When looking for great long term dividend investment plays investors should keep an eye out for companies that have a stable record of paying dividends, and raising them regularly, as well as companies that have demonstrated sustainability (you know, so they don't go out of business in the middle of your retirement).
To help investors narrow down their search, we asked three Motley Fool contributors for their ideas for stocks that should pay you for the rest of your life and they came back with American Tower (NYSE:AMT), Enbridge (NYSE:ENB), and 3M (NYSE:MMM). Read on to find out why.
Cell towers aren't going away, you know. Neither is this dividend.
Anders Bylund (American Tower): Paying dividends forever is a tall order. A lifetime is not significantly different. So we're looking for cash-cow businesses whose most important operations should stay relevant and defensible for decades to come.
American Tower possesses both of those qualities, and more.
The owner and operator of wireless towers and tower-less small cell sites takes a business that the cell network operators themselves can't run efficiently, packages it into bundles of long-term contracts, and collects predictable lease payments for many years to come.
Without cell towers and small cells, smartphones would have no voice or data networks to tap into. Same goes for the oncoming surge of Internet of Things devices -- most of these require wireless data connections, and American Tower stands ready to deliver the goods.
The company has bought out tower networks from both AT&T (NYSE: T) and Verizon (NYSE: VZ) in recent years, leasing the same towers back to their original owners at industry-leading profit margins. The tax-efficient REIT structure helps a lot, and American Tower's economies of scale produce strong cash profits where the wireless network giants only saw low-margin cash drains.
So this business structure is here to stay -- and grow. Not only is American Tower always upgrading and expanding its domestic sites, but it also belies the red-white-and-blue name with rapid expansion in India, South America, and Africa. Overseas properties account for 43% of American Tower's total revenues and 33% of its operating income these days. These markets offer exciting growth prospects and low installation costs -- a winning combination if I ever saw one.
And as a REIT, the company must pay out nearly all of its net income in the form of dividends. Share prices have nearly doubled over the last five years while dividend payouts roughly tripled, and American Tower maintains a strong dividend yield of roughly 2% despite skyrocketing share prices.
That's the kind of dividend stock I'd like to own for many decades to come.
A "toll booth" operator with decades of growth ahead of it
Chuck Saletta (Enbridge): Very few companies can pull off what Canadian energy infrastructure titan Enbridge is in the middle of doing. Enbridge publicly announced plans to increase its dividend by 10% to 12% annually all the way between now and 2024. With a 10% hike for 2018 already announced, it looks like it is on track with those plans.
What gives Enbridge the capability to publicly proclaim that growth is the fact that it is North America's largest energy infrastructure company. Its business is largely moving natural gas, oil, and related products around from where it's produced to where it's consumed. With energy use -- particularly oil and natural gas -- expected to continue to increase over the next several decades, it's clear those services will continue to be in demand for a long time to come.
As an infrastructure company, Enbridge runs a series of pipelines to move that energy around. Pipelines are expensive and often controversial, and that combination makes it challenging for another pipeline to be built to serve the same route after one gets approved. That gives incumbent operators like Enbridge something of a toll booth nature to its business. Once it's in place, the pipeline can collect revenues, with competition held at bay by the costs and political effort it takes to set up its own lines.
The combination of long term expected demand growth for its services and the toll-booth-like nature of its operations are what give Enbridge a shot at paying dividends throughout the rest of your life.
An industrial conglomerate with a superb dividend history
Chris Neiger (3M): When it comes to picking a dividend stock that you can bet on for your entire life, 3M is probably as close to a sure thing as you can get. The industrial conglomerate has been paying investors for 100 years and has raised its dividend for a staggering 59 consecutive years (and it's likely it'll raise it again later this month).
3M has about 60,000 products (its Scotch products and Post-It notes being some of the most famous) that is sells across nearly every sector and the company consistently finds new opportunities to invest that pay off years down the road.
If you're looking for a stock with jack rabbit-like growth, then 3M isn't for you. The company grew its total revenue by just 6% in the third quarter 2017 and GAAP earnings ticked up 8%.
But if you're looking for a steady company that knows how to allocate its resources to long term projects then 3M will make a great addition to your retirement portfolio. The company often invests in projects that could take years to come to fruition -- it's currently benefiting from early investments of films for smartphones -- but when those bets start paying off 3M's investors often reap the benefits. In the most recent quarter it returned $701 million in cash to its investors and bought back $308 million in shares.
The company currently has a forward annual dividend yield of 1.97%, which isn't as high as you can get with many other dividend stocks. But what the company lacks in yield it more than makes up for in payout consistency and long term increases. 3M's long and stable dividend history mean that investors can rest assured that 3M likely won't pull back on its dividend payouts when the market slumps or if the economy takes a nosedive -- and that's a reassuring thought when you're relying on dividend income in your retirement years.
Anders Bylund owns shares of American Tower. Chris Neiger has no position in any of the stocks mentioned. Chuck Saletta owns shares of Enbridge. The Motley Fool owns shares of and recommends American Tower, Enbridge, and Verizon Communications. The Motley Fool has the following options: short April 2018 $130 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.