The foundation for a lifetime of investing success can be embarrassingly simple: Buy the best-quality dividend-paying stocks you can find, reinvest the dividends, and hold them for decades. This unleashes the power of compounding and can generate enormous wealth over the long term.
The first step, finding quality income payers, can be the toughest part. In an effort to lend a hand, we asked three Motley Fool investors to choose dividend paying companies that they believed could stand the test of time. They offered convincing arguments for Starbucks Corporation (NASDAQ:SBUX), TOTAL SA (NYSE:TOT), and The Boeing Company (NYSE:BA).
Danny Vena (Starbucks): With all the things that change in life, one thing is fairly consistent -- that morning cup o' Joe. Fads come and go, but most people just can't imagine starting the day without a steaming hot cup of coffee. No company has tapped into that love of the caffeinated beverage better than Starbucks.
The company created a windfall for early investors, having generated an incredible 16,000% return since its debut in 1992, raking up annualized growth of over 26%.
The company has a global reach of more than 28,000 locations in 76 countries. While U.S. customers may be accustomed to seeing a Starbucks on every corner, that isn't the case in the rest of the world. Starbucks sees China as its next big growth driver, and in 2018 it plans to add 600 new stores to the 3,000 existing locations. The company believes that number can grow to 5,000 by 2020.
Even incorporating those expectations, Starbucks expects more mundane future growth overall, with annual revenue increases in the high single digits, annual earnings per share of 12% or more, and same-store sales growth in a range of 3% to 5%.
Starbucks' dividend currently yields about 2%, but the company has consistently increased the payout every year since it began in 2010, from a split-adjusted quarterly dividend of $0.05 per share to its current level of $0.30, a whopping 500% increase. With a healthy payout ratio of 35%, Starbucks has plenty of opportunity to fund increases.
With Starbucks fueling the world's caffeine addiction, I expect that 18 years from now, the company could join the exclusive ranks of Dividend Aristocrats -- that rare breed of companies that have increased their dividend payouts for 25 consecutive years.
An oil supermajor with its eye on the future
Maxx Chatsko (Total SA): The largest oil companies in the world are a pretty good bet if you're searching for dividend stocks that should pay you the rest of your life. I know, I know. There's a lot of gloom-and-doom discussion about the end of fossil fuels and the impacts of climate change, but like it or not, crude oil and natural gas are likely to retain an important role in global affairs for the next several decades at least.
Of course, renewable energy will continue to see incredible growth in the coming decades. That's why French energy giant Total, which has invested heavily in everything from solar panel manufacturing to next-generation renewable fuel production technologies, is an intriguing dividend stock.
As with most supermajors, Total oozes with cash flow. In 2017 it pumped out $22.3 billion in operating cash flow. Thanks to a more focused portfolio of operating assets and reduced capital expenditures compared with previous years, the company added a whopping $8.6 billion in cash to the coffers after accounting for all financing and investing activities. That allows it to pay a 5% dividend right now -- and there's not a whole lot that could jeopardize the payout.
Total is currently executing a three-part strategy:
- First, refocusing on oil projects with low breakeven pricing, which will provide the bulk of cash generation and allow it to invest in long-term growth projects.
- Second, expanding its presence in the natural gas value chain. That will center on liquefied natural gas (LNG), for which the company is the second largest player on the planet, and which will generate $3 billion in operating cash flow by 2020.
- Third, taking the long view and growing profitable no- or low-carbon businesses with a large focus on solar energy, as evidenced by its majority ownership of leading solar-panel manufacturer SunPower.
Long story short, Total is an oil supermajor playing the long game few other publicly traded companies even dare to play. It's a dividend stock that should pay you the rest of your life.
Would you rather walk?
Rich Smith (Boeing): The rest of your life could be an awfully long time, but -- and pardon my bluntness here -- I rather suspect that no matter how young may be, you're still going to expire before Boeing does.
Founded in 1916, Boeing has been around for more than a century already, and barring the invention of a teleportation machine, I think it's probably going to be around for another century or more. Why? Well for one thing, there aren't a lot of competing aircraft makers out there that could conceivably compete Boeing out of business.
There's Airbus, of course. But with an operating profit margin less than one-third of what Boeing makes, Airbus is kind of a shambles.
Russia's United Aircraft Corporation? China's COMAC? The one's making margins half what Boeing pulls down. The other has negative profits (according to data from S&P Global Market Intelligence). And both of those firms combined don't do 10% the revenues that Boeing collects in a year.
No, folks, Boeing is here, and it's here to stay. And with a payout ratio of only 42%, Boeing's 2% dividend yield, already richer than most stocks on the S&P 500 pay, looks here to stay, too -- for at least as long as you or I will be around to collect it.