote:

    How do you expect companies to increase their dividends faster than their profits or cash flow? For example, Intel's profit to grow at 0% while dividends to grow at 8%-10%?? Are they going to increase their cash flow that fast without higher profitability and while maintaining or even increasing their capex?

    This is a list without any professional justification whatsoever, and it would be rejected by the teacher in any school I am aware of.

  • Report this Comment On April 12, 2013, at 3:57 AM, AnsgarJohn wrote:

    I find the comments a bit harsh. But I guess what might be missing is the "caveat emptor" downside on each of the stocks. For example WU might be replaced by mobile phone payments like M-Pesa (Or even Bitcoin?!).

  • Report this Comment On April 12, 2013, at 7:28 AM, mikecart1 wrote:

    Not sure why Coach is even listed on here. It is losing marketshare to KORS and discount retailers. In another article it was frowned upon to be a company that has a payout ratio of over 50% but MCD is way over 50% - and it is projected to pay even more?

    Confused :/

  • Report this Comment On April 12, 2013, at 8:27 AM, 1pOwedyank wrote:

    Coach earned it's stature outside of China. Now it is made in China. What is next step for profitability? I think the day of $400 Chuinese purses has passed.

  • Report this Comment On April 12, 2013, at 10:17 AM, snickerdoodle9 wrote:

    102 shares of Altria ( MO ) among my holdings . This tobacco powerhouse has boosted it's quarterly dividend annually with a recent payout on 4/10/2013 .

  • Report this Comment On April 12, 2013, at 10:38 AM, MattBurns25 wrote:

    All recommended shares (beside MCD) are red today.


    Justification for positive outlook for the U.S.economy:

    Good Luck to all of US!

  • Report this Comment On April 12, 2013, at 10:45 AM, TMFDarwood11 wrote:

    Interesting article.

    I avoid apparel makers, so I don't own COH. That's not to say that the brand isn't worthy. After all, a lot of the upper strata and wannabees will buy the products.

    MCD is a part of my portfolio. It is an aggressive and savvy company that provides a needed service. I got reinvigorated when I decided their coffee was darn good!

    WU isn't currently a part of my portfolio. I wonder what will happen when Square and other cellphone appendages make a dent in this market? We are looking at "Long Term" aren't we?

    INTC. Now there's a dilemma. I've considered them as a potential. Here's the problem. As tablet and competing products eat into the bread and butter PC sales, will Intel be able to compete with ARM powered devices? That's a difficult call.

    AAPL. Here is a company which could be sitting on $170 Billion in the near future. That's a problem for me. This should be deployed. When a "high tech" company acts like a bank, I get leery. Should I gamble on the possibility of "the next big thing" from AAPL?

    Here's my take. We need convenience in our food, we need fossil fuels and energy infratructure. With an aging population we need health care and medical devices and drugs. We love post-Its. You get where I'm coming from?

  • Report this Comment On April 12, 2013, at 11:34 AM, jargonific wrote:

    Wouldn't Intel fall dramatically around earnings time this year due to the large drop in PC sales world wide? Even just sentiment about that might tank it down below resistance of 19.00 right?

    We just sold the small amt of shares in our retirement but will watch yet again... but not with enthusiasm.

  • Report this Comment On April 12, 2013, at 12:19 PM, Mathman6577 wrote:

    McDonald's and Apple are great cash cows. PG, KO and JNJ could be in a Top Ten list too.

  • Report this Comment On April 12, 2013, at 2:01 PM, DonkeyJunk wrote:

    @Darwood re: Intel,

    I don't think Intel will have any trouble breaking into the mobile sector in the long run. The next step in computing is tablets that completely supplant desktops by running more powerful applications than Angry Birds. They'll be the ones to design a chip that can run Adobe Photoshop on a tablet, then Intel will be at the top of the heap again.

    Where the issue really is, is whether they'll be able to pull as huge a profit selling mobile chips for far less than computer chips.

