Some dividend stocks entice with their high yields, but few offer the stability and security that investors can bank on for decades, even a lifetime. Established companies that have sustainable economic moats and are led by management committed to shareholders can typically afford to pay regular and often generous dividends year after year, giving investors a bankable, long-lasting source of extra income.
We asked our Motley Fool contributors to identify three such dividend stocks that they believe should be able to pay you for the rest of your life. Here's why Xcel Energy (NYSE:XEL), 3M (NYSE:MMM), and Microsoft (NASDAQ:MSFT) make the cut.
The most ambitious renewable energy plan yet
Maxx Chatsko (Xcel Energy): Electric utilities get a bad rap when it comes to climate change discussions, but the reality is that a steady stream of investments in renewable energy by power generators has put the United States well on track to hit its long-term climate goals. In fact, no other country in the world has slashed more carbon emissions this century than the United States (looking at you, China and India). American emissions could continue to plunge in the next decade, as most utilities have ambitious plans for retiring their coal-fired power plant fleets.
Xcel Energy is one of the best examples of the overlooked trend. In 2017, the company leaned on coal for 37% of its electricity generation and wind and solar for 23% -- both well above the national averages. But after receiving a hard-fought portfolio overhaul from regulators in Colorado, the generation mix should shift to 22% coal and 45% renewables by 2027. Even that ambitious target could turn out to be an underestimate.
Check out the latest Xcel Energy earnings call transcript.
After its Colorado energy plan was accepted, the company announced the most ambitious power generation strategy of any utility in the United States: Xcel Energy will strive to generate 100% of its electricity from carbon-free sources by 2050. More impressively, the business said it's aiming to reduce carbon emissions 80% by 2030 from 2005 levels. That probably means it can't have any coal-fired power plants in its portfolio by then.
The long-term commitment to carbon-free power sources provides a lot of certainty for investors looking ahead. Couple that with the fact that Xcel Energy plans to deliver annual earnings per share growth of 6% for the long haul. Or the fact it has saved millions of dollars in fuel costs by switching a large chunk of its portfolio to wind power, which doesn't require fuel purchases once put into production. Or that the stock already pays a 2.9% dividend yield. Not only should this dividend stock pay you the rest of your life, but you'll also have no guilt owning one of the most climate-friendly electric utilities on the planet.
This dividend king won't get dethroned
Neha Chamaria (3M): 3M is an old favorite among income investors, but not many are happy with the way things are going at the industrials conglomerate. 3M's numbers failed to meet investor expectations for the better part of 2018, as the company visibly struggled to grow its top line amid weakness in key markets. Yet 3M's challenges arise from macroeconomic factors, and the company looks as well poised to reward shareholders in the future, as it has in the past.
For starters, 3M isn't only about Post-it Notes and Scotch tape. Sure, they're among the company's most recognizable products, but 3M's portfolio consists of more than 60,000 products sold in nearly every country today. Because its end markets are so diversified, there'll be strength somewhere and weakness elsewhere most times, which is why 3M isn't the kind of company that can grow like a weed.
Yet a company that can prudently mix acquisitions with organic growth shouldn't find it tough to grow earnings and cash flows. So over the next five years, 3M believes it can grow EPS by 8%-11% and convert 100% of the income it earns into free cash flow. These projections are only for the next five years, but 3M hasn't failed before and shouldn't beyond 2023, either.
Because dividends are paid out of free cash flow, income investors can safely expect regular dividend checks from 3M to hit their mailboxes for years to come. In fact, investors can expect fatter checks every year, as 3M is a top-quality dividend growth stock, having increased its dividend every year for more than 60 straight years now. So no matter what the economy does, 3M should pay you dividends for the rest of your life, and probably pay you well.
Check out the latest 3M earnings call transcript.
The tech stock that keeps on giving
Chris Neiger (Microsoft): If there was ever any question about Microsoft's ability to pivot from a personal computing company to a cloud-based software and services company, it has put those fears to rest. The tech giant's revenue increased by 19% in the most recent quarter, fueled by a 19% revenue jump from Microsoft's productivity and business processes division and a 24% rise in intelligent-cloud sales.
The intelligent-cloud segment is especially significant to Microsoft's long-term prospects, because the global public cloud computing market will be worth $302.5 billion by 2021. Microsoft is the No. 2 public cloud computing company right now, with Amazon.com taking the top spot, and holds an impressive 14% market share. Microsoft makes most of its cloud computing revenue from its Azure cloud computing platform, and in the most recent quarter sales jumped by 76% year over year.
Of course, Microsoft has plenty of additional revenue streams outside Azure and its intelligent cloud, including LinkedIn, its Office 365 subscriptions, gaming, and more. And they all add to the company's long-term growth prospects. Most notably for dividend investors is that Microsoft returned $6.1 billion to shareholders through stock repurchases and dividends in the most recent quarter. With the company's dividend yield currently at 1.8% and its long-term opportunities already on a solid foundation, income investors are likely to have a lot to love about this company for years to come.
Check out the latest Microsoft earnings call transcript.