Long-term investors know that buying and holding the right stocks is a fantastic way to build wealth. But dividend investors have to be even more strategic with their stock-picking because they're looking for companies that will stand the test of time and pay handsome dividends as well.
If you're in the market for some high-yield stocks that you can hold forever, then you may want to consider Procter & Gamble (PG 1.04%), Broadcom (AVGO 2.96%), and 3M (MMM 2.74%). Read on to find out why three Motley Fool investors view these companies as fantastic dividend stocks to own over the long haul.
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A consumer product expert
Reuben Gregg Brewer (The Procter & Gamble Company): P&G is one of the largest consumer product companies in the world, with iconic brands like Bounty, Pampers, and Tide. However, you shouldn't look at the company as a manufacturer of paper towels, diapers, and detergents -- it's a manager of leading consumer brands. The brands and products will change over time, as the company's recent brand pruning demonstrates, but its skill at managing brands remains unchanged.
What exactly does brand management mean? Procter & Gamble has a worldwide distribution network that would be hard to recreate. Its portfolio is filled with dominant brands that have built up huge followings over many decades. Its ability and willingness to spend on advertising give it a huge edge over smaller and less financially secure rivals (it spent $7.1 billion on advertising in 2017 alone). Its innovation has also been a driving force in the industry for years, with the company spending roughly $2 billion on research and development in each of the last three years. (As an example of its success here, P&G created the Swiffer brand, one of its largest, from scratch in 1999).
PG Dividend Yield (TTM) data by YCharts.
All of these things support P&G's industry-leading position. However, growth is currently being challenged by shifting consumer buying habits. That has investors worried, pushing the stock price down and the dividend yield up to nearly 4%, the high end of P&G's historic range. But this is likely a short-term issue being addressed via the brand overhaul noted above. If you can think long term, focusing on the company's core competencies while others are thinking only about short-term earnings, then P&G is definitely a high-yield stock worth owning forever.
A diversified chip company
Ashraf Eassa (Broadcom): Broadcom is one of my favorite chip stocks and I'm happy to tell you that the company also pays a respectable dividend. As of this writing, the stock's dividend yield is 2.86% -- a yield that, at least in my wheelhouse of chip stocks, is quite high.
The company makes a wide variety of chip products targeting a broad set of markets including wireless chips for mobile devices, cable gateway processors, chips that power data center switches, and is a leading maker of chips that power storage products (e.g., hard disk drive controllers and various storage connectivity technologies), too.
Broadcom's business is quite diverse, which allows the overall business to thrive even if one end market is stagnant or, in an even more extreme scenario, contracts.
What I really like and admire about Broadcom, though, is that it doesn't waste shareholder money trying to fight battles that it can't win; it's generally the leading vendor or a very close second in the markets that it participates in and typically doesn't enter (or swiftly exits) markets in which it doesn't lead or is very close to leading.
Ultimately, Broadcom's strategy has allowed it to deliver highly profitable growth that has led to a steady rise in its free cash flow.
AVGO Free Cash Flow (TTM) data by YCharts.
That positive trend in free cash flow is ultimately what allows Broadcom to pay a respectable dividend today, with the prospects of raises in the years ahead looking quite bright.
This company's been paying dividends longer than you've been alive
Chris Neiger (3M): Unless you're older than 100 years, 3M has been paying its shareholders since long before you born. Pretty impressive, right? What's even more mind-blowing is that the company has raised its dividend for 60 consecutive years. If that's not enough to get income investors' attention, I don't know what is.
3M is, of course, the conglomerate that makes everything from Post-it Notes to Scotch tape, and a host of other products in between. The company invested about 10% of its revenue into its R&D and capital expenditures in the most recent quarter. That commitment to developing new products is perhaps why the company produces more than 3,000 patents every single year and boasts about 60,000 products in its lineup.
Did I mention the company has an above-average dividend yield as well? 3M's forward dividend yield is currently at 2.65%, easily outpacing the S&P 500's 1.8% average, and the company upped its dividend by 16% in the most recent quarter.
3M's shares have tumbled since the beginning of this year, most recently after the company issued full-year guidance that disappointed investors. But when you zoom out to look at the big picture, you'll see that 3M's shares have easily beaten the market over the past five years, even with the recent share-price slide.
For income investors looking for a Dividend Aristocrat that's weathered many downturns and boom cycles, it hardly gets any better than 3M. The company's commitment to developing new patents and thinking about what products will be needed years down the road is what has made 3M a great dividend play for investors in the past -- and it's what continues to make it an excellent bet for years to come.