  • Report this Comment On April 13, 2013, at 3:40 AM, dgmennie wrote:

    The dividend yield cited for these example stocks (2.4% to 4%) do not seem impressive, especially when nothing (especially yield growth) can be in any way be safely assured for the future. Most likely there are decent bond funds, bonds, or other investments with multi-decade track records at producing income that would be better choices for those investors wanting worry-free income. No justification is provided for the conclusion that "...all five of the companies mentioned above will outperform the broader market over the long term."

  • Report this Comment On April 13, 2013, at 8:29 AM, tpstock wrote:

    I like the way darwood11 analyze the stock. This is very helpful. I hope that we will avoid you know we know point and bring fruitful discussion which will help us all

  • Report this Comment On April 13, 2013, at 9:36 PM, Estrogen wrote:

    Might also consider At&t for the list. Company kicks out a 5% dividend. U-verse TV /internet is picking up steam. Have the advantage of being able to bundle tv/internet, home phone, & cell phone so are very competitive on price.

    In the process of spending 16 billion on fiber to cell site, fiber to business, uverse, wireless home security, as well as a "smart car" deal with GM.

    FIber to the business/cell site will also bypass the antiquated copper network which is extremely expensive to maintain.

    Company tends to take on lots of debt compared to cash on balance sheet, which is a negative. But they are like Warren Buffet's toll bridge when it comes to revenue.

    disclosure: I'm an employee. I'm very aware of the opportunities to improve, but also consider potential bias. I fell the strengths are marketing and ability to cut costs. Weakness are customer service on the wireline (not cell phone) side.

    Just my opinion, so take with grain of salt.

    Estrogen, who is grateful for the Fool community, who have benefited my family in the last 14 or so years.

  • Report this Comment On April 17, 2013, at 8:23 AM, TMFDarwood11 wrote:

    For anyone who is interested, my stock holdings are listed under my profile. They include some that are mentioned in the article and some by the comments.

    My most recent stock portfolio yield was 2.76%. My largest holding is MCD at 10.22% because of the run up of the stock; I reinvest all dividends. I do own a few non-dividend payers. Netflix is 2.42% of the portfolio. However, I sold about 70% of it when it skyrocketed. I sometimes become concerned when the hype factor gets too loud and a stock goes stratospheric; all it takes is one or two missteps by management and there may be a rush for the exits. That was my concern with the stock price/hype for NFLX.

  • Report this Comment On April 19, 2013, at 6:31 PM, ebabes wrote:

    DRIPs are the way to building wealth. With REITs, MLPs and dominating companies in my portfolio I am drawing 7.5%. Only one does not pay, BRK-B. Bought AAPL, doubled my $$$ on the way down. Bought right back in with the profits. Be vigilant, watch, read EVERYTHING about a company you wish to invest in. Use stop losses, even if it is a favorite.

  • Report this Comment On April 24, 2013, at 7:28 AM, StopPrintinMoney wrote:

    How about GORO with 7-8% yield?

  • Report this Comment On April 29, 2013, at 1:00 PM, Windsurfing1 wrote:

    Mc Donalds OK, and Apple I hold as well, but just because I got it ages ago and it ten folded, but are you sure about a make of handbags... for the long term? I am not aware of too many fashion brands being around for decades. I saw someone mention Altria, and why not BP or if you want to be a bit innovative: TD Ameritrade, or Coca Cola, as mentioned by others?... Hasbro, Nestle, Unilever.. I would understand those, but Coach is a fragile fashion brand; Western Union will be bypassed with Internet payment systems, Apple is full of cash, but they did not really convince me since Steve left and I actually sold half the position just below 600, well ok, sounds smart now, but then it was pure guesswork. Intel, maybe, maybe... would need to do some work on that one, maybe. Anyway, you would need to add a bit more meat to the bone to justify just those 5 picks as THE dividend plays for the next 20 years (that's when I retire :-)))

  • Report this Comment On May 02, 2013, at 12:50 PM, DCUDFlyer wrote:

    Agree with these previous comments. The headline was catchy but the "meat" of the argument for these dividend payers is missing.

    WU & COH are surprising, if not odd, choices for the list and presented with nothing other than 4-5 yield relates stats doesnt do much to inform the reader of weaknesses and risks. KO, JNJ, MO are much less volatile choices and for higher yield how about reits?

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