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3 Dividend Stocks That Should Pay You the Rest of Your Life

By Travis Hoium, Leo Sun, and Todd Campbell – Apr 22, 2019 at 12:00AM

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These are the next generation's Dividend Aristocrats.

A handful of stocks have paid a dividend for 100 years or more, and those are well into Dividend Aristocrat status -- a title any dividend company would love to have. But the next 50 or 100 years may be dominated by a new generation of aristocrats, and previous ones may not be where investors want to look for stable dividends. 

We asked three of our contributors which stocks they think will be the next century's Dividend Aristocrats, and General Mills (GIS -1.42%), Apple (AAPL -3.00%), and Microsoft (MSFT -1.94%) made the top of the list. Two tech stocks, in particular, may sound surprising until we dig deeper into the reason tech is so attractive right now. 

Successively taller stacks of wooden cubes show upward facing arrows on their side, as a hand places a block on top of the largest stack.

Image source: Getty Images.

A classic packaged-foods play

Leo Sun (General Mills): General Mills, the packaged-foods giant that produces Cheerios, Yoplait, and Haagen-Dazs, has raised its dividend annually for 15 straight years. It spent just 55% of its free cash flow on that dividend over the past 12 months -- which gives it plenty of room for future increases -- and it currently pays a forward yield of 3.8%.

General Mills is a slow-growth company and reported nearly flat organic sales growth over the past year. Many of its classic brands struggled with softer sales as consumers pivoted toward healthier foods.

However, General Mills has offset those declines with three main strategies: acquisitions (including organic-food maker Annie's and premium pet-food maker Blue Buffalo), new variations of classic brands (including Go-Gurt and Yoplait Whips), and price increases. Acquisitions boosted its sales growth as its organic growth stalled out, and price increases offset its slowdown in unit sales.

General Mills' decision to raise prices boosted its gross margin in recent quarters, and its operating margin expanded as it cut costs. By comparison, Kraft Heinz (KHC -0.63%), which faces similar headwinds, slashed its prices to boost sales -- a move that crushed its margins last quarter.

For fiscal 2019, which ends on May 27, General Mills anticipates flat to 1% organic sales growth, 9%-10% constant currency sales growth (fueled by its purchase of Blue Buffalo), and flat to 1% adjusted EPS growth on a constant currency basis. Those growth rates are slow -- but General Mills' stock looks cheap at 15 times forward earnings, and its high yield should limit its downside potential. 

Tech's new Dividend Aristocrat

Travis Hoium (Apple): Apple is relatively new to paying dividends, but I think it's positioned to be a long-term Dividend Aristocrat. Not only is it one of only a few technology companies with the scale to compete effectively in the global market, but it's also a cash flow machine. 

Apple's business today begins with the iPhone, arguably the most profitable product ever launched. The iPhone is not only highly profitable with each sale, but it also marks the starting point of locking customers into the Apple ecosystem of hardware and software products. The App Store, iTunes, iCloud, Apple Music, and other services add value for consumers, but they make it hard to switch to other devices. From there, iPads, Macs, AirPods, and other products become very attractive, deepening the lock Apple has on consumers.

The business Apple has built ends up being a cash flow machine. Apple generated $62 billion of free cash flow, adding to nearly $250 billion of cash already on the balance sheet. 

AAPL Dividends Paid (TTM) Chart

AAPL Dividends Paid (TTM) data by YCharts

Technology is sure to change over the next few decades, but Apple has the balance sheet and innovative chops to lead the industry forward. With the cash it's bringing in now and the balance sheet strength no company can match, this is a Dividend Aristocrat for years to come. 

Don't underestimate the staying power of this technology bellwether

Todd Campbell (Microsoft): The technology titan was late to embrace the shift from traditional PCs to the internet, but it's made up for lost time. The company's revamped its entire suite of products and services to bring them into the 21st century, and that's translating into significant growth and shareholder returns. 

Microsoft's shares have risen about 86% in the past two years because of its pivot to cloud-based solutions and a subscription revenue model. The ability to access its productivity tools online from anywhere has resonated with employers, workers, and gamers. As a result, sales have marched steadily higher.

In its most recently reported quarter, productivity and business processes sales increased 13% to $10.1 billion, intelligent cloud revenue climbed 20% to $9.4 billion, and personal computing sales rose by a solid 7%, despite the ongoing slowing of demand for traditional PCs. In all, Microsoft's sales improved 12% year over year to $32.5 billion, its operating income grew 18% to $10.3 billion, and its adjusted net income increased 14% to $8.6 billion.

Those results are impressive for a company this big, but there's reason to believe its financials will get even better. Its fastest-growing solutions include Office 365, with commercial growth of 34%; LinkedIn, which grew revenue 29%; and Azure, which saw sales increase 76% in the quarter from one year ago. Its Xbox Live subscription service saw year-over-year sales increase 31% last quarter, too.

Since demand for access-anywhere software is likely to grow, not shrink, in the future, I think Microsoft could be a great stock to own in forever-style portfolios. 

Times have changed

Even five years ago, you may not have thought technology stocks would offer some of the most stable dividends on the market, but that's where we are today. Apple and Microsoft have such large and powerful positions in the economy that it's hard to imagine they'll slip very far at all. That's why they, along with General Mills, are our top dividend stocks for very, very long-term investors. 

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. Timothy Green has no position in any of the stocks mentioned. Travis Hoium owns shares of Apple and is related to someone who works at General Mills. The Motley Fool owns shares of and recommends Apple and Microsoft. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$138.20 (-3.00%) $-4.28
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$232.90 (-1.94%) $-4.60
General Mills, Inc. Stock Quote
General Mills, Inc.
GIS
$76.61 (-1.42%) $-1.10
The Kraft Heinz Company Stock Quote
The Kraft Heinz Company
KHC
$33.35 (-0.63%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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